A grocery project can raise enough money to renovate a building, buy equipment, install a POS system, purchase opening inventory, and still open undercapitalized.
The expensive part does not stop on opening day.
After opening, the store still has to survive:
- payroll,
- utilities,
- insurance,
- replenishment inventory,
- repairs,
- spoilage,
- credit-card settlement timing,
- vendor terms,
- marketing,
- unexpected equipment problems,
- lower-than-expected early sales,
- and the normal learning curve of a new operation.
Opening inventory is not the same thing as working capital.
A store can have shelves full of merchandise and still be short on cash.
A development budget should therefore ask:
- What does the store need to reach opening day?
- What cash does it need to survive the ramp-up period?
- What happens if sales are slower than expected?
- What costs are likely to be underestimated?
- What amount of cash needs to remain untouched for operations?
- Who has authority to make decisions if the opening plan has to change?
A grand opening is a milestone.
Sustainability is the goal.
What operating expense or cash need do you think grocery development budgets most often underestimate?