Cashflow misery

Discussion in 'Accounts & Finance' started by 10cclo, Aug 5, 2019.

  1. 10cclo

    10cclo UKBF Newcomer Free Member

    9 0
    Don't be put off by the title, (Couldn't think of anything else) our business is going through the roof. The issue is we cannot keep up with the weekly cashflow requirements.

    We are a newish fast-food delivery business that operates across the UK. We launch in areas that don't have any competition from the major players like UberEats.

    These areas are crying out for a business that can bring them fast food from the likes of KFC and McDonalds, so consequently, we are having to massively pre-load our driver payment cards to keep up with demand.

    We could launch 1-2 new areas per week but if the last few are anything to go by we couldn't afford to do it. We need a cash flow injection but cannot get any form of loan or finance, which is a mystery as we have pretty decent credit history from all the major CRAs.

    A bit stuck really which is a shame as we could go very large very quick with some decent capital behind us.

    I should say our EBITDA percentage net profit is around the 14-19% mark.

    Would love some sage advice and guidance.
     
    Last edited: Aug 5, 2019
    Posted: Aug 5, 2019 By: 10cclo Member since: Aug 5, 2019
    #1
  2. bodgitt&scarperLTD

    bodgitt&scarperLTD UKBF Regular Free Member

    132 43
    So your driver collects from McDonalds and take it to a customer, who then pays him? An you make almost 20% every time this happens?

    Where's the cashflow issue?
     
    Posted: Aug 6, 2019 By: bodgitt&scarperLTD Member since: Nov 26, 2018
    #2
  3. 10cclo

    10cclo UKBF Newcomer Free Member

    9 0
    Firstly the drivers get paid their delivery fees on a Monday for any done in the previous week.
    The money that then comes back from orders doesn't arrive until the back end of the week following the launch weekend, I'm always having to juggle cash around.

    The Cashflow issue comes from when I want to launch a new area I need to :
    1. Pre advertise on Facebook and Instagram
    2. Send equipment to the drivers
    3. Pre-load the payment cards to cover the launch weekend (Usually £2k+)

    Im also needing to undertake some platform and app improvements which are going to cost upwards of 6-8k
     
    Posted: Aug 6, 2019 By: 10cclo Member since: Aug 5, 2019
    #3
  4. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Ace Free Member

    1,443 371
    How new is the company?
     
    Posted: Aug 6, 2019 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #4
  5. Ian J

    Ian J Factoring Specialist Full Member - Verified Business

    5,271 1,508
    This is a business model that I haven't come across before. Who is your customer - McDonalds or the consumer?

    If it's the fast food company then factoring may be a possibility but if it's the consumer then I'm afraid factoring won't work
     
    Posted: Aug 6, 2019 By: Ian J Member since: Nov 6, 2004
    #5
  6. Mr D

    Mr D UKBF Legend Free Member

    15,489 1,707
    So slowing down launches in order to build a cash reserve is possible?

    It appears from what you have said the problems are multiple. Time to get payment, having to load cards in advance, too low a fee and expanding too fast.
     
    Posted: Aug 6, 2019 By: Mr D Member since: Feb 12, 2017
    #6
  7. MBE2017

    MBE2017 UKBF Enthusiast Free Member

    920 239
    Why not payment in advance direct from your end customers?

    I had a similar problem twenty years ago launching a cheap domestic phone service, no money to pay the salespeople until a couple of months after the client started. I got around it by requiring the end client to open an account with £25 minimum balance, to be issued as a credit on their account.

    In effect I used their opening fee to pay for their acquisition. Worked fine.

    You could also require your drivers to pay the cash into your bank account start of each day, rather than waiting a week for the money.
     
    Posted: Aug 6, 2019 By: MBE2017 Member since: Feb 16, 2017
    #7
  8. 10cclo

    10cclo UKBF Newcomer Free Member

    9 0
    Incorporated 27th Feb 2018 but didnt start trading proper until Oct
     
    Posted: Aug 6, 2019 By: 10cclo Member since: Aug 5, 2019
    #8
  9. 10cclo

    10cclo UKBF Newcomer Free Member

    9 0

    The consumer is the customer, we buy direct from the restaurant and mark up our prices, so yes factoring would be no good
     
