Buying and Setting up a Business with a Post Office - A Guide

Buying and Setting up a Business with a Post Office – A
                            Guide

NOTE: The information in this document is not intended as an exhaustive list of all the
information you require in order to set up a business with a Post Office. As a prospective
purchaser you should conduct your own thorough research before investing in a retail
business with a Post Office. You should seek independent advice from qualified and
experienced organisations that specialise in retail businesses.

1. Introduction

The following information gives some tips and advice relating to the purchase or setting up of a
Post Office and Retail business. You can also contact the National Federation of Subpostmasters
(nfsp.org.uk) – find out how their members run their businesses and maybe arrange to spend
some time with a Subpostmaster or Operator. Post Office Ltd