Cashflow misery

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

  1. Financial-Modeller

    Financial-Modeller UKBF Regular Full Member

    338 91
    From what you have said, you have an good business model.

    You fund a pre-payment card with GBP2k, pay for advertising and send the driver a tracking device.

    A customer orders food to be delivered and pays for it immediately. You get the money a few days later. You pay the driver on a Monday, so at that point you have been paid for roughly half of customer orders, so you are also funding half of the driver's weekly cost.

    It would seem straightforward to calculate that evry time you have GBPx, you can expand into a new area by funding more drivers.

    You are proud of your EBITDA margin of 14-19%, but it sounds like your platform and admin costs might exceed it, which is causing problems.

    Your competitors (UberEats, JustEast etc) sign suppliers to their platform and charge those suppliers a significant commission, and then pay those suppliers their net share later, enjoying the cashflow implications that you are currently struggling with.

    You say that you target areas where your competitors do not operate, and I would suggest that the important omission is the word 'yet'. This is because:
    • they do not perceive sufficient demand to do so - which your experience would seem to refute - and/or
    • they consider that the time spent negotiating with suppliers is better spent elsewhere at the moment
    If and when they move to your areas it will be difficult to protect your business as you have little control over product or pricing.

    With very limited info provided, I would suggest that your priority should not be expanding into new geographic areas, but:
    1. protecting the areas that you already have
    2. increasing control of your market (suppliers, data and transactions in addition to customers) by persuading suppliers to sign terms with you, reducing the liklihood of them immediately signing to your larger competitors when the time comes, and
    3. sharing revenue with the suppliers so that you are making margin on both the food component and the delivery component, and controlling the transaction (and the data) between your customer and your supplier

    TLDR - if you change your model slightly and increase your margin by sharing the food component, you could eliminate your cashflow misery and create a stronger and more resilient business.
     
    Posted: Aug 6, 2019 By: Financial-Modeller Member since: Jul 3, 2012
    #21
  2. Talay

    Talay UKBF Big Shot Free Member

    3,780 787
    Every food delivery model that works has the intermediary taking a cut from 3 or 4 sources:

    1) from the restaurant as a faxed fee plus percentage or simple percentage
    2) from the customer who pays more than the in restaurant prices
    3) from the customer via a delivery charge
    4) forcing the restaurants to use the delivery company's branded containers which are chargeable

    But like others, I don't see where the problem is if the customers pay up front. I suspect the problem is that the business doesn't generate enough cash to cover the advertising and operational spend and never will.
     
    Posted: Aug 7, 2019 By: Talay Member since: Mar 12, 2012
    #22
  3. Chris Ashdown

    Chris Ashdown UKBF Legend Free Member

    10,431 2,109
    I assume there is a minimum spend for your orders
     
    Posted: Aug 7, 2019 By: Chris Ashdown Member since: Dec 7, 2003
    #23
  4. Neil Lukins

    Neil Lukins UKBF Contributor Full Member

    46 4
    Have you thought about Merchant Cash Advance?

    Basically you can get a loan of 125% your avg monthly card receipts.
    So if you are taking 10k per month you can get a loan of 12.5k.

    There is no monthly repayment to worry about as you pay it back everytime you take a card payment. The repayment is anything between 10%-20% everytime you take a payment.

    As the business grows so will your card takings, therefore you can increase the loan or top it up.

    Keeps your cashflow moving and could help you grow.

    Happy to work with you to get something in place

    DM me or email me if interested.

    [email protected]
     
    Posted: Aug 9, 2019 By: Neil Lukins Member since: Sep 7, 2017
    #24
  5. Sparx

    Sparx UKBF Regular Free Member

    492 112
    Why don't you pay your drivers the Wednesday or even Friday after? Basically pay them in arrears, isn't this fairly common in most places anyway?

    I know for a fact Uber pay their drivers the following Wednesday of the Mon-Sun week. Also Just Eat pay their drivers the following Friday for the week prior too.

    Surely that would help your cashflow?
     
    Posted: Aug 9, 2019 By: Sparx Member since: Sep 16, 2010
    #25
  6. Mr D

    Mr D UKBF Legend Free Member

    15,606 1,719
    Maybe not change things for existing drivers but all new drivers?
     
    Posted: Aug 9, 2019 By: Mr D Member since: Feb 12, 2017
    #26
  7. GFI

    GFI UKBF Newcomer Free Member

    25 4
    I was going to suggest exactly the same - a movement of driver payment day would have a significant impact on the cashflow issue : )
     
    Posted: Aug 12, 2019 By: GFI Member since: Jan 30, 2019
    #27