    Posted: Aug 6, 2019 By: 10cclo Member since: Aug 5, 2019
    #9
  10. 10cclo

    10cclo UKBF Newcomer Free Member

    9 0
    Yes I believe that is what we have to do, we have our hands full with the 10 areas we are in right now and launching new areas would just compound the issue. Its a shame though as we are missing great opportunities :(
     
    Posted: Aug 6, 2019 By: 10cclo Member since: Aug 5, 2019
    #10
  11. 10cclo

    10cclo UKBF Newcomer Free Member

    9 0
    This wouldnt work for us, customers make immediate purchases, There is no cash involved, all of our purchases are made upfront via the customers via card
     
    Posted: Aug 6, 2019 By: 10cclo Member since: Aug 5, 2019
    #11
  12. Mr D

    Mr D UKBF Legend Free Member

    15,489 1,707
    So you miss great opportunities for a few weeks. You also then decrease the risk of insolvency and improve your ability to cope with opening new areas.

    Not suggesting you delay a couple of years unless that is what is needed. Just delaying a few weeks should allow some sort of reserve to be built up in order to expand.

    Way too often have seen expansion outstrip cashflow. Some of those companies, with great product and great staff, have gone under as a result of expansion.
     
    Posted: Aug 6, 2019 By: Mr D Member since: Feb 12, 2017
    #12
  13. 10cclo

    10cclo UKBF Newcomer Free Member

    9 0
    Definitely agree 100% this is what we need to do. We still have the issue of paying for the software improvements though, this is where a small chunk would help rather than trying to take it from Sales revenues
     
    Posted: Aug 6, 2019 By: 10cclo Member since: Aug 5, 2019
    #13
  14. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Ace Free Member

    1,443 371
    For the relatively small amounts you're talking about for that, you should be able to secure some kind of funding for that. Depending on who you're paying of course.
     
    Posted: Aug 6, 2019 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #14
  15. 10cclo

    10cclo UKBF Newcomer Free Member

    9 0
    Hoo believe me Ive tried all avenues and cannot seem to get a penny. Banks not interested, no grants or government funds out there. Too small for investors so and so forth. I could probably get "Sub-Prime" lending at a ridiculous APR but I would like to exhaust all other avenues before I go down this route, if at all
     
    Posted: Aug 6, 2019 By: 10cclo Member since: Aug 5, 2019
    #15
  16. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Ace Free Member

    1,443 371
    Sounds like you have exhausted them all already.

    No, you could get soft-asset rate lending at a completely reasonable APR which reflects the level of risk taken by the lender.
    On £8,000, even a difference in rate of 5% isn't really that much money. You pay the rates that are aligned with what you're proposing, or you don't do the thing. How do you value the opportunity cost to make it comparable with the rate of lending?
     
    Posted: Aug 6, 2019 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #16
  17. 10cclo

    10cclo UKBF Newcomer Free Member

    9 0
    Ive never heard of soft asset lending plus we dont really have any assets to speak of as we are a software company but if this is not what its about then Im Happy to look at this
     
    Posted: Aug 6, 2019 By: 10cclo Member since: Aug 5, 2019
    #17
  18. Gordon - Commercial Finance

    Gordon - Commercial Finance UKBF Ace Free Member

    1,443 371
    Software = a soft asset.

    A soft asset is one which doesn't have resale or residual value, and cannot be repossessed in the event of a default. Thus, soft asset funding is done at a higher rate because it is effectively unsecured.

    Whether or not you can get soft asset funding for what you are proposing depends greatly on how you are looking to invest this money. Are you looking for £6-8k to pay yourself while you redevelop your own product? Or are you looking to purchase a package of software or an add-on to existing software from a third party supplier or platform?
     
    Posted: Aug 6, 2019 By: Gordon - Commercial Finance Member since: Jun 26, 2017
    #18
  19. Mark T Jones

    Mark T Jones UKBF Big Shot Full Member

    3,249 947
    If you’ve been trading less than 2 years Start Up Loans might be able to help

    If it’s been trading more than 2 years, try Funding Circle
     
    Posted: Aug 6, 2019 By: Mark T Jones Member since: Nov 4, 2015
    #19
  20. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,419 2,108
    Sorry I dont get it, the customer pays you the full price plus your markup by credit card so you have the money straight away, you just keep the drivers card topped up as needed out of this money

    Assuming your card company only takes a short time say three days to pay into your bank, where is the problem

    Have you negotiated a special price with the food suppliers as your giving them all this number of sales
     
    Posted: Aug 6, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #20