Having decided to grab the opportunity to extend my store by taking on the neighbouring leasehold property, I really need to know what it means financially.
Pricing it all up
My projected refit investment cost is £72,000 and the rent is going to be just under £5,000 a year for the first 5 years. This means that I am going to put myself on the hook for over £100,000.
To be comfortable with this I needed to put together a business plan. Because I have negotiated a five-year break clause to the lease, my business plan has helped me look at the likely costs and profit needed for success.
On the costs side I know what the first five years rent will be and have investigated the expected business rates, although this could change based on the Chancellor’s announcement in the Budget. The top-up loan I am taking is on fixed terms so that is a known.
Keeping costs down
Power is a variable cost that I can have an impact with the installation of low energy lighting and refrigeration. Our shop-fitters are helping me understand our expected power usage with the new equipment. I am also investigating solar power as I have a suitable south-facing roof at back of the building.
I am initial taking a cautious approach to staffing and waiting to see what we will need with both numbers and hours. My wife Mandeep and I are planning to fill the ‘gaps’ to begin with as we step up our day to day involvement with the business. I do expect to employ extra people, but after our experience over the past couple of years following the Asda store opening I don’t want to get ahead of reality.
Armed with our potential cost profile for the next five years, Mandeep and I need to create a store layout and product mix that will deliver a level of profitability to not only pay for the new costs we are taking on but also give us a reward for undertaking the investment. I will look at this aspect of the plan in my next article.
In the previous part of Jai’s journey, Jai talked about the valuable help and advice he got from business property expert Barry Frost. Catch up here.