| Building our future: how to invest in your operation |
By: David Little
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Posted: Wednesday, August 11, 2010 2:47 pm
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We all know that we need to invest in our businesses, but when is the best time to do it and what should we invest in? Every company is different but we all operate in the same marketplace. So if your competitors have invested then it’s probably about time you did too. However you have to think of the long-term impact on the business. If you are approaching retirement or thinking of selling then maybe a small modest investment with immediate results will help add value to your business. If you plan on sticking around for the next 10 years and you haven’t recently invested in your business then it’s about time to get serious.
So how do you go about it? As with any project, you need to start with a plan and any good plan involves research. Do lots of research. For garden centres that are members of the HTA or GCA, research is considerably easier. Contact one or both of these organisations and simply ask who has invested recently, what did they do and how successful has it been. You will be given a list of at least 10 businesses you can go and visit. Contact the owner and ask for an hour of their time. One of this industry’s great strengths is the willingness to share information and success stories. Arrive early and tour each centre first. Note down what you like and compile a list of questions. You will be amazed at the detailed information you can get access to. Have a chat with the owners and ask them what they’ve done. How much did it cost and how has business performance improved.
The next step is to analyse your own business. What are your strengths and your weaknesses? Where do you think investment will bring the highest return. Now write a wish list. However unlikely or unaffordable you think something might be, put it on your wish list. Now prioritise this list into the most desirable at the top. Then call in the experts. Any construction is going to require planning consent and you need someone with a proven track record of gaining planning permission. Sit down with your expert and go through your wish list. Talk to them about your business and your vision for the future. Hold nothing back: give them all the information you can, from financial performance, to personal likes and dislikes and where you think the industry is heading.
Your expert is going to give you a good idea of what they think may be possible. Most planning experts I’ve dealt with will only put forward sensible proposals, with well thought out arguments that have a chance of success. Now comes the really interesting part that determines whether you follow through with a planning application or look again at your wish list. Is the project viable? You can gain a good understanding of cost from other operators who have recently developed. Break this down into a cost per square metre and then apply it to the size of project you are considering. Remember to include everything that’s going to cost you money to get it ready to start trading. Not only must you consider all of the planning costs, architects costs and building costs, but you must include all the costs of fitting out, including lighting, shop-fitting, flooring, electrical and heating works. Now you need to calculate your profit per square metre from your proposed new investment. There are a number of different formulae used to calculate whether a project is viable. I take the Net profit from sales and look for a return inside 10 years. So a new building that costs £1m needs to produce annual sales of £1m with a net profit of 10 per cent - which is not unreasonable for good garden centre retailing. A new restaurant may turnover a similar amount but produce a higher net profit, thus giving a quicker return.
Of course an investment doesn’t always mean brand new building projects. A facelift to existing buildings, a new shop-fitting layout or simply replacing old and worn out equipment are sometimes both necessary and often bring their own financial returns.
If a proposed new construction gains planning approval then the real work can start. You can never do too much planning and forward thinking. One of the biggest decisions you will face is choosing a contractor. Your project will need to go out to tender and you will be looking for the best price available. However cheapest is not always best. I would recommend getting a minimum of four prices for the job. Interview each of the potential contractors prior to awarding the job and if possible meet the site foreman who will be running the job. You must choose a contractor you can work with. Ask for a list of previous clients and follow up references. 
Sorting out the finances is a major consideration and will take more time than you think. Lenders are still willing to back projects but will want a huge amount of financial information before agreeing a loan. You must build in a contingency and be prepared to spend it. All sorts of things will occur during the construction and some of the contractors’ prices will be provisional sums, which could increase as the job gets underway. You must produce a detailed cash-flow forecast so you know what you need and when you need it.
Any project comes with a considerable amount of stress and a huge additional workload on you and your employees. By choosing a reputable contractor your stress levels and your additional workload will be reduced. You will encounter quantity surveyors and CDM co-ordinators: both essential on major building projects to keep costs under control and the site safe for contractors, your staff and customers as you continue to trade throughout the project.
If you’ve done your sums correctly, chosen the right project and the right contractor then things should run relatively smoothly. It is essential to maintain a constant dialogue with your site foreman and have regular site meetings to monitor progress and costs.
Garden centre owners are undertaking major projects and major investments across the country all the time. So you are not alone, although it can feel that way sometimes. However when everything is finished and the builders finally pack up their tools and leave site for the last time you can then get back to what you do best. Those first few months will give you a very good idea of how the new project is performing. It is vital that you compare this performance with your original forecasts. Your lenders will certainly want to see the results and have comfort that their investment is secure and that you will meet your financial obligations.
It is vital that you don’t forget the rest of your site both during and after any building project. Will you have enough till points to cope with increased demand and what impact has the new project had on the rest of the business? If existing product groups have migrated into new areas then how will you maintain sales from those existing areas? Simply spreading your existing products over a larger area may not see any revenue increases. Therefore be prepared to react and change your original plans as your customers adapt to the changes you’ve made.
If you are about to embark on a new project then I wish you well. I hope you will be one of the many people I have spoken to whom a year after completion say, “I wish we’d done this years ago!”
David Little has been the managing director of Poplars Garden Centre in Toddington, Bedfordshire since 1999 and is the fourth generation of the Little family to control the company, whose horticultural roots go back to the 1890s. Poplars receives visits from around a quarter of a million customers a year and turnover is in excess of £4 million. It is also a proud member of the both the HTA and GCA, of which David is an executive committee member and area chairman of the North Thames branch. Here David continues his contribution to our ‘view from the shop floor’ series. |
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