The Business Finance Guide spoke with Dean Dempsey, founder of Naturelly, an award-winning healthy snack business, that overcame working capital challenges early on in its business finance journey.
With 15 years’ experience as a marketing agency leader for big FMCG brands like Heinz and Red Bull, Dean has always had an interest in food and drink. When Dean and his wife Joanne struggled to find suitable healthy snacks for their children with food allergies, they spotted a gap in the market for more products that were allergen free, as well as low in sugar and calories.
What makes Naturelly unique?
A simple concept, Naturelly is a heathy jelly made from natural fruit juices, water and a special gelling agent made from Lily Plants called Gellan Gum, a natural source of fibre commonly used in sports gels as it aids endurance.
It’s packaged up in a pouch, which makes it great for on-the-go snacking and, because of ingredients like Gellan Gum, it keeps kids satisfied for longer and can help reduce sugar cravings.
Naturelly launched at the Speciality & Fine Food Fair in 2015 and within a month it was being stocked in Wholefoods before listing in Boots a short time later. Since then, it’s been on a mission to become a brand that’s trusted by parents and children alike, culminating in being named Best Children’s Snack in the Loved by Parents Award in 2017 and the Loved by Children Award in 2018.
Those awards are testament to Naturelly’s customer first approach, but that same approach also brought with it its own challenges early on in the business’ journey. We take a look at how this successful business tackled working capital challenges.
Dean Dempsey, CEO, Naturelly: “I’m a marketeer, not a finance guy. Because of my marketing background, I was very focused on the Naturelly brand – getting exactly the right product to our target audience and promoting it in exactly the right way.
“Looking back, this caused a number of challenges as we simply did not understand the impact that working capital has on a business’s ability to adapt and to grow. In the early days, we spent too much of the investment money on marketing and trade shows to get the listings. Then when we actually got listings, the investment money was running low.
“Working out the balance of how much we were paying out versus what we were selling was difficult. For example, we had 40,000 pouches of each three flavours filled by our co-packers but 150,000 of each SKU had been printed, so we had to pay for 450,000 pouches and 40,000 of each flavour fully produced when the invoice was due.
“Of course, we had these products made in advance of orders. So, when we had a sale for only 3,000 items at the very beginning, we still had to cover the costs of the 111,000 that were filled but were yet to sell and a further 441,000 pouches unfilled but ready to go once orders come in.
“The money gets drip fed into you in terms of sales, so you have to fork out a lot in terms of the initial production. In that cycle you’ve got to order the ingredients and store them so there is a lot of capital tied up in stock. That is what prevents growth. If you’re doubling up on sales, you have to produce more, but you don’t always have the working capital available to do that.”
Finding the right funding
To tackle those financial challenges, Naturelly successfully applied for a loan and received £25,000 from Start Up Loans.
The loan enabled Naturelly to cover production costs required to sample at trade shows, like the Speciality & Fine Food Fair where Naturelly’s business really got going, culminating in a dream listing in Sainsbury’s in 2018 – around three years after its journey began
Second stage funding and the path to growth
Following its Sainsbury’s launch, Naturelly applied for and, at the end of 2018, received an Enterprise loan from The Start Up Loans Company.
As the stock list for the company was increasing, the loan provided Naturelly with the necessary working capital to manage the growing pressures on its supply chain.
Mixing equity and debt
As the Naturelly brand has developed, so has the way the business is funded. Alongside its loan facilities, Naturelly has secured £400,000 in private investment.
Dean explained the approach: “In the early stages, loans worked well for us as a business. However, as our brand equity has grown, the cost of sales has grown too, and therefore so has our need for working capital and liquidity. We realised the need to balance both equity and debt finance – and it is this balance that has allowed us to grow at the rate we have”.
“I would definitely recommend getting the right financial advice in the early days, especially if – like us – your expertise is in sales and marketing, and not in finance.”
Naturelly pouches are now sold in Wholefoods, Sainsbury’s and Ocado nationwide as well as on Etihad airlines. The business has also recently launched a new range of Naturelly pots, which are available in Holland & Barret and Ocado.
Next year, Naturelly plans to launch two new flavours – Strawberry and Banana – which will feature in Naturelly’s Sporty range while Wild Cherry pots will be available nationwide.
“We are extremely keen to keep developing new flavours as we grow. We are also looking to launch a brand-new range of fruit snack bars in the next year. So, lots of exciting times ahead!”
What is an Enterprise Loan from the Start Up Loans Company?
An Enterprise Loan or Second Loan is available to businesses who have already secured a Start Up Loan and have been trading between six months and two years. It gives businesses the cash needed to continue their journey, whether that’s to buy a new piece of equipment, expand into a new market or develop product lines.
Finance at every stage
Business financing is not a one-off decision, but an ongoing and evolving situation. No decision can be made in isolation to the businesses journey. Find out more about what options are suitable now and what might work at another stage.
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