The call came at Food Manufacture’s Business Leaders’ Forum held in London earlier this month, where delegates noted that many bright entrepreneurs in the sector faced big obstacles in taking their nascent businesses to the next stage of development because of problems in securing financial backing.
The government last year backed the food and drink industry’s plans to grow the UK’s food and drink manufacturing sector by 20% by 2020, seeing it as a significant generator of exports and jobs. But much of that potential growth will come from new small businesses, which are innovative and quick to respond to changing market demands. Without funding to expand, they will not be able to deliver on this promise.
Chairman of the forum Paul Wilkinson, who also chairs the National Skills Academy and on February 1 takes over the chairmanship of chocolate maker and retailer Thorntons, said: “I see no reason why responsibility for the Entrepreneurs’ Fund could not be shared between government and the private sector.
“The Department for Environment, Food and Rural Affairs [DEFRA] could launch an Entrepreneurs’ Fund, which would provide matched funding for any start-up or expansion up to £5M per project, with a minimum £1M.
“The corresponding cash would have to be equity risk capital sourced from either secured lending by the banks or individuals. The investors would have Enterprise Investment Scheme relief and the owner shareholders entrepreneurs’ relief. DEFRA could have shares in ‘Newco’ (but no voting powers), so benefit from any value created.”
Wilkinson noted, however, that the investment committee, which decided the allocation of funds, would have to be empowered and review proposals quickly. Companies receiving funds would also have the right to repay the DEFRA equity at any time.
The precedent for providing some sort of financial support for small businesses in the food and drink sector has already been established. David Thomson, chairman of brewer Marston’s, explained how the ‘progressive beer duty’ had helped establish a thriving microbrewery sector in the UK. “The craft beer sector in this country has come from really nowhere to being over 5% of total beer production,” said Thomson. “So government can do something to help small businesses.”
In a separate move, Mark Lynch, a director with small dairy firm Windyridge Cheese and partner with Ogmha Partners, a corporate financial advisor to the food and drink sector, reported on a new project designed to improve the access of small firms to cash.
“I see all the time people who are looking to build their businesses and looking for finance,” said Lynch. “There is a team at the moment looking to put together a project to try and raise a fund to help people at that lower level. The problem with these funds, typically, is getting a decent return on the money to make it worthwhile to run them. But I think there is evidence out there.”
The problems facing small businesses were echoed by a number of other delegates.
Mike Stevens, director of Peppersmith, a small confectioner which was set up just three years’ ago, highlighted the problems new businesses face: “There is a real problem with innovation attitude in this country. We are a small business and we outsource pretty much all of our manufacturing and we outsource it to continental Europe.
“That has happened, not because we haven’t been looking to source within the UK, we certainly have. But I have been disappointed so many times by things we can’t find.
“On the Continent people seem to help. We get a much better service and, importantly, they are happier to deal with us.”
Richard Hallet, who works for Grant Thornton and is also a food manufacturing specialist with the Manufacturing Advisory Service, said: “It is really difficult for innovative entrepreneurs to take that next step. There is a shortage of production facilities; there is shortage of business support and we have got very innovative, small companies that are really struggling to step up. We need to do something to harness that innovation.”
A video interview, with the host sponsor Stephenson Harwood – is available here. The annual event was also sponsored by business improvement specialist Applied Acumen and recruitment expert Goldteam.
Watch out for more reports from the Business Leaders’ Forum in next month’s issue of Food Manufacture.