The UK drinks market has boomed in recent years. The gin category alone achieved record sales of £2.2 billion in the summer of 2018 according to the Wine and Spirit Trade Association (WSTA), while the whisky market has seen an increase in sales of premium blends of 3.1 per cent.
A plethora of start-up businesses have emerged as a result of this boom and with that comes the need for funding and business support services tailored to the needs of drinks companies.
We spoke to Alan Powell, founder and co-ordinator of the British Distillers Alliance (BDA), to understand more about the specific challenges facing start-ups and SMEs in the spirits production industry and supply chain, especially in relation to managing cash flow.
The BDA was conceived as a conduit between the spirits industry and government, representing the many spirit producers en bloc. It also assists and advises on technical matters. Alan, a former HMRC policy official, recognised the importance of setting up the organisation and supporting new spirits producers who often had no experience or understanding of the very strict excise duty system in the UK.
When it comes to funding, the start-up costs of equipment are the first priority for entrepreneurs in the industry. Once established, with perfected and refined recipes and ingredients, the focus very quickly shifts to sales.
What many start-ups or SMEs don’t realise – and even if they do it still presents a challenge – is that duties have to be paid as soon as goods are available to sell in the UK (‘released for consumption’). From the second a producer is approved to start trading, therefore, cash-flow becomes an issue as a result of the duty; if a company’s payment terms are 30 days, how should it manage this expense up front?
Often, start-up and SME producers find themselves self-funding that tax and getting into debt as they are under-capitalised, Alan explained.
“To comply with tax and other regulatory obligations , they should also have access to the support which enables them to do so, from us at the BDA, from the Government, etc.” said Alan.
“Cash flow management in the form of invoice finance is one of the ways that SMEs and start-ups in spirits production and supply chain can avoid meeting problems with their financial pipeline.”
Invoice finance enables SMEs to access working capital tied up in unpaid invoices and is the most efficient and cost-effective way of unlocking cash. In addition, another element of invoice finance is the outsourcing of credit management function.
The BDA has grown substantially since being founded in 2012 and now has about 180 members who produce spirits, as well as suppliers and other service providers.
Its aims are to promote the interests of members within the spirits production industry; represent members’ interests to UK government and international bodies; provide prompt expert technical and legal advice; encourage exchange of information of mutual benefit to members.