Our business is growing steadily. When is it right to move into a new facility? How do you find funding?
We started our business in September and it is growing steadily. We are getting close to capacity at the kitchen we rent but we are at a point where we (2 people) might not be able to meet the new volume without a new facility and more employees. The business isn't grossing that much yet, but won't unless we can increase output. Help!
Are you personally funding your business, or does your business fund itself with its own line of credit?
I recommend you to keep calm, if you opened your business this last September, wow it is too early to think in moving or relocating.
First, analyze if you can improve your business efficiency, analyze how you make things, how your processes are executed and try to improve everything you can. I am sure you will find a lot of things you and your team can make better. Let your business mature.
Second, if your business is growing steadily analyze if you could open a second facility. Don't loose what you have achieved. I would seriously evaluate if market conditions can support an additional store or branch where I would offer my products or services, but consider all implications this would have for your operations, but don't loos what you have achieved, I insist.
There are a few questions that you should consider before moving:
1. If you move, will you be able to generate sufficient income to cover the additional cost? In other words how much more will you have to sell to break even or ideally turn a profit?
2. Will your customers follow you to your new location?
3. Can you gross more by staying where you are? If customers are queuing to get in, then they will be happy to pay a little more.
I often work with clients that have moved too soon and get themselves into financial difficulty. They take on extra costs believing that extra sales with automatically follow, but they don't . So it's always better to explore the alternatives when deciding.
Once you have decided to move, you will have to show potential funders that you will be able to get more customers, proving that your business is viable. This may be in the form of a business proposal or a business plan. Crowd funding, bank, credit unions, amazon business loans are all potential sources of funding for you to consider.
All the feedback about having flexible space on an needs only basis, and sharing space are spot on. As too and thinking about the type of employees you're going to employ, and maybe only using them during busy periods only. Anything you can do to minimise your cost will give you a competitive advantage.
Wishing you every success.
First off, congratulations on your growth! Before you make that move, I would ask that you think about scalability. Have you created systems and processes that will move seamlessly into a new facility? Do you really need more space or do you need a standard way of operating in the space you currently rent? To determine if it is financially feasible to move into a larger space, what does your breakeven tell you? You should already have one, but it will need to be redone to include the additional expenses of a larger operating space.
There are a couple of different option for funding, but I would hold off on increasing space just now. You may want to look at some alternative funding that can supplement your operating capital allowing for more bodies on a temporary basis.
Before you make any decisions sit down with an accountant who understand cash flow and growth financing. Get your options on the table.
You have to prepare a business plan that will help you to get fund for your business. You can PM me for help.
Lots of good answers from my esteemed colleagues, so I will just say; Go with the one or two or three ideas that resonates with you, discuss each of them with your employees and partner. Maybe a little role play or some work on your flow. Always ask for money you might just get some. Raise prices 10% at a time until your customers start to complain and then come back a little with the good ones. Bout all this redneck from GA has to say on this today.
Kenneth Lash, MBA, CQE, CSSBB ad nauseum
My advice would be to find a couple restaurant/kitchens you really like and reach out to the owners. Find mentors within your industry that will embrace your vision and understand you obstacle. This is how you grow a successful, unique business concept. Trust me when I tell you it takes a likeminded culture to be successful. Leverage successful people that have actually been there! Get after it!
I don't believe an increase in overhead costs is the best way to continue an increase in revenue. Plus if your business isn't grossing much, you should probably be reviewing your business & marketing strategy. Are you truly being compensated for your product? You say you are at capacity in the kitchen. If your product is food. Are you utilizing your resources to YOUR best benefit?
Before stepping out and securing a much costly facility and increasing your overhead with not only rental cost but utility cost and upkeep cost. Review your business plan and review your marketing strategy. Review your product worth and your consumer base. Go back to the brainstorming table and readdress your revenue streaming.
Just a thought
Since you are renting your choice is much easier since you will just rent a bigger spot to see if you can get the balance between supply and demand. The question to ask yourself is, aside from convenience and maybe speed, what has your current kitchen kept you from doing/selling? I would try and sell the new capacity before you have it understanding that you may need to first supplement your space with another smaller one or involve some non professional space for prep or finishing. Taking on too much cost before revenue to pay for it is dangerous. Of course, if you have been making it a profit, and you are brave of heart then consider the spot you want to work in, consider it an investment with a set time frame to find the business that will drive profitability, pick a date and go for it. Think about the seasonality of your work too. There's nothing wrong with a little struggle in a space if you are making money. Think about staggering hours or more staging as an interim way to maximize productivity where you are and then get selling!
What would be your dream scenario and how much would that cost.
You say "The business isn't grossing that much yet" - are you align with your financial growth plan, if not why?
