Mark Johnson, director of Johnson Reed Catering Finance, examines the benefits of asset finance to fund catering venue outfits.
In 2015 the UK catering equipment supplies industry will turnover in excess of £1.1bn and with hundreds of potential suppliers and manufacturers competing for this business, it’s likely to be more competitive than ever before.
Business relations, together with product design, innovation and support, will play a significant part in which businesses and brands get the lion’s share.
However, is the industry making the most of a resource that offers numerous and significant operational benefits? If fully understood, this facility should play an even greater part in business retention, development and profitability by providing tax efficient funding for clients and faster guaranteed payment to suppliers.
Utilised extensively by many top businesses and a growing number of SMEs, asset finance has grown 21.4% to £25.4bn since 2009. Specialising in asset finance, Johnson Reed has worked with numerous catering equipment distributors and manufacturers and their clients in various market sectors, specialising in hospitality. These businesses have included QSR operators, cafes and restaurants through to care homes. We have sourced and managed funding for equipment on projects ranging from just £1,000 up to £250,000.
But how does it work? How can it benefit your business and why should the industry be more confident with it and consider recommending it to clients? It’s simple really; for many hospitality businesses, irrespective of type, size and location, the kitchen represents the second largest investment next to the property.
Asset finance enables business owners to fund these major investments over a period of 1-5 years, giving operators security and confidence, even if they suffer temporary cash flow problems. In simple terms it allows a company to pay for an asset with the income it generates and, unlike overdrafts that can be reduced or withdrawn, an asset finance arrangement provides diversification of funding sources.
In many cases the supply of a typical QSR kitchen is between £90,000 and £110,000, and, depending on the location, a hotel kitchen will cost anything up to £250,000. Often, traditional high street lenders remain uninterested or unwilling to become involved with these projects, due to a perceived higher risk and costs to serve.
However, asset backed finance is less risky for the lender, as the asset (the equipment) is essential to the business and therefore there is less likelihood of default.
A recent project completed by Johnson Reed, demonstrating the considerable advantages of asset finance to all parties, involved a catering equipment distributor and its care home operator client. The dealer and client had worked very closely to design fit-for-purpose catering facilities of the highest specification, including extensive kitchen and food management innovation. Value engineering and compromise was considered but quickly dropped in preference to what was the right solution. Asset finance had provided the tax efficient investment required to retain the specification and fund the project over a suitable client specific period.
Working with a provider like Johnson Reed, distributors and suppliers will understand asset finance and how it can provide effective funding solutions for all kinds of business opportunities. From the supply of a single item of equipment to a major project undertaking, finance should not be feared. It could help the profitability of every business.