News and Features
Food business and what it takes A view from Alan Stone, Group Marketing Manager, Old Mill accountants and financial advisers. As a marketing person working in an accountancy based company he says it is fascinating to see how both these disciplines are essential for helping food businesses develop and prosper. When looking for sound financial advice it is important to deal with someone who really understands the food and drink industry. With over 1000 businesses in these sectors, Old Mill accountants and financial advisers are one of the leading practices in the West Country, with offices in Shepton Mallet, Yeovil and Exeter. The company looks after food manufacturers ranging in turnover from a few thousand pounds to tens of millions of pounds, as well as a good number of the farm shops in the region, some represent only a small part of a farming income others are now multi million pound businesses – some of the largest, independent, non chain food stores in the country. An industry with a large turnover of businesses At Old Mill we try to pride ourselves on keeping our prospect mailing lists up to date. The sector where we have the biggest problem is with food businesses. Many mailings get returned ‘addressee gone away’ – the business is no more. What is it about food business that leads to such a high failure rate? The biggest problem is with new businesses setting up. Often new businesses don’t ever get established. Frequently businesses are based on a ‘good product’. Someone has a wonderful food product, local ingredients, tastes fantastic – it is bound to sell well and make a fortune. A classic example of this was when an excited husband phoned me about his wife’s new business with home made cakes. When I eventually spoke to the wife it seemed she was less enthusiastic – her husband had based the business on the fact that some of her cakes had sold well at a local fete and although she didn’t mind baking she had no idea of the business aspect at all. These businesses often start without an business plan, without finance and perhaps most critically they have not identified the ‘routes to market’. There is an assumption that a local farm shop will take them – despite the fact they already have suppliers for similar products. They have not realised that a farm shop will want to take a margin. They think they might make money at a farmers market (yes really that naïve) but haven’t realised how much they will need to sell each week to cover costs let alone to be able to pay themselves. Cottage food businesses that have become established start facing even more problems when they decide to ‘kick on’ and grow. The more commercial they come the more costs seem to rise - equipment, packaging, marketing brochures and flyers. Reducing margins as a wholesaler takes their chunk – but never seems to actually do a lot about finding new outlets. What are the key factors for success? Yet new businesses do become established and grow. What are the key factors that can be seen in those that succeed – or is it just luck? No – there may be an element of luck but some far more important factors come in to play.
The end plan
One of the surprising truths of the food business is that despite the relatively low barriers of entry for new businesses there is a healthy market for successful food companies. An established brand or product potentially has value. So too does the good will of established customers and outlets. Potential purchasers can include larger companies or new entrants who perhaps are using a career change to buy an established business. Obviously selling your business is an area where the expert advice of an accountant with corporate finance experience is absolutely essential to ensure you capitalise on the one off opportunity. Advice as to how to minimise the tax payable and invest your profits is another important part of our business at Old Mill. Beware of marketing costs
This may seem a very strange thing for a Chartered Marketer who genuinely believes that marketing is the driving force behind successful business growth to be saying. However in food businesses in particular I have seen some shocking examples of business listening to what marketing consultants say without regard to cost effectiveness. The new logo and brand image. Brand is very important – indeed vital. But that doesn’t necessary have to be expensive or glossy. Telling a designer what you want and paying them by the hour can save a fortune to start with. Then businesses have a habit of losing patience with their first consultant and moving to another who immediately wants a re-brand. Don’t necessarily believe them – your existing clients may well like your existing brand. The cost can be astronomical and achieve little. Believe in your own product – evolution of a brand is far more cost effective. It is important to realise that many consultants receive a percentage of the cost of the design and print work whether you realise it or not. There are another couple of related areas that can be similarly expensive. Changing of pack size. The costs of new packaging, new artwork, new labels etc can be huge – are you actually going to sell enough extra to justify it? New products / broadening the range – new artwork, packaging, equipment, labour – is it actually going to add profit to the business. This is not to say don’t do it – but just to make sure you have carefully looked at the issues in advance, planned and costed out – the accountants approach. As for brochures! A fortune gets spent on designing and printing brochures and flyers. Who looks at them? Are they cost effective? How many do you need? An extra 1,000 may only cost £200 but is that £200 straight off your profit line? How quickly will they go out of date? Answer these questions first. Websites – people generally have too high expectations for them - however they can be an important part of the marketing mix. These days there is no need to pay more than £200 - £500 for a really good web site of a good size and quality with online shopping. I have heard some horror stories of the amount some web companies charge. A good alternative is to be a part of a site like this one, marketed directly at food and drink lovers across the county and attracting browsers as well as those specifically looking for your business. Involvement in features can often deliver better results than direct advertising.
Food businesses in a recession
There was another doom and gloom prediction this morning. Experts are now predicting, horror, that the UK economy may shrink by 0.9% next year! Perhaps these are frightening times – but 0.9% reduction overall is hardly a total meltdown of society as we know it. At times there is a real need to put things into perspective. People are still going to be eating – and there is an argument that says if they are spending less on some bigger purchases they may well be spending just as much – or more on better quality food. Yes there will be plenty of horror stories as some firms go bust – or cancel contracts. Though the recession many often be the excuse for a business with an inherent weakness – or something that had not been going so well anyway. There will still be opportunity. However the message of the whole of this article has been about good sound business practice, planning a way forward and justifying expense. In an economic down turn there is an even greater need to pay attention to this. The element of luck will reduce even more. Act smarter – a proactive accountant who understands the business can play a big part in helping you to do this. Alan Stone Group Marketing Manager Old Mill accountants and financial advisors 01749 343366
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