How to start up a factory based business

Manufacturing businesses in the UK produce a wide range of products. Check out our practical guide for starting and running your own manufacturing business.

Research your target market

Estimating demand

It's essential to find out whether there will be a demand for the products you propose to manufacture.

If it is possible, it would be helpful if you could produce some mock-ups, prototypes or samples of your proposed product ranges. You could then approach those individuals (such as buyers) and organisations (such as wholesalers) which might be interested in your products. Discuss with them the price of the products and draw their attention to any special features such as:

  • environmentally friendly - for example, energy saving or recyclable, or materials from sustainable sources
  • regional speciality - for example food items made according to traditional local recipes
  • food products targeted at certain consumers, for example, using organic, gluten or dairy-free ingredients
  • exceptional quality and durability
  • design innovation
  • short lead times (delivery times)
  • bespoke facility
  • credit period offered

and so on. You will already have identified any competing products so you can say why your products are better. Remember, rather than trying to compete just on price, it is better for the profitability of your business if you can persuade customers to buy your products for their quality or design features or for the superior service you offer. Recently more customers are seeking out items that are made in the UK so this may be something to highlight when you're promoting your business.

When you are showing your prototypes or samples to your prospective customers, you could take the opportunity to discuss:

  • the minimum value or volume that applies to orders (for example, you might require a retailer to stock your entire product range rather than just one or two lines)
  • how much business they might be prepared to put your way

You could also ask them:

  • what they think of your products
  • what they think of your pricing and terms
  • whether they have any suggestions for improvements or enhancements to your product ranges

Your market research will help you to identify:

  • whether your products are likely to be in demand
  • the price at which your products will be sold
  • how much your potential customers would be prepared to spend on each order

To estimate your annual sales income think about how many customers you are likely to have and how much each of them will spend.

Research current trends, plus legal and tax issues

Establish your customer profile

Your market

Your customer base will depend on which sector of the market you are supplying and might include:

  • other manufacturers
  • retailers and market traders
  • businesses in the services sector like hairdressers or the catering and hospitality trades
  • wholesalers and distributors
  • buying groups

If you have a retail outlet, for example for seconds, you will sell direct to members of the public. You might also do so if you offer online ordering facilities.

Special offers and discounts

You'll need to be aware that your larger customers in particular will want sizeable discounts from you in return for volume purchases and regular orders.

You might also offer early settlement discounts if customers pay their bills promptly, and retrospective rebates, to encourage customers to buy in large quantities.

Depending on the nature of the business, your customers may expect you to supply free, or at a discount, display goods for their showrooms. Other items which you might be expected to provide include:

  • promotional leaflets and brochures
  • point-of-sale material
  • free samples

You might also be expected to offer technical backup and troubleshooting, depending on the nature of your products.

Bear in mind that major concerns like the multiple supermarket chains tend to impose strict terms and conditions on their suppliers. They often require suppliers to pay to have their products displayed in prime locations and also take a long time to pay for the goods. You may also face increased competition from supermarkets like Morrisons, the Co-op and Asda, who have decided to move towards a vertically integrated supply chain, manufacturing many of their own food products.

What to produce

What products will you produce

This will depend very much on who your target customers are. For example you might produce items such as food products, clothing, ceramics, toys or giftware for the consumer market. In this case you will have identified a niche in the market for your product range. Be prepared to be flexible and innovative - the market is fickle and quickly looks for something new.

You might be planning to produce goods which will be used by other manufacturers. For example you might supply a particular part or component to the electronics sector. It's a good idea to try to establish close ties with your customers so that your business and its products become vital to their successful operation. Ideally you'll work with your customers when technological advances mean they can improve or upgrade their product ranges or introduce completely new items. Be wary of having all your eggs in one basket - if one of your major customers should fail, or switch to another supplier, you will be left with a big hole in your cash flow.

Your business might specialise in producing plant and equipment for other manufacturers, to their specifications. In this case you will work closely with your customers to make sure that the machines you produce will meet all their requirements. Remember that unfortunately your type of business is likely to suffer during periods of economic recession when manufacturers cannot afford to invest in new plant and machinery.

Fairtrade

Recent years have seen an increase in consumer demand for ethical products in the UK, with many retailers and caterers sourcing Fairtrade labelled goods. By manufacturing products that carry the Fairtrade Mark you'll be able to meet this increase in demand. You may well find that you attract new customers by demonstrating that your business is ethically aware.

What is Fairtrade

Fairtrade guarantees a fair deal for producers and farmers in the developing world by making sure they receive a fair price for their work and goods. Fairtrade products are sold slightly more expensively than similar goods to encourage self sufficiency in the developing world. This has become increasingly attractive to the rising number of ethically aware consumers in the UK. All Fairtrade products are marked with the easy to recognise Fairtrade Mark and there is a huge range available including food, drinks, clothing and so on. The Fairtrade Foundation website has a comprehensive list of products that can be manufactured as Fairtrade.

How does it work

The Fairtrade system works by paying producers a set minimum price for their goods, giving them a living wage. On top of this, producers also get an extra sum of money to invest in their business or community. This is called the 'social premium'.

In return, Fairtrade producers must meet certain standards. These are set by Fairtrade International, which is the global umbrella organisation for Fairtrade. Producers must be certified by FLO-CERT before they can mark their products with the international Fairtrade Mark.

