Case Study
Manufacturer factors in the best solution to support growth
Cash Flow Finance helps get manfacturer off to a flying start
Following a series of unhappy experiences with poor quality commercial baby food, Melbourne-based parents Beth and Peter Cunningham conceived their very own.
The concept - a range of healthy and convenient baby foods - had all the hallmarks of a commercial success story.
However, it took the flexibility and support of the factoring facility offered by Bibby Financial Services for the concept to take off and for Nurture Group, the company behind the flagship product, to meet their first major challenge: supply Coles and Woolworths supermarkets across eastern Australia.
"I knew that once we signed on with major retailers such as Coles and Woolworths our small operation would be catapulted into the big league," explained Peter.
"With upwards of 300 supermarkets demanding our product, we really needed access to an immediate cashflow to source our ingredients, pay our staff and meet our overheads.
"When developing the business plan, factoring was always top of mind as a finance option."
Factoring is a cashflow management facility that lets a business receive up to 90 percent of the value of its unpaid invoices within 24 hours, subject to credit approval, even if those invoices are not due for 60 days.
When the customer pays, the remaining 10 per cent (minus a fee) is transferred from Bibby to the business. This eliminates the business' need to perform the accounts receivable function and saves management valuable time.
The result is a flexible cashflow facility that is aligned with the business' performance and growth.
"The model presented to us was quite simply the best on offer," explained Peter.
That was just five months ago. Since then, other retailers have come on board and a retired Olympic swimming champion and mother has agreed to be ambassador for The Nurture Group - a marketing coup reflecting the product's integrity.
The company has already reached an annual turnover of about $1.5 million, a figure the Cunninghams expect to double by the end of the year.
After two years in the UK, where Andrew worked as a business analyst, the family returned to Melbourne at the end of 2001 and decided to invest all they had into developing their product.
They sold their two homes, conducted extensive market research and embarked on a hunt to find the machinery necessary to produce mass quantities of Nurture goodness.
In an opportune twist of luck for the young entrepreneurs, Australia is one of the few countries to specialise in food production technology. To ensure "hands-on" and quality control over all aspects of production the Cunningham family relocated near the company's factory.
However, the next hurdle was securing a financier that would support the aggressive growth rates the Cunninghams expected to achieve.
Cash flow finance helped sustain production rates
Having strong, reliable cash flow helped lay the foundations for the business to expand.
"Without the services offered by Bibby we really would not have been able to sustain the production rates necessary to fulfil the initial order, or be in a position to accept later approaches from several other major supermarket chains," Peter explained.
"The security offered by the factoring facility means we are now in a position to honour orders from over 300 supermarkets across Australia, with ease."
Reliable cash flow key to future growth
"In March, prior to stepping into the big league Nurture Group's turnover was negligible. Everything was riding on getting our product accepted by the big chains," Peter said.
"One year on and we are turning over approximately $1.5 million and expect to be in the vicinity of $3 million by year's end."
The Cunningham's ambitious business plan includes achieving up to 200 per cent growth per annum in the first critical year of operation and, so far, it is playing out according to schedule.
And while the factory has the manufacturing capacity to handle projected national demand, the company is looking to extend their production facilities and market reach into the lucrative Asia-Pacific and US markets.
"If we intend to honour substantial orders, pitch for new opportunities and ultimately grow, we need the cashflow certainty provided by Bibby."
The actual names of the entities and individuals in this case study have been withheld for privacy reasons.