Have you considered asking your current customers for funding - crowdfunding? Keep in mind that crowdfunding is (as with business angel and VC funding) a lot of work.
Also you say "..might not be able to meet the new volume...". Do you already have the orders and based on those orders can you loan the money in a bank instead of getting funding (in step 1). Step 2 show to potential business angels or VC companies that you succeeded with the orders and financed it yourself etc.
Considering our overhead expenses, we have been profitable since the 3rd month of operation. So yes, we are making our ends meat but as I am sure most of you have noticed, each step along this process is exponential in growth and now that the ball seems to be rolling I am looking toward the future.
My advice to you that you need to stay where you at for at least one year before you thinking about moving to a deferent location. Good Luck!!!
Well done thus far. I liked your web site. But this is still very early days.
What you are doing is fantastic, and at this stage the cost of business is small.
Keep it that way. You need to be more established before making larger financial commitments. Many small businesses grow and become "donuts"
By that I mean they become bigger but there is a big hole in the middle. with noting to sustain it.
My suggestion, is for you to take a small step back. Look at your business. You have 3 income streams working for you. 1) Mobile 2) Direct 3) Wholesale.
Work out 1) Which is more profitable. 2) which has the greatest growth aspects. 3) What is required to grow that aspect of the business.
Decide on how you are going to provide your product. So far you are making to order. How about producing for 2 x 10 hrs and storing the unsold units until the next day. As you state the food is still fresh, This would reduce your logistics issue to one of storage and stock rotation.
Is it better for you to get a second mobile van, and start a small franchise.
You also should be considering what may happen when you become larger? will you end up with competitors.
Eric, if I may say this, at the moment it may look like you guy's are working hard and maybe harder, which is fantastic, you have proven your selves and the product. Which is more that a lot of start up have done.
But as a start up, it's just the beginning,
Hang on at least till the end of your first trading year, do not over capitalize, (there is still the tax man to consider)
Consider looking at what you are doing, and what you are doing well, and focus of working smarter rather than harder.
Keep on building "under the radar" until you are ready to expand.
It is important to set a target either in terms of Turnover or in the no of products per day/week/year.
If it is a project based on food as I see Kitchen is rented, please check out the ratio of food that can degrade/expire the next day : week
Your cost factor will increase with percentage of such food (sandwiches) etc which you would need to sell at a discounted price also.
Concentrate on specialities that are not easily available.
Crowd funding or well wisher funding is a good option before you go to banks.
Based on the growth / sale /advertising you could make your next decisions.
There are two schools of thought:
1. grow steadily and reinvest a major portion of your profits into the business.
2. Borrow : the pressure of repayment and the burgeoning interest will make you work harder and smarter.
Best of Luck. It is also needed. I would know as i have been a part of 2/3 start-ups..
Hi Eric, exciting times for sure, congratulations can soon turn to commiseration if your not careful, before you embark on looking for new premises I would advise engaging an efficiency expert to see if you really need more space, after I did this I was able to relocate my business to a factory with 200 sqm less with a higher throughput, saving on rent and increasing the bottom line, I believe that in the first instance bigger premises are a want more so than a need!!! I know sometimes its chicken and egg stuff, but plan thoroughly and plan an outcome, but don't be to rigid, stuff happens and you may need to change paths, but plan the changes and all will be well...be lucky moving forward...Nige
Eric, congrats on your business growth. And welcome to being all part of your business!
Take a long hard look at what you are doing.. are you doing it efficiently? REALLY??
Map your process and work out what is Value Adding and what isn't, then find more efficient ways of doing the VA stuff whilst you eliminate the NVA . Small layout changes can make huge productivity gains.
You may find that you get a large increase which will get you over a hump.
Consider also sub-contracting a bit of what you do with the ability to flex a 3rd party's output to suit you.
If you are not sweating your existing assets then why would you need more?
Is your operation running 24/7 with 100% utilisation? If not, then think carefully before committing to more land/machinery/people as it will take management time which (I suspect) you can ill-afford if your business is growing.
The best way is to maintain the right level of funding. With some equity, debt can be arranged to finance the new facility, and with collateral, a small business loan can be arranged. You have to formulate the business plan, projections inflow and outflow.
when you grow yourself out of the existing one also can afford the new one
You can go for second facility but ensure one of you must handle second facilty full time till the time you create second line of expertise. . At this stage if possible you should avoid debt raising or raise structured finance where repayment is linked with business cash flow.
If the business is not grossing that much because you can't get the output, and you can't get the output because you don't have the space, I think that tells you that it is time move into a new facility. You may have to take out a small loan to meet the demands of growth but such is business.