Licensing

To use the Fairtrade Mark on the products you manufacture you'll need to be approved as a registered licensee by the Fairtrade Foundation and sign a licensing agreement. Every quarter you'll send a report to the Foundation giving details of your purchases, sales and so on. There's a fee for using the Fairtrade Mark - the amount is based on the sales you report to the Foundation.

There are strict rules about the level of Fairtrade raw materials that a finished product must contain before it can carry the Fairtrade Mark - you can find out more about your responsibilities under the Fairtrade Standards for UK Operators on the Fairtrade Foundation website.

Where to get raw materials?

If you decide to import Fairtrade raw materials direct from a certified producer or farmer you'll need to be approved by Fairtrade International. You'll also have to sign an importers contract setting out your terms of trade to show that you're meeting Fairtrade standards. More information on becoming an importer is available on the Fairtrade International website.

Pricing

When you buy raw materials from a certified producer, importer or distributor you'll probably have to pay a little more than you normally would for your supplies. Slightly higher prices cover the set price and social premium paid to the farmer or producer and the cost of certification.

Although you'll pay your suppliers more for Fairtrade materials, you'll probably be able to sell your Fairtrade marked products on at a higher price. People are often prepared to pay a little extra for Fairtrade goods in the knowledge that they are helping the disadvantaged producer or farmer. The Fairtrade Foundation has no control over prices in the supply chain, aside from setting the price to be paid to the producer or farmer.

Promoting Fairtrade goods

The Fairtrade Foundation can help you with advice and promotional materials when you launch your product. As a registered licensee you'll automatically receive a listing on the Fairtrade Foundation website. This can help bring business your way from caterers or retailers looking for a Fairtrade supplier. The Foundation also organises a Fairtrade Fortnight every year to promote the Fairtrade system. This could be a good time for you to attract new customers and to encourage existing customers to buy your Fairtrade product range. Why not produce a sample pack of your Fairtrade products or a leaflet explaining how the Fairtrade system works and how it could benefit their business? You could distribute these to both existing and potential customers.

Where to find out more

The Fairtrade Foundation is responsible for all aspects of Fairtrade in the UK - including the registration of licensees to use the Fairtrade Mark. For more information visit the Fairtrade Foundation website.

Fairtrade International is the umbrella organisation for the National Fairtrade organisations. Fairtrade International is responsible for standard setting and FLO-CERT is responsible for certifying producers and importers. More information is available on the Fairtrade International and FLO-CERT websites.

Services offered

Quality standards

Whatever the nature of your proposed business, it's important to be aware that the manufacturing sector is very competitive and your customers are likely to demand high standards. They may require you to obtain a quality accreditation such as the ISO 9001 quality management standard. You may also be required to display the CE mark on your products to show that they conform to the minimum legal health and safety requirements. You can obtain guidance on a wide range of standards for the manufacturing and processing sectors from the British Standards Institution (BSI). The BSI will also be able to advise you of the voluntary BSI standards and of the range of products to which they apply.

You might decide to demonstrate your green credentials by working towards achieving the ISO 14001 standard by putting in place an environmental management system to reduce the impact of your operations on the environment. You can find out more on the BSI website.

You might consider producing organic products - for example cosmetics. You'll need to get official certification from the Soil Association or the Cosmetics Organic Standard - COSMOS - so that you can include their logo on your packaging. This assures customers that your products are safe to use and that as many ingredients as possible are organic. Visit the Soil Association or the COSMOS websites for details.

If you plan to produce food products you may be able to register them under a EU system for the protection of food product names. There are three types of registration, each of which permits the producer to mark the relevant products with a symbol indicating one of the following:

  • the product is produced, prepared and processed in a particular area
  • the product is made in a specific area
  • the product is made to a traditional recipe, not linked to a specific area

Note that products registered under the scheme must carry the appropriate description or logo on the product label.

Further details of the EU Protected Food Names Schemes are available on the Gov.uk website. After the vote in June 2016 to leave the EU, the government has said it wants to develop a 'British protected food name status' to replace the existing EU scheme.

The Food Standards Agency has introduced a voluntary ban on six food colours that are associated with hyperactivity in young children. If you want to publicise any of your product ranges that are free from these colours you can do so on the Food Standards Agency website.

Services to consider

Because there is keen competition in the manufacturing sector it's vital to do everything possible to make your company indispensable to your customers by providing them with first class customer service as well as good quality products. Areas of concern to customers include:

  • failure to meet delivery targets
  • incorrect paperwork accompanying deliveries
  • short or wrong deliveries
  • poor or inconsistent quality

It is worth being as proactive as possible with your customers and establishing with them from the outset how and when they want goods supplied. Having agreed this with them it must then be a priority to ensure that you meet their requirements.

Advertising your products

However you decide to operate, it's vital that your potential customers know about you.

There are a number of things you might do to promote your business:

  • advertise at trade fairs and exhibitions
  • advertise in trade journals, yearbooks and directories
  • include your products in the Make it British online directory
  • send samples to buyers
  • have leaflets printed and mail shot them to potential customers
  • contact retailer and wholesaler associations to announce your launch
  • create your own website and try to organise links to it from your trade association website
  • use telemarketing to contact potential customers
  • use social media like Twitter and Facebook to let customers know about new products and developments

Buy an existing business

You might decide to buy an existing factory based business rather than start your own venture from scratch. Buying a going concern can mean that the products, customers, regular sales, staff, premises and equipment are already in place.

But buying a business can be a hazardous, expensive process unless you have the right skills and experience on your team, including legal and financial know-how. Establish the genuine trading and financial position, so that the price you pay for the business is not too high.

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