The importance of our food and drink sector to the national economy can’t be overstated.
Whether it’s Scotch whisky being sipped in Japan or salmon being savoured in the south of France, this is one of our largest and most dynamic sectors.
Worth around £14 billion, it accounts for around 25% of our entire manufacturing base and employs more than 45,000 people.
For a sector so reliant on exports, the lack of clarity over the manner of Brexit will undoubtedly be causing concern in boardrooms – as it did in the months leading up to March when we were initially expected to leave the EU.
I think there are important lessons that F&B manufacturers can learn from the non-Brexit though, particularly around working capital management and making sure the business is prepared.
But first, a note of caution about complacency. Businesses shouldn’t think that because Brexit has been postponed once, it will be again. The messaging from the new Tory leadership is clear. This time Brexit will mean Brexit, even if it’s no deal.
So what should businesses do now? And what lessons can we learn?
In the months leading up to March, many manufacturers reported soaring order books as customers stocked up amid fears of chaos at the borders. Many companies were ramping up production and therefore increasing their own holdings of stock – raw materials – which consequentially put pressure on working capital.
It is so important that good disciplines around supplier management and of course ensuring payments are on time, are adhered to.
The danger of increasing working capital is that it nearly becomes the norm and the business never manages to rid itself of that excess.
- Optimising working capital by keeping a close eye on credit control, supply chain and inventory management is a sensible step.
- Ensuring cash is not tied up in debtors or stock, and that the business is getting the best terms from suppliers is advisable.
- On the debtors’ side, you should be proactive by making sure you’re invoicing as promptly as possible, and you have systems in place to chase those invoices down – perhaps even offering discounts for early payment.
It was heartening to see and hear of some really good communication between businesses and their funding partners during this time. I would urge readers to engage with their banks and finance partners in the coming months, if they are expecting to have to ramp up production again, or incur additional costs such as raw materials or in warehousing.
With proactive dialogue, perhaps a loan repayment holiday could be arranged? The last thing a business should do at a time when there could be pressure on working capital is to ignore the issue. Good communication is always recommended to avoid having to go ‘cap in hand’ to the bank when the issue has arisen.
Away from Brexit, it mystifies me that a comparatively small percentage of food and drink manufacturers are making use of a potentially valuable incentive, R&D tax credits. There is an ongoing perception across all parts of the economy that this benefit – which can in some cases deliver seven-figure savings – is just for high-tech, science-focused businesses.
It’s simply not the case, so if you’d like to hear more about how your food and drink manufacturing business can access this tax relief, which can be worth up to 26% of the total project expenditure, please contact me at: firstname.lastname@example.org