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Managing Cash Flow for a Low-Capital Food Hub Start-up

Starting a food hub is a capital-intensive process. What should a manager do if adequate start-up money is not available? It is often assumed that starting a food hub is a capital-intensive process requiring large investments in infrastructure, transportation, logistics and personnel at the outset. While grants or loans can provide start-up funds for a new food hub distributing fresh local produce, in many cases these resources are not available. Grants for a new business can be hard to find, and most financial institutions are not willing to lend to start-up operations, especially those that sell perishable food items. Fortunately, there' s hope. For the Iowa Food Hub, experience has shown that food hubs can be started with very little capital if their managers pay close attention to cash flow. This publication investigates how new food hubs can grow successfully under money constraints if cash flow is managed strategically. Cash flow is the movement of money into or out of a business. For a business owner, cash is the amount of money that the business has in its bank account and on hand – that is, how much money the business has available to spend at a given time, without incurring additional debt or selling something. Selling goods or services creates positive cash flow (money moving into the business), but not until the business actually receives money from the customer. Likewise, if the business incurs an expense, it will only experience negative cash flow when it pays the bill for the expense. Thus, the flow of cash and the flow of products for a food hub do not always happen on the same timeline, but they impact one another. Consider the following diagram of a food hub' s steps in selling products, and how each step affects cash flow: This diagram reflects a cash flow cycle. Once the products are paid for, a food hub manager will want to recover that cash as soon as possible (and hopefully some profit!) by selling the products and receiving payment for them. The faster this happens, the sooner cash can be made available for the next purchasing cycle and for other business activities.