Sunday, October 30, 2016

Construction Costs (The Final)

I promised to answer questions related to our mezzanine expansion project as part of the Kickstarter process. If you have questions, please ask them in the comments and I'll respond in my next post.

Construction is complete. We're putting pictures on the wall and painting the Wall of Heroes, honoring our Kickstarter backers. We still need a sound system and we would like another TV monitor, but those can wait a while longer. We're poor right now anyway, so music and TV can wait.

Today I want to write about the costs involved in this project, since it's a more objective, nuts and bolts topic. I hadn't figured all the costs until I wrote this post, but I was pretty close in my mind. There are the concrete costs, which I'll get to in a moment. These are the items entered into the accounting software. There are also a lot of soft costs, which are more difficult to quantify, but which had a big effect on this project and put tremendous stress on the business.

When we first asked for a loan, we requested and received a $50,000 construction loan from Opportunity Fund. This was in addition to the $28,493 we raised from the Kickstarter (of which we really only got about $21,000 after expenses). We also had a decent amount of cash on hand that went entirely to paying the architects. This project took so long, we paid off most of this loan before construction began. It was a crazy loan, that included paying off my personal car so it could be used as collateral, so I was happy to see it go. We received a lot of additional loans from "angels" who answered our Kickstarter request for funding. Those loans are what we're paying off now (and for the next four and a half years).

I planned to do this project with a family discount, but by the time we got from planning to execution, my brother, who was going to do the construction, had changed fields. He's now a successful real estate agent. He can sell me a building, but he isn't making them any longer. Our property management company stepped in at the last minute and agreed to do the project, even financing a portion of it, building it into our rent over the next five years (another form of loan payment).

They gave us a decent bid, but even that was a moving target, increasing by $20,000 between our request for a proposal and actual execution of the contract a year later. Eventually we signed our new lease, with construction, several days before our current lease expired. The delay in the project was about finding a builder, first my brother, then a series of other much higher bids, and finally property management. I believe we signed our lease on a Monday and it was scheduled to expire on Wednesday. That's how close we came to being in serious trouble.

So how much did it cost?  Here's the break down from start to finish, 2014 through 2016:

Construction $81,334
Architect & Engineering $39,431
Painting (Professional) $6,448
IT & Infrastructure $3,051
Storage $1,770
Painting, Staff $500
Alarm System (replaced) $481
Locksmith $159
Total $133,174

This is around twice our initial estimate. There are also soft costs as well. The project was supposed to take 4-6 weeks, but took 6 months instead due to some serious miscalculations on the part of the (now former) project manager. The losses on the income from not having our space available is probably another $15,000, but overall, it wasn't as devastating as I had imagined. My 60% reduction in sales prediction wasn't remotely close.

Because the project took so long, really to a legally actionable degree, we received some rent concessions to make up for this.  We got a free month of rent in our contract for them being late, along with three more months negotiated to take on some of the construction ourselves (the painting). That totaled over $32,000 in free rent, which makes the cost overruns a bit more palatable. Half of that is future rent, so we're still hurting.

So where are we now? We're going to survive! We're in a deep financial hole that we're digging our way out over the next couple of months with our "free" rent. Each month we get a little bit stronger, and with the holidays coming up, we should be back to normal by 2017. If you're a customer, we could sure use a little extra help this holiday season, maybe an extra game purchase instead of socks. I always hated getting socks.

If you have questions, please ask them below. If this sounds like "seat of the pants" high risk chaos, welcome to small business!

We had an old Yugioh poster in a frame and a bunch of
architectural plans lying around. What to do...

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