Thursday, April 16, 2009

How to Put Up a Hardware and Construction Supply Business

With the increase in population, the demand for living quarters also increase. No doubt, the market is there. It is up to you, as an entrepreneur, to tap and take a share of that market.

Capital Investment


"How much capital do I need?" That is always the first question that pops up in our heads when we think of business endeavors. Let me just clarify that question. I think there is a more appropriate way to ask that because from there, we can determine the kind and extent of hardware/construction supply business we intend to undertake. It should be: "How much capital do I intend to invest? Is it or will it be enough to start the business?"

Okay, so let's break down the capital investment into two: Fixed capital and operational/working capital.

Fixed capital refers to immediate expenditure like construction of the place of business, rental; registration fees, cost of printing of invoices, delivery receipts, other business forms; store equipment and fixture such as tools, chairs and tables; cost of product display preparation; cost of warehouse if any; cost of delivery vehicle if any; initial product stock inventory.


Operational/working capital refers to the monthly expenditures: manpower remuneration and salaries; bills (water, telephone, electric); monthly rental (if leasing the place of business); gasoline expenses for delivering vehicles; payment of monthly stock purchases. When starting, you won’t always rely on the money your business will generate. What if you won’t be able to generate your expected payables? You should have a back-up capital. A capital investment budget must be prepared and set aside for the first two months of operation which can be arrived at after computing and estimating the aforementioned items.

In preparation, it is best to make your own checklist for the fixed and operational capital investment. After doing so, we can now compare and answer the question -- is the amount of capital you intend to invest sufficient enough to start your business?


Registration of the Business Enterprise


The easiest part in starting a hardware/construction supply business is how and where to register.
One must first decide on the status of the enterprise you intend to put up - whether single proprietorship, partnership or a corporation.

Once these are settled, you can now register your business enterprise with the following government bureaus:

- Department of Trade and Industry (Single Proprietorship)
- Bureau of Internal Revenue

- Security and Exchange Commission (for Corporation)

- Mayor's Office


It is necessary to register with the BIR to get a Tax Account Number for the annual income tax return. The TAN is also required in the printing of business invoice.
If you want it registered as a corporation, you need to register with SEC. For this, you will need to prepare corporation officers and by-laws. This is also necessary if you intend to export/import items. For the mayor's permit and license, you would need a barangay clearance and a barangay business permit. Your business enterprise will also have to undergo inspection from the City's Electrical/Fire/Sanitation Department before the mayor's permit & license will be released.

Location/Site Selection of the Enterprise


Everyone is aware that the location and site of one's business plays a major role in determining whether it will succeed or not. Strategic location is the key. Set up your store in places that are starting to boom. Don't up a hardware in a place where you see it is already fully developed or in a place where every corner has one already.
The viability of the business site is primarily determined by one factor: in plain view and easily accessible to prospective customers. If this factor is satisfied, then one can expect to generate a bigger volume of sales. Aside from a good location, there are other factors to consider such as the size of the site for product display and stock storage (warehousing capability), ample parking lot, nearness to other competitor hardware stores, and most especially the rental cost of the business site.

Manpower/Personnel Requirement and Selection


The personnel needed to operate a hardware/construction supply enterprise are as follows:
  • store manager
  • purchaser
  • secretary/filing/acct. clerk
  • cashier
  • salesmen/salesladies
  • store helper(s)
  • delivery driver
  • delivery helper(s)
The store manager is also the owner of the business. He oversees the smooth flow of work, both operational and marketing. The purchaser is responsible for maintaining the stock inventory level as well as determining which product is viable or not. A secretary/filing/accounting clerk is a necessity in the hardware business. He/she is responsible for all the paper work in the business. The function of the cashier is most often times also taken by the manager. Whether to hire a cashier or not is determined by the volume of the business. The store helper(s) also serves as the stockman. He is responsible for receiving and releasing the product line of the business. The delivery driver and helper(s) ensure that items for delivery reach customers in good condition.

