How Scotland’s food and drink start-ups can find investors

If you're launching your own food and drink venture, you need to keep your cool to successfully secure funding in a sector that's generating plenty of heat, says Matthew Allan of chartered accountants and business advisors AAB.

Ellon-based Brewdog has had great success with this model through its Equity for Punks scheme

Fundraising for start-ups or early-stage companies has always been challenging, as anyone who has seen the plucky contestants enter TV’s Dragons’ Den would agree.

However, with a high number of food and drink companies emerging each year, the competition to secure investment is becoming even more challenging.

There is no doubt that Scotland has developed a fantastic infrastructure to help nurture entrepreneurs in this sector, but securing investment to take the business from an idea to a profitable business is something that requires more than just luck.

Several factors will determine whether fundraising is successful, but there are four key areas:

? Business plan – having a clear vision of how to execute objectives, devising a realistic timetable and assigning who is responsible for the deliverables required.

? Funding requirement – identifying the quantum, nature and timing of the funds needed to create a realistic and robust cash flow forecast with built-in sensitivities is essential.

? Target market – knowing who your intended customers, market or sector which will use your product or service are.

? Management team – establishing a credible team to deliver the plan and to source outside expertise to fill any skills gaps.

One of the biggest challenges for early-stage food and drink firms is the ability to demonstrate a commercial return for their product or service, for example, who, when and how much is someone prepared to invest, and will this deliver an attractive return.

This is not a case of questioning whether or not the idea is a good one – it is whether it has the potential to generate a profit.

Thankfully, we are seeing a steady flow of completed fundraising projects and there are many investors currently looking for new opportunities.

Funding options

As well as this more “traditional” approach to fundraising, the rise of digital platforms has made it possible for businesses to raise finance directly from their end customers.

Crowdfunding has grown in popularity in recent years and become a go-to solution for new and existing businesses. If your business is considering it as a finance option, there are some crucial points to consider before embarking on it.

Firstly, understanding crowdfunding and its implications is key. Traditionally, the finance of a new business, capital project or specific event requires a business to approach a small group of investors for a large sum of money, while crowdfunding targets a large number of investors to each invest much smaller amounts.

Through the internet, a business can reach its end customers and those potentially interested in their offering and ask for investment while providing incentives for doing so.

These incentives may include the purchase of equity, so loyal customers can watch the value of their shares grow – Ellon-based Brewdog has had great success with this model through its “Equity for Punks” scheme – or they could simply offer the opportunity for stakeholders to donate to a cause they care about in exchange for future rewards.

The benefit for the business undertaking the crowdfunding is the opportunity to receive the funds with minimal or no short-term cash repayments. The brewing sector has been pioneering in its use of crowdfunding, and offers good examples of it in action, as its customers have wholeheartedly supported its efforts.

In the last year, Brewdog’s latest round of funding brings the total raised through Equity for Punks to over £80 million, allowing the craft beer giant to expand capacity and increase its international reach.

Similarly, Fierce Beer raised £121,000 to open a brewery bar in Aberdeen city centre and the Northern Monk Brew Co. and St Andrews Brewing Co. raised £1.4m and £600,000, respectively, to expand production. Loch Lomond Brewery also took this approach, raising an initial £550,000 to double its production and begin working towards a move to a brand new brewery and visitor centre by next year.

With results like these, crowdfunding appears an attractive proposition. However, there are some key issues to consider, such as having the cashflow to make repayments if necessary, the risk of reducing control of the business by diluting your shareholding, or the rewards offered to investors having an unplanned VAT impact on the business.

These are just some of the issues businesses need to consider before deciding if crowdfunding is the right approach for them to grow and develop. Engaging early with professional advisors in any area of funding is essential. Their experience and expertise can guide businesses through the process and they will be able to advise on the best approach, at every stage of the business life cycle.

Protecting whistleblowers within the industry can boost food safety

Today’s food and drink sector is one of the largest and most important areas of economic productivity in almost every country in the world.

With expanding consumer demand, businesses can naturally be exposed to unsafe and illegal practices within their organisation, adds Derek Mair, partner and head of food and drink at AAB.

Such practices have seen an increase in food recalls triggered by greater consumer awareness and increased regulation about the safety of foods. This has resulted in many businesses introducing measures to protect their businesses and enhance their food safety programmes.

To combat unethical practice, many businesses have instructed their suppliers to provide them with assurances by obtaining a standard in global food safety such as the BRC Global Standard. The BRCGS for safety is a certification standard for compliance to industry best practices.

As recently documented in version 8 of the BRC Global Standards, an essential component is the assurance that businesses introduce three key processes including a confidential reporting system to enable staff to report concerns relating to safety, integrity, quality and legality.

In addition, the whistleblowing mechanism for reporting concerns must be clearly notified to staff to ensure they understand the confidential reporting process. Finally, companies’ senior management shall have a process in place for assessing concerns, recording assessments, and where possible details of actions taken. 

A robust whistleblowing solution is one of the most effective means to deter wrongdoing in an organisation. These standards provide a much-needed steer for directors and senior management to move food safety and the fight against unethical practices up their corporate agenda.

It is vital to the success of any whistleblowing programme that staff are aware of their protections under relevant legislation and feel comfortable about speaking up.

In the UK, the Public Interest Disclosure Act protects whistleblowers from detrimental treatment if they expose wrongdoing.

The UK Food Standards Agency applies the same level of protection to personnel who disclose a qualifying disclosure such as a criminal offence, a breach of a legal obligation or a danger to the health and safety of any individual.

AAB has experienced a significant increase in implementing confidential reporting systems, which is now a requirement for all BRC accredited sites, and our experienced team notes a number of steps required to ensure a whistleblowing system is effective in the workplace. These include the importance of making it clear to staff who come forward that they will be supported and protected from reprisals. It is also important that businesses provide employees with a mechanism to raise a concern in confidence in case they do not want their identity to be disclosed without their prior consent.

Businesses also need to ensure whistleblowers receive adequate feedback and support when they raise a concern. Additionally, all staff should be provided with training on the importance of whistleblowing and their protections under the legislation.