If you are thinking of starting a food business, or are looking to grow your existing food business, there are a number of things to consider, which will help your business thrive.
Structure considerations for Food Businesses
In this recent edition of our Business Lifecycle Series, we discussed the considerations when choosing the best structure for your business. Getting it right from the ground up is important so you don’t have to undo all your hard work further down the line. If you are only just starting out, there are a number of additional considerations to make. Even if you are running your business by yourself or from home, consider these key questions as you formalise your business processes.
Conduct a thorough product analysis
Understanding what it actually costs to produce the unit of food, understanding your profit margins and what should be included in your costings is crucial to a food business of any size. A thorough product analysis will help you identify which products are making you more margin and which products you should stop producing. This will allow you to focus your efforts on the most profitable products.
Nothing has a greater impact on your business than selling your product at the wrong price. It also helps you to decide at what stage to sell your product. Do you make more money by value adding or do you make more money on some products by an immediate sell? Product costing is specific to your business and by working with an advisor you can start to make choices about your optimal product mix.
Moore Australia business advisors can assist in conducting a thorough product analysis and developing an effective cost structure for your products. Contact us early in the process, to ensure no steps get missed!
Understanding trading terms will help support healthy cashflow
You need to understand how retailer and distributor terms will affect your margins and cash flow.
It helps to understand the cashflow impact of a large debtor extending their terms from 30 days to 60 days. The consequences of extending payment terms (both ways) can be far-reaching. Needless to say, it’s important to keep your commitments, with both suppliers and the bank. Arguably these are some of the most important relationships you will make in your entrepreneurial journey. Relationships are important in any industry, so maintaining good business credit will support your reputation as a reliable entrepreneur and business owner.
Preparing a cash flow and 3-way forecast linking your profit and loss, balance sheet and cashflow projections will help you predict your future cash position and financial health. This will also assist in understanding your working capital requirements going forward.
We are all aware of the importance of supplier and supply chain management and the growing need to hold more inventory. Whether it’s packaging or raw ingredients, investment in increased inventory has an impact on cash flow which you need to account for in your planning.
Check your forecasts or budgets on a regular basis to compare actual figures to your budgeted figures. This will help to analyse what is working and what isn’t and make the necessary changes. Don’t wait until the end of the year!
Hire a trusted accountant as part of your business management team
Having a good advisor on board, combined with a solid strategic plan will show potential lenders that you understand your business. Plan ahead for cash shortfalls and communicate with your bank.
All of these will help you and your advisor to analyse the lifecycle of your business and identify the right time to invest in manufacturing technologies to help decrease the cost per unit and increase your output.
An accountant or business advisor can also help consider whether you are best placed to outsource all your manufacturing or whether there is an opportunity to bring it all in-house. Or perhaps there is a hybrid model that suits your product? Make sure you always challenge the status quo in your business and organisation.
Utilise technology
Using technology can offer great business advantages and bring real time-saving opportunities. For example, solutions which help you to connect with suppliers and customers, track inventory or improve market tactics.
There are great ways to track financial data as well as non-financial data. Google Analytics will show who has visited your website, what they were looking at, how they found your site and whether they bought your product. Financial accounting packages such as Xero make tracking your business’ financial data easy.
However, it is critical to ensure your business has adequate cybersecurity in place. Use strong passwords, pay for virus protection and secure your Wi-Fi. Using professionals to help you implement best practice to protect your company data will ensure you are always looking after the safety of your customers and your business, without having to be an expert yourself.
Access to Government Grants
There are many government grants and support programs available. Although most will only be available to trading companies, it is good practice to research which government support is available to help your growing business and to start gathering the required evidence from the start. Being prepared will help when it comes to the time to submit an application. If you’re not quite sure, or if you would like assistance with your application, be sure to involve your accountant or business advisor early on. They will have a good understanding of the requirements as well as the options available to you.
Succession planning
Perhaps this is one of our least favourite subjects. What happens if you need to step away from the business? The majority of clients in the food industry are privately owned and/or family run. As an advisor to such businesses, Moore Australia works on understanding the family dynamics and how that impacts the business. A strong succession plan not only ensures the sustainability of the business and future success, but also helps maintain family relationships by reducing pressures.
Mary Tressel is the ESG Services Leader at Moore Global. In her recent article ‘Be Broadminded and Look Beyond the Usual Suspects When Choosing a Successor’, she addresses the thorny issues company owners face in attracting talented young staff and promoting leaders in the future. It is important to set expectations within businesses early and determine the best way forward. Bringing in external staff, promoting internally and selling the business are all elements that could be considered.
In all cases, it is important to be having these conversations with your advisors regularly.
Moore Australia’s teams have worked with a large range of clients in the Food industry on these issues. Our role varies from being accountants and advisors to being a member of their advisory board as an independent financial expert who challenges the business owners’ thinking.
Contact us today to find out how we can help your food business thrive in this changing world.