Product Line Identification and Selection


Hardware and construction materials should be broken down into two categories: Structural/Construction and Finishing/Hardware.
Under the category of structural materials will fall the following:
  • gravel and sand
  • cement
  • hollow blocks
  • steel bars
  • lumber and wood
  • pvc and GI pipes
  • galvanized iron and roofing sheet
Under the category of finishing materials will fall the following:
  • paints
  • plumbing fixtures
  • electrical and lighting fixtures
  • ceramic tiles and wood parquets
  • kitchen sinks
  • aluminum and glass
  • hardware items
As for the items you will be selling, suppliers usually give terms. Like for finishing/hardware items, they usually give a 120-day term. For the structural/construction items, shorter terms are given e.g. 15-30 days, and sometimes cash basis.

Here's a tip: Finishing/Hardware items give a better profit compared to structural/construction materials, so you have to really compete with others. You must be aware of your competitor's price. You have to be always updated on construction/hardware materials.

Store Preparation, Design and Display


The presentation of one's business plays a big role in the sales of your product. Display counter must be designed and placed in such a way that they are readily accessible for customers inspection. This is particularly true for most hardware items. It is advisable to categorize the products on display to facilitate and serve the customer's requirements.


Sample Checklist on Capital Investment Requirement

FIXED CAPITAL
  1. Registration Fees
  2. Construction or Rental of Store (Advanced Deposit)
  3. Warehouse
  4. Delivery Vehicles
  5. Store Equipment and Fixtures
  6. Store Design and Display
  7. Initial Stock Inventory
OPERATIONAL/WORKING CAPITAL
  1. Monthly Rental
  2. Water/Electric/Telephone Utilities
  3. Salaries of Personnel
  4. Delivery/Vehicle Expenses
  5. Other Expenses
  6. Stock Replenishment Budget
Product Stock Inventory and Control

Upon completion of the product identification and selection, as well as preparing the store display and design, one is now ready to make initial purchases for stock inventory.

A warehouse for the incoming stocks must, therefore, be ready and prepared.
This is the most strenuous part of establishing and starting a hardware/construction supply business. One must have a listing of supplies with their corresponding product line. One must get in touch with them, canvass their prices, and get the highest possible terms and discount.

In most cases, suppliers have sales representatives, and you can ask them to visit you. One can get a listing of said suppliers from the telephone directory, advertisements of product, or through friends in the hardware/construction supply community. When you have identified the product you intend to carry, it is advisable to concentrate first on these items. There is always room for production expansion later.

One should start purchasing the common and essential items since this is necessary for a presentable store display and showcase. The level of stock inventory of each item is determined by the saleability and disposal of said items.
To ensure facility and ease in making inventory, stock cards must be used. Items must be properly entered and coded in the stock card. This is also essential to be updated to regulate and control product items. Catalog the stock cards according to product items to be able to easily discern stock availability. Proper warehousing and stocking of products must also be pre-planned. Again, product categories and separations must be made. Stock control can only be achieved if updated records of incoming and outgoing stocks are kept.

Operational Guidelines and Procedures


This refers to organized and systematic flow of work. The manager must establish specific methods of doing thing. He must see to it that all aspects of business operation is guided by standard methods, pinpointing the personnel involved and the procedures to be followed to facilitate a smooth work flow.
Incoming stocks, for example, must be properly received and checked if they are in good condition, etc. Release of goods to customers must also be done according to the dictates of the purchases made and covered by S.O.P. This is specially essential in the delivery of goods to customers.

Proper procedures in selling must also be well-established from the moment a customer comes in to the time he/she left.
Specific cases, as in damaged goods (who shall be held accountable) or returned goods is another example. Guidelines and procedures - from the simplest task to the most difficult, to the unexpected cases that will occur - all store personnel must be well equipped to properly handle them.

Sales and Marketing Strategies


In any marketing endeavor, providing good service is essential. The salesman must establish a personal interaction with the customers to gain their confidence, and thus, ultimately make a sale.

Regular and prospective clients of the hardware/construction business are mostly architects, engineers, homeowners. These are targeted group and hence, any marketing thrust must be directed on them.
Although pricing is a significant factor considered by these group, it entails a lot of lad work and honest to goodness relationship that the salesman must be able to establish to generate a sizable volume of sales. Aside from having in-house salesman, the trend today is to have field salesman who will go out and close a deal with prospective clients. It is also common to see big advertisement of SALE being made by hardware and construction supply enterprises. The manager must develop his own unique method of attracting more to generate more sales.

