Bradwell-on-Sea Community Shop

Transcription

1 Bradwell-on-Sea Community Shop Business Plan for the freehold purchase of Post Office Stores. Prepared by: Bradwell Community Shop Management Committee. Support provided by: Registered office: Post Office Stores High Street Bradwell-on-Sea Essex CM0 7QN 1

2 Contents 1. Summary Business proposal... 4 Principal Objectives Background to the proposal The Shop The Post Office 3. Business strategy... 5 The management team Plan for growth The Shop The Post Office Additional services and refurbishment Plan for Growth. 4. Business Case. 7 Trading history Market research Project Costs, Finance and Funding Financial forecast Risk Analysis Page Cover picture from an original by James Merriott 2

3 1. Summary Bradwell-on-Sea Community Shop opened in December 2009, and in each of the past three years it has consistently achieved a turnover of between 230,000 and 250,000 and an operating profit in every year. Bradwell Community Shop Management Committee has also overseen investment in the business, including new point of sale equipment, freezers, and chillers. We have also put in place contracts with local and national suppliers, and built up a loyal customer base. The great success of the shop depends on the enthusiastic support of its team of two parttime paid staff and 30 volunteers. They give the shop its unique atmosphere and have helped put the shop at the heart of the community. Without their hard work the shop would not survive, or thrive. Open for 69 hours a week, the shop operates financially on a very sound footing. Since April last year it has been able to subsidise the running of a Post Office counter as another contribution to the community. The shop stocks a wide range of household goods, including fresh bread, milk and meat together with cigarettes, wine, spirits and beers, frozen and tinned foods, and does so at prices which often undercut local supermarkets. It also sells newspapers and magazines. The decision by the landlord, Michael Baker, to sell the shop premises with residential accommodation above means that we will lose a beneficial landlord, someone who has shown enormous support since he first bought the shop. It does, however, offer an exciting opportunity to secure the premises for the village for the long-term. We have canvassed support by asking the community if they think it s a good idea to buy the freehold rather than continue to lease from a new landlord. 80% of the residents who completed our survey thought it was a good idea. Many people, by far the majority, also expressed an interest in buying shares in the Community Shop if we raised a share issue. We have to date received pledges of 25,000 before advertising a share issue. There has also been interest from a commercial lender in offering a commercial mortgage on the property, meaning that providing we can raise enough money from shares the purchase can go ahead. We are seeking to raise at least 69,500 from selling withdrawable shares, to be combined with trading surpluses; money raised from fundraising activities; grants and a commercial mortgage towards our total target for the purchase and refurbishment of 178,000. Presented here are our trading forecasts for the next 3 years and an examination and explanation of the risks to the business and to the shop and Post Office, as well as the challenges ahead. We are determined to continue to provide good quality goods and services for the village and confident in our ability to take on the financial responsibility for running the Post Office, and to ensure that Bradwell-on-Sea has a village shop in perpetuity. 3

4 2. Business proposal Principal objectives The Community Shop will be retained as a community facility with the following principal objectives: To retain and sustain a community shop and post office in Bradwell-on-Sea, owned by the community for the benefit of the community. To buy the Freehold at Post Office Store, High Street, Bradwell-on-Sea in order to secure the future of a community shop for the village in perpetuity. To provide retail goods and services and Post Office services at a convenient location. To provide services of value to local people and to local businesses. To actively encourage a sense of community purpose in supporting the shop, through volunteering or other ways. To be a centre for the community and for information about the village and the community. To trade at a profit sufficient to support the purchase of the premises and to continue supporting the Post Office. To identify other ways of working together to the benefit of the community. Background to the proposal The current landlord was instrumental in setting up the Bradwell-on-Sea Community Shop Limited and has subsequently been a strong supporter of the venture. He has now decided to sell the freehold of the property. A change of landlord is unlikely to offer the same security of tenure that has been enjoyed for the first four years of the shop s existence. The opportunity to secure the freehold as a community asset would offer long security, and on current projections could be achieved through fund-raising campaigns, and a combination of donations, a share-issue, and loans. A survey carried out by the Plunkett Foundation in December 2013 showed over-whelming support among 74 respondents, for the shop and the Post Office, as well as a willingness to buy shares and support the shop in other ways. The repayment of any share capital or loans will be made easier by the fact that the accommodation above the shop would be available to let, and the rental income available to contribute to loan repayments. 4

