Business inspection: There’s no home like your own
Monday, January 12, 2015
Buying the factory it rented for the past 15 years has given Wallace Print security, stability and further scope for business expansion.
From a personal perspective, taking the first step onto the property ladder can be a liberating experience. Aside from the benefits of additional security and stability, free from the restrictions of renting, homeowners can decorate and refurbish their surroundings exactly as they wish to. And the same applies to businesses that purchase their own premises.
In October, Rochester-based Wallace Print completed a deal to buy the freehold of the 1,115m2 building it has leased for the past 15 years. The firm has found the venture, which underlines its future growth ambitions, to be a positive move all round.
The business, which operates 24/7, produces items including POS, banners, exhibition stands, signage and outdoor displays. It is anticipating a turnover of around £2.7m for the current financial year, up from £2.2m last year.
Overseen by managing director Gary Wallace, the majority of the company’s turnover now comes from digital printing driven through its website and e-commerce platform, with online orders representing around 50% of its annual sales.
Wallace opened the business, which started out as a screen printer, with his father in 1985. And while digital is now the firm’s dominant source of revenue, it continues to offer screen printing as well as litho and finishing services to a wide customer base.
“It was only seven or eight years ago that we got into digital print. Screen printing was quite lucrative, but it began to decline. I realised that we had to embrace digital otherwise it was going to impact on us and we would start to go backwards,” explains Wallace.
Over the 15 years the company has been situated at the Rochester unit, it has seen a drop in demand for screen printing that at one point led Wallace to strongly consider downsizing to a smaller unit. But the firm’s screen printing work has now steadied and currently makes up around 20% of its turnover.
“I falsely believed that we might potentially have to move because of actually scaling down. The digital kit is so small in comparison to the screen equipment and we didn’t need the floor space that we had,” he says.
“But since then we’ve added other bits of machinery, and the packing area is substantial now; we’ve got the full collation, packing and overnight fulfilment area.”
After much thought, and with the firm growing organically into the unit with its internet-driven increase in work, Wallace decided that the space was the perfect size for the business and made initial enquiries about purchasing the unit.
“I first approached the landlord to ask to purchase the building around four years ago. He came back with a price that was substantially over market value and, at the time, I couldn’t afford to do it,” explains Wallace.
The company continued to concentrate on growing its turnover and eventually found itself in a strong enough financial position for Wallace to look again into buying the site.
“Three years after I’d first asked I phoned up and asked the landlord once again, and he accepted my offer of £600,000. We got a 90% mortgage from Barclays, with whom we’ve had a fantastic working relationship for 30 years.
“I was told directly from my bank manager that we were the only printer in this sector to be granted a mortgage of this proportion for 2014. We’ve never not paid anyone nor had any financial problems and this reflects Barclays’ belief in us.”
Wallace Print paid £150,000 in total, which included the required 10% of the mortgage as well as a range of other expenditures including legal costs, disbursements and stamp duty. Some corrections were also made to the roof for health and safety purposes.
“Altogether the process took around six months, during which time I got behind our sales like I’d never been before. We had to get the sales through in order to make profit to put into the cashflow to fund it. I put in an amount from my pocket and the balance came directly out of the business’s cashflow,” says Wallace.
The venture was necessary because moving to another rented building would have cost the firm around the same amount of money, says Wallace.
“It would have cost us a minimum of £150,000 just to move to a new rented place and get the dilapidations put back here because we’ve changed the internal shape of the building an awful lot to how it originally was. The upheaval would have been my worst nightmare and it was a massive worry because, when you’re renting, the future’s not in your hands.”
“Now that we’ve bought the factory we’re paying almost pound for pound the same amount for a mortgage that we were paying in rent, and the capital investment is going to grow and grow each year, which will reflect the exponential growth of Wallace Print.”
Now the firm is free from the shackles of renting Wallace Print has been able to implement a range of changes and plans that it couldn’t have previously considered. One of the first recently completed modifications is the installation of double-glazed windows throughout the building, while Wallace also plans to extend a 20m2 mezzanine floor that was constructed in 2013.