Projected Return on Investment (ROI)

Everyone is aware that to open a hardware/construction store, one must have the intention to be in the business for quite a long time. It is not like a simple sari-sari store that one can close shop anytime. No matter how much minimum capital is invested, any loss is something to reckon with. In short, the return on capital invested is not instantaneous.
The projected ROI can, however, be estimated based on the business' monthly sales. A simple method to estimate the length of time of the ROI would be the following:
  1. Get the gross percentage of profit from the monthly sales.
  2. Deduct the monthly expenses (operational and working capital, excluding stock replenishment budget) to get the net profit.
  3. Divide the net profit from the fixed capital invested.
For example: Monthly Sales: P720,000
% of profit assumed at 20%
computed at 24 days in a month: P144,000
LESS: Monthly Expenses: 84,000
MONTHLY NET PROFIT: P 60,000


FIXED CAPITAL/NET PROFIT = LENGTH OF TIME OF ROI
P 1,000,000 / P 60,000 = 16.66 months or approximately 1 year and 5 months

Examples of Common and Essential Items for the Hardware/Construction Supply Enterprise

Bail and Claw Hammer | Hand Saw | Hack Saw Frame | Shovel | Platering Trowel | Wooden and Aluminum Level | Tape Measure | Plier | Long Nose | Diagonal Cutter | Side Cutter | Flat and Philip Screw Driver | Tinner Slip | Pipe Wrench | Adjustable Wrench | Open, Back, Combination and Socket Wrench | Padlocks | Drawer Locks | Barrel and Flush Bolts | Safety Hasps | Door, Cabinet, and Piano Hinges | Dead Bolt and Rim Latch | Entrance, Bathroom and Handle Locksets | Door Closer | Door Track | Door Hanger Bracket Set | Cabinet Handle and Knobs | Flanges (end and center post) | Chrome Pipes | Sand Paper | Scrapper (paleta) | Rubber Hose | House Coupling | Hose and Plain BIBB Faucets | Shower Valve and Shower Head | Floor, Duplex and Basket Strainer | Wood and Metal Screws | Drill Bit and Aluminum Rivet | Paint Brush and Paint Roller with Tray | Veto and National Wiring Devices (Switches, outlets, and plates) | Eagle Wiring Devices (plugs, sockets, fuse, etc) | Safety Switch Box | Circuit Breaker | Transformer | Porcelain Receptacles | Bulbs and Lighting Tubes | Intercoms | Exhaust Fans | Gate Valves and Check Valves | Paints (oil and latex) | Tinting Color | Water Closets and Lavatories | Paint and Lacquer Thinner | Ordinary and Colored Cement | Sahara Cement | Wood Preservatives | Ceramic and Vinyl Tiles | Wood Parquet | Plastic Diffuser

Special Items
  1. Ceiling Lamps
  2. Formica
  3. Penlight and Spotlight
  4. Bathroom Accessories (towel rack, ring, soap dish, robe hook, soap & paper holder)
  5. Water Heater
  6. Wire Basket
  7. Kitchen Sink (porcelain Enamel and stainless)
  8. Range Hoods
  9. Medicine Cabinets
  10. Door bills & Chimes
  11. Telephone Shower
  12. Motor Pumps
  13. Power tools
  14. Bath Tubs
  15. Shower Enclosure
  16. Glass Blocks
  17. Rubber & Aluminum and Brass Stair Nosing
  18. PVC Door
  19. Gypsum & Acoustic Board
Download: How to put up a hardware and construction store manual


8 comments:

mamamikks said...

Thanks! I've been looking for something like this because I'm planning to put up a business concentrating on tiles and paint. This is a very great guideline. More power!

mamamikks said...

Thanks! I've been looking for something like this because I'm planning to put up a business concentrating on tiles and paint. This is a very great guideline. More power!

lilywhite said...

Thanks mamamikks for your comment :) I also want to venture into this kind of business in the future. Good luck to us!

Anonymous said...

Thanks for the information. This will be a big help in setting this kind of business. More power to you!!

wltr said...

Thanks for this information. This will be a big help in putting up this kind of business. More power to you.

Yang0640 said...

THANK YOU FOR THE INFO..A VERY BIG HELP FOR ME AND MY TEAM FOR OUR PROJECT FEASIBILITY STUDY THESIS! THANK U SO MUCH!

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construction supply philippines said...

Wow, thank you for sharing this information! It will be a great help for business men who are just starting their construction supply business.

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