Advice on starting a Builders Merchants

[larkfield]

Just before this Covid 19 crisis, I was close to finishing a small industrial estate development, the units are built, but we are worried that we won't get tenants or a decent resale price with the current situation. So, I thought I would occupy one of the units and part of the yard, and start a small builders merchants, I am next door to a large builders merchants , and I am confident I can compete on price, they are a large company with a lot more overheads than myself.

Any advice on where to start, I have made contact with some quarries for aggregate, and concrete plants for blocks etc.. , drainage supplies etc... I have about £100k to spend on stock, anyone suggest a good split, and what is good to keep.

Also, I am going to buy a small hopper for filling jumbo bags, and a diesel forklift truck, what would you suggest for filling the hopper ?

 

[Scalloway]

I am confident I can compete on price, they are a large company with a lot more overheads than myself.

They may also have deeper pockets than you do. All they need to do is undercut your price and hold it until you go out of business.

 

[larkfield]

They may also have deeper pockets than you do. All they need to do is undercut your price and hold it until you go out of business.

Its a bit of a David and Goliath situation , I know of a small builders merchants 6 miles away, which are giving our local Selco branch a hard time. I have no borrowing on my site, and other streams of income, so wouldn't be going out of business that soon.

 

[MBE2017]

Whilst £100k sounds a lot, bear in mind many companies will be wanting credit terms, so that reduces your figure quite substantially. I’m not trying to pour scorn on the idea, but I think you will need a fair bit more behind you.

I used to run Electrical Wholesalers for several companies, even a small local branch would cost £3/6 million to set up and run from new, clients who agreed to 30 day terms often paid at 90 days, at £20k month for a reasonable account, that is £60k exposure.

Not all are as big or small as that, and I expect the amounts might differ, but the economy was flying generally good most years as well.

Best of luck, but be careful on your profit and loss forecasts.

 

[Mark T Jones]

I'd be very wary of competing on price alone - as the saying goes, you are a penny away from failure.

One thing yu need to consider is offering credit, since a lot of your bigger compteitors will operate largely on credit accounts - this is a very risky area to get in to.

A good friend of mone runs an electrical wholesalers; they NEVER compete on price & (until lockdown) were running flat out whilst the cheaper big boys were struggling. They also insure all their credit accounts - having learned the hard way!

 

[Chris Ashdown]

I used to have a workwear company which mainly sold mens workwear plus a lot of medical and chefs uniforms, The main reason we lost sales of workwear was the emergence of Screwfix and Toolstation where all the tradesmen went there to buy their equipment and parts and brought the workwear at the same time

The moral is although you can be the lower price, the outlet with the one stop for all products will have a massive advantage

Do you have a delivery lorry with Hiab to deliver the aggregate or do you expect them to come to you for the odd ton or 5

 

[Darren_Ssc]

You see a lot of handyman types and cowboys buying sheet materials and such from B&Q, all paying cash. Your market may be with these people rather than traditional builders who (as mentioned above) will expect credit terms and custom pricing.

Chris makes a good point about Screwfix but they are somewhat limited to smaller items.

Also worth mentioning that it wasn't long ago there was a shortage of bricks. In such times you may find the likes of Travis Perkins and Selco getting first dibs on any stock there is. Competing on price with these boys isn't always going to be winner.