5 The Society s Rules have been amended (FCA approval received January ) in order to facilitate a Community Share Issue, with the aim of raising a proportion of the necessary capital. The rule change will also enable the Society to increase its membership, extending it to all new investors taking a minimum stake of 10. The additional members will strengthen community participation in the work of the shop, and help maintain the necessary level of volunteering to staff the shop and assist in its administration and management. 3. Business strategy The management team The Society is managed by the Management Committee, which is elected at an Annual Meeting of members. The current Committee is: Chairman: Brian Main - Secretary: Kay Davies - Treasurer: Bob Jobbins Ann Barrett - Brian Clayden - Janet Fenwick - Graham Lowing - Ann Main The next AGM will be held in May The Society employs a part-time Manager, Steve Tachauer, and a deputy Manager, Robyn Smith. Steve and Robyn are responsible for the week to week running of the shop, maintaining an attractive retail offer and working with the volunteer staff to keep the shop running smoothly. They report to the chair of the committee. Plan for growth A recent Retail Health Check carried out by Plunkett Foundation found sales levels to be impressive for the size and style of shop and a much improved layout. The report emphasised however, the necessity of keeping costs down in order to remain competitive on price, and flagged up how important volunteering was to the business model for village shops, this often being the single financial reason for the success of the community shop and the disappearance of many privately run village shops. The underlying business strategy for the shop is to work hard to maintain its current turnover in the face of some decline in passing trade due to the completion of the decommissioning of Bradwell Power Station. The Management Committee aims to reduce costs in 2014, and work to improve both gross margins and the product range to increase profits to a level which will sustain loan repayments and future share redemptions associated with the shop purchase. The shop business will now entirely support the net cost of around 7,000 p.a. to operate the Post Office; a highly valued community resource. The budget for the next 3 years aims to create an operating profit each year more than sufficient after tax to provide cash to repay the principle mortgage. The Management 5

6 Committee will also engage in a long-term fund raising campaign, seeking grants for shop improvements and new and replacement equipment, which in the past have been financed from our profits. Our Planning Assumptions are based on a shop purchase price in the region of 160K. This will be funded through a combination of Community Shares, donations, grants and commercial loans. Currently we have pledges of 25,000, and a further fundraising round is expected to increase this figure. Discussions with local business leaders are expected to provide further suggestions for funding, and grants will be sought through the Essex Community Foundation and other grant-giving Trusts. The Management Committee will not proceed with the purchase unless funding can be raised from donations, shares, and grants to cover at least 40% per cent of the sale price. With a commercial loan of 90K the committee believes the purchase would be viable. At current rates a commercial loan of this size would imply monthly repayments of around 548 over 25 years. We are currently in talks with Ecology Building society regarding applying for a mortgage on this basis. The current rental paid by the shop is 310 a month, to this could be added a notional rental value of the apartment above the shop of 333 per month. Any improvement on the fundraising target could be used to reduce the total of the commercial loan. The Shop The shop is open seven days a week for a total of 69 hours. Plunkett Foundation data for shops indicates that community shops in the UK opened for an average of 52 hours per week in 2012, indicating that Bradwell Shop provides a comparatively excellent service level for the village. The shop maintains this service through the dedication of its 30 or so volunteers, who supplement the paid staff time, playing a vital part in the sustainability of the business. The shop provides a wide range of staples: groceries, fresh, chilled and frozen foods including produce from local suppliers. It also sells household goods, stationery, newspapers, magazines, cigarettes and other tobacco products as well as beers and wines and spirits. It also sells hot snacks and drinks. The Post Office The Post Office was funded for three years by Essex County Council under an arrangement with Post Office Ltd. This arrangement lapsed in April 2013, and a new contract was reached between the Shop Society and Post Office Ltd, which enabled the service to continue. The Post Office is open for three hours a day, 6 days per week and provides a range of highly valued services, among which are stamps, parcel post, and the cash withdrawal facility. The relative isolation of the village makes these facilities particularly appreciated, and was 6

7 highlighted by the enthusiastic response to Post Office services noted in the customer survey. Planned Refurbishment We intend some basic redecoration of the shop and to attempt to level the floor for improved accessibility. We shall also install fireproofing between the shop and the apartment above. We will renovate the apartment before letting it on the open market. Finally we intend to create some space in the shop for a small café area with provision of hot drinks. 4.Business case Trading history Bradwell-on- Sea Community Shop is a young yet profitable business providing convenience retail services with proven community benefit. The shop started trading in December 2009 and has consistently shown a surplus before tax. Year Turnover Profit on ordinary Activities Net Profit (After Tax) ,567 12,042 12, ,286 12,549 12, ,646 4,062 (684) ,475 4,919 4,627 The Community Shop currently holds cash reserves of around 25,000 ensuring that a healthy cash flow is maintained. Market research During December 2013 the Bradwell Shop Management Committee carried out a household survey of the parish to find out how people valued the shop and whether there was a willingness to support the shop to develop and thrive in the long term by buying the freehold of the High Street premises. Despite the survey being issued during the Christmas period and with a short time-frame, a total of 74 online or paper surveys were completed, representing around 16% of parish households. 7

