How Invoice Finance helped build a brewery - £50,000 funding to scale a brewery
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Alcohol sales are down - but craft beer sales are very definitely on the rise. Microbreweries are continuing to open around the country and can grow into successful businesses in a very short space of time.
At Rangewell, we work with several microbreweries who have discovered that they needed funding as well as a passion for their product to achieve that kind of growth.
Many brewers often start brewing in their kitchen - but putting a winning brew onto a commercial basis will require investment. A mash tank, lauter tun and fermentation tank, pumps and heaters, casks and bottling equipment, and suitable premises may all be required to brew beer.
It is entirely possible to brew a craft beer in small batches for as little £5,000, but costs will rise as the size of vessels – and batches produced – grows. A £10,000 installation might produce around 400 litres of beer. A 12-barrel brewery, producing 2,000 litres or more, could cost £50,000 to £80,000.
Funding this kind of investment from your turnover may be impossible. The profits are restricted by the scale of production - and never grow large enough to fund a larger scale of equipment.
However, the real issue may actually be cash flow, when your operation is selling in sufficient quantities to generate a profit but customers are slow to pay for it. Large retailers, in particular, with long payment arrangements could leave you short of the funds you need, not just to grow, but to operate your business and even to fund the next production batch.
This cashflow issue had become a major problem for a brewery that we recently worked with.
“We had plenty of people keen to stock our beer, but the more we sold, the more cash we seemed to need to run the business.”
When the business started out and was delivering kegs to local pubs and bars, payment was often in cash on delivery. As demand grew and they began bottling, they had to put the operation on a more businesslike footing.
They started building relationships with customers and issuing invoices.
“The bars we were already supplying settled our invoices fairly quickly. But when we started selling dozens to bars in larger towns nearby and becoming a guest beer, we were working on the same basis as big brewers - which meant we had to wait to get paid.”
The business simply did not have the necessary cash reserves to cope with this delay.
“It’s not the ingredients - water, barley and hops are not high-cost items. It was the overheads and the staff costs, since we’ve had to take on a couple of people. Plus we wanted to bring in some new vessels to up our production - and could not scrape together the money.”
The problem became serious when an upmarket retailer became interested in stocking the brewer's beer. The size of orders would be enough to need more equipment capable of producing bigger batches, but the payment terms would mean no income to fund operations, let alone expansion.
The brewer approached us to discuss a loan to pay for new vessels and support cashflow. We saw that a better solution could be an Invoice Finance arrangement.
This would provide cash advances based on the value of every invoice issued, without waiting to be paid by the customer. We arranged £50,000 funding - providing a little more than the client currently needs, but offering scope for growth.
“We get paid as soon as we invoice. So the more we brew, and the more we sell, the more cash we have.”
Instead of waiting for your customers to pay, which can be a major delay with large retailers and supermarkets, Invoice Finance can mean getting paid as soon as you make a delivery.
It avoids cash flow problems with instant cash rather than waiting weeks to get paid. By ensuring cash coming in always keeps pace with products sent out, it can help ensure you always have the funds you need to support your growth.
We believed the best answer for our brewery client would be best served by an Invoice Factoring arrangement.
With Invoice Factoring, you send a copy of the invoice to the finance provider as well as your customer. The finance provider will buy the debt from you and pay you a percentage - usually 85% - right away. They will then collect the full amount directly from all your customer. It means outsourcing all the activities of credit control, freeing up your time for your core business.
Once the finance provider has received the money they will send you the remaining balance, less their interest charges and fees. Your customers will know your business is using Invoice Finance, but you will have the advantage of highly professional credit management, with collection and credit checking at no extra cost to your business.
We found a lender with experience in the microbrewery sector which could offer the most cost-effective rates.
“Our cash flow problems were over - and we had the funds we needed to bring in new equipment. It has helped us grow.”
At Rangewell, we work closely with our clients to understand their needs before we recommend a particular type of finance. If you are thinking about an Invoice Finance solution, talk to our experts or apply today. Our service - and their expertise - is absolutely free.