“We put the mezzanine floor in for expansion. Lead times are short and it was getting expensive to outsource lamination so we had a Seal laminator installed on the mezzanine and, as a direct consequence of that, that part of the business grew by nearly 40%,” he says.
The business was still leasing the factory when the landlord allowed it to build the mezzanine floor, albeit with the agreement that Wallace would have had to remove the extension if the building was sold to another buyer.
“If we’d moved we also would have had to sign a lease at a hideous increase in cost. We’d never had a rent increase here and I know that it would have gone up substantially,” he explains.
“We’ve just got rid of what was our biggest screen printing machine downstairs so there’s now some space there which we will move the laminator down into. New offices and a boardroom will then be built on the mezzanine floor and we’re going to knock the sales office walls through to allow us to immediately increase the sales team.”
Wallace has also recently established a separate new print-based business, which he says is already trading profitably. This new business will occupy one of the new offices on the mezzanine floor.
Focusing more on its staff and their specific job roles has also served Wallace Print particularly well recently, Wallace reports.
“I’ve recently split up the production management into different areas so the authority has been spread across the team. I’ve got a screen print production manager, a digital production manager, a studio manager, a sales manager and a finishing/collation and pack manager.
“They’re all taking on the duties and responsibility within their own areas and it works so much better than having one solitary person making decisions.”
A new MIS system is also currently being installed, which Wallace says will free up his sales team from around 40% of their existing work, allowing them to focus on making more sales leads and growing the business further.
Furthermore, the firm is planning to buy a fourth flatbed printer, to add to its existing Canon Océ Arizona 250 GT wide-format printer and two Fuji Acuity Advance machines, which it hopes will be installed in the second half of 2015.
The most important thing that buying the building has brought to the company though is the security of knowing that it won’t have to relocate unless it decides to.
“I think an awful lot of my staff and owning the factory brings stability to all of our team as they know we haven’t got the upheaval or uncertainty of relocating,” says Wallace.
“If we hadn’t bought the building, someone else could have. Some big blue-chip company could have come along, written a cheque to my landlord and taken it from us because there aren’t any units of our size with direct links to the motorways in this area where space is at a premium.”
With a 10-year fixed rate mortgage, Wallace says the business won’t be far from having fully paid off the mortgage in a decade’s time.
“The capital value of the building is just going to increase year-on-year and put the value of Wallace Print ever stronger,” he concludes.
Location Rochester, Kent
Inspection host Managing director Gary Wallace
Size Turnover: £2.2m; Staff: 20
Products Digital, screen and litho print; products include POS, banners, exhibition stands, signage and outdoor displays
Kit Canon Océ Arizona 250 GT wide-format printer, two Fuji Acuity Advance flatbeds, Roland XC540 wide-format printer, Sias screen-printing handbed, Sias Serifast screen printer, Summa cutters, UV combination dryers, 2.2m-wide Wohlenberg Programmatic guillotine, Aristo CAD cutter, 1.6m-wide Seal laminator
Inspection focus Buying your premises to improve security of tenure
- Thorough planning and forethought is important. Consider whether you will be able to keep up with the monthly mortgage repayments even if your workload slows down unexpectedly.
- The shape of the property market may help to determine whether buying your building is the right decision at the current time or whether it might be better to rent for a while longer.
- Closely monitor your cashflow. “Thinking about the effects on cashflow is incredibly important. You have to keep such a tight eye on it because it can always disappear very quickly so daily management is critical,” says Wallace Print managing director Gary Wallace.
- Consider whether you need all of the space in your current building before deciding whether or not to buy it. It may prove cheaper to downsize to a smaller unit.
- If you are currently leasing your premises, consider how secure your tenure is, particularly if the property is in a location attractive to other businesses. Buying your building enables stability and security of tenure. “If we hadn’t bought the building, someone else could have bought it. There aren’t any units of our size with direct links to the main motorways in this area where space is at a premium,” says Wallace.
- Factor additional costs related to buying into your calculations including legal costs, stamp duty and any potential modifications that may need to be made to the building.