8 Respondents expressed overwhelming support for the shop as a community resource, retail service and Post Office, with 74% using the shop at least once a week and 65% reporting that they would badly miss the shop if it were closed. 29 respondents (40%) reported that they visited the shop or Post office every day, reaffirming that the shop is an important presence in the high Street, where people can meet and socialise as well as shop for essentials. The 2 most popular reasons for visiting the shop were for topping up on essentials and to visit the Post Office, where the top buys were stamps and sending letters and parcels. Most people (80%) completing the survey felt that the Management Committee were right to consider purchasing the Freehold of the shop premises. 14% of respondents did not answer, indicating perhaps that more information was required at the time in order to make a judgement on this issue. 8

9 85% would seriously consider buying shares, and 13k was pledged at the time (without further details being available and with no commitment to purchase). Project costs, finance and funding Project Costs Freehold Purchase of Post Office Stores. 160,000 Bradwell-on-Sea. Transaction costs 4,500 Refurbishment costs 10,000 Feasibility costs 3,500 Total 178,000 Project costs financed by: Commercial Mortgage 90,000 Community Share Issue 69,500 Grants applied for (Essex 18,500 Community Foundation) Total 178,000 9

10 Financial projections. Bradwell-on-Sea Community Shop Limited Forecast Profit and Loss Account for the Years Ended 31 December Turnover Shop sales 225, , ,861 Post Office commissions 2,239 2,306 2,387 Rental Income 1,500 4,000 4,140 Income from Fundraising 3,000 3,000 3, , , ,388 Cost of sales Opening stock 6,880 5,800 6,500 Purchases 1 180, , ,092 Closing stock -5,800-6,500-5, , , ,692 Gross profit 50,659 58,674 61,696 Expenditure Wages and salaries 13,223 12,223 11,223 Post Office expenses (Wages) 2 8,775 8,775 8,775 Rent and rates 1, Light and heat 3,250 3,348 3,465 Insurance Repairs and maintenance 2,500 2,500 2,500 Telephone and fax Printing, postage and stationery, sundries 1,400 1,050 1,000 Trade subscriptions Travel and subsistence Accountancy fees 2,110 2,110 2,110 Advertising Credit card charges ,208 33,516 32,611 Depreciation Depreciation of fixtures and fittings 3 Depreciation of office equipment 3 2,500 2,500 2,500 Other interest receivable and similar Estimate of Mortgage Interest payable 4 4,860 4,860 4,860 Estimate of Share interest payable 1,400 1,400 1,400 Income Profit before Tax 5,699 16,405 20,334 10

11 Assumptions 1 Assumes 20% Gross Profit Margin in Rising to 21% and 22% respectively in 2015 and Shown as a proportion of staff time to cover 18 hours PO opening. 3 New equipment purchases dependent on future grant applications and not included here. 4 Interest component of 90k Mortgage during the early term, at 5.4% over 25 years. Ecology Building Society. Risk analysis Bradwell Community Shop Limited is a going concern with a trading history, some cash reserves and a good level of turnover for the size of premises and for its catchment area. There will be some challenges ahead to maintain turnover levels in the face of a decline in passing trade, but the Management Committee plans to cut costs and to boost gross profit margin to 22% whilst maintaining attractive prices for customers (The average GPM across the community shop network. Better Business Survey Plunkett). The Management Committee have already begun to rationalise their stock lines, and are looking for opportunities to increase sales of slightly higher margin, premium products alongside their standard offer. The purchase of the freehold does not hugely increase the monthly costs to the business when the risk is spread across a commercial mortgage and share capital, supplemented by routine fundraising activities. Many of the respondents to our survey were looking for a social rather than an economic return on any share investment, and it is reasonable to assume that our members principal wish during difficult trading times would be to see the shop stay open, rather than early redemption of their investment. Interest, share interest and Principle repayments will be made from trading surplus and from funds formerly allocated for rental and supplemented by rental income from a two bedroomed apartment on the first floor. A reasonable rental level can be achieved by renovation of the apartment and annual down time can be minimised by utilising a lettings agency or management company. The Management Committee will redeem shares only after three years, and may restrict the percentage of shares redeemable each year to 10% of total share capital. In this way, risks to cash flow can be minimised. The Committee may also periodically invite new shareholders to invest in the Society. Capital has been included to carry out some refurbishment works at the shop, building on the improved layout and creating an opportunity to bolster sales through hot drinks sales. Bradwell Community Shop follows common practice among community shops in the UK, 61% of who manage their businesses by utilising a mix of paid staff and volunteers. Plunkett Foundation has found that this model is eminently sustainable, with a long-term business 11

12 survival rate for community shops in the UK of 96% compared with an estimated 5 year survival rate for UK businesses in general of only 45% (Office for National Statistics). If the purchase does not go ahead for any reason, we will call a shareholder meeting to discuss other options such as alternative premises should the need arise. All monies invested in this Community Share Offer will be held on Trust and not spent. Contributions will be fully repaid in the event that the project does not proceed. 12