The Hidden Startup Costs of a Convenience Store

A strong financial plan is the cornerstone of any business. Ultimately, a business lives or dies on the numbers, and if you’re out of cash, you’re out of business. Despite this, a massive part of the UK business community isn’t up on planning.

According to a government analysis, 23% of businesses with no employees didn’t have a plan. Even amongst those with a plan, 34% didn’t keep their written plan up to date, which is little better than not having one at all.

With that in mind, we’ll go into what a financial plan is and how to put one together to keep your corner shop in the black.

Why create a financial plan for a convenience store?

Financial plans are documented strategies outlining their financial objectives and how they’ll allocate their cash to make the most of every pound. It’s as important to a convenience store as any other business because it could mean the difference between success and failure.

According to a study, 47% of new businesses failed because of a lack of financing, whereas 44% of failures happened due to running out of cash. It highlights how important getting a hold of your finances is.

Some of the benefits of building a financial plan as early as possible include: 

• Improve your cash flow management.
• Realistic goal setting.
• Identify areas for growth.
• Avoid overspending.
• Gain credibility among your stakeholders.

There are no downsides to financial plans. These are living documents that you can chop and change as your corner store grows and evolves.

What information is needed to build a convenience store financial plan?

The convenience store sector has been remarkably resilient, even in the difficult years of the pandemic. According to the stats, the convenience store industry has been averaging a 3% growth rate from 2018 to 2023, but that doesn’t guarantee success, even when working with a Great British staple like the humble corner shop.

If you’re ready to build your financial plan, here’s what you’ll need to put it all together.

Cost forecasting for a new convenience store business

Forecasting begins by understanding what it’s going to cost you to run your convenience store. If you’re not making more than your corner shop costs to operate, you won’t be in business very long.

Let’s start with the obvious costs of getting started: capital expenditure. These will include: 

• Renting your location
• Buying your shop location
• Renovating your location
• Equipment costs

These will naturally be higher if you’re starting from scratch. That’s why first-time shopkeepers often buy an existing convenience shop to cut down on their renovation and equipment costs.

Next, there are the costs of your stock. Forecast what it will cost to fill your store with the products you want to sell. You’ll need to refer to your business plan to get an idea of what you’ll be selling in the first place.

Based on your sales projections, you’ll then be able to calculate what it will cost every month to restock in line with customer demand.

Projected sales, profit and loss planning for your convenience store business

Part of your overall business plan is establishing goals for growth. Within your financial plan is where we build out detailed sales projections and future profits and losses.

Actually projecting sales revenues is tough because there are so many factors that can go into it. You might choose to use average transaction value and footfall to get a base figure, followed by fluctuations like holidays and local events that might spike your sales throughout the year.

Unless you’ve got access to insider figures, a great place to start is industry figures found via different studies and stats online. Remember, your projections don’t have to be perfect. Compare them to your anticipated expenses, and you’ll get an idea of not only how much you could make but how many loss-making months you can stand.

Expect your numbers to change in the first few months of business as you start to gather some hard figures. Over time, they’ll increase in accuracy, helping you to plan for the future.

Operating expenses for a new convenience store

Your operating expenses are the ongoing costs you’ll have to pay every month. Managing these costs ensures your long-term profitability and prevents your store from slipping into financial distress.

Generally, these are the costs you’ll have to consider: 

• Rental costs
• Wages
• Benefits
• Taxes
• Electricity
• Water
• Gas
• Insurance

What they all have in common is that they’re fixed, meaning you can predict them down to the pound every month. However, there are also variable operating costs you’ll have to consider, such as the cost of restocking particular products, promotional costs and ongoing marketing efforts (this can be fixed or variable, depending on how you want to manage it).

Risk management and long-term planning

Even the best-laid plans can go awry, as the old saying goes. Your financial plan isn’t designed to be carved in stone, but should be fluid as your situation changes.

Any good entrepreneur knows that things can change quickly, and you’ll need to adjust based on what’s going on at the time. That’s where financial risk management comes into your plan. Factor in your financial risks, including economic downturns, government tax policy, inventory costs and changing demand.

You should also have a plan for how sudden jolts to your ongoing costs and sales patterns play out. For example, you might incorporate an emergency fund into your financial plan.

Common financial planning mistakes to avoid

Understand that financial plans are guides. Don’t constrain yourself by stubbornly sticking to what you planned on day one. Even with a good start behind them, small business owners can create and fall into their own traps caused by financial planning.

Here are some potential pitfalls to beware of: 

• Not separating personal and business finances.
• Overestimating your revenue.
• Underestimating your expenses.
• Not considering market trends.
• Not accounting for changes in the overall economy.
• Failing to educate yourself in business finance.

Another point to remember is that financial plans are only as good as the data you have. In the beginning, your financial plan will hinge heavily on third-party data because you don’t have your own yet.

Your financial plan should be a starting point, but after your first few months, update your financial plan using your own data, as this is more valuable and relevant to you than anything you pull from elsewhere.

With that in mind, it’s time to start your retail empire. At Cogogo, our platform has access to a range of corner shops for sale up and down the country right now. Start browsing what’s in the market or contact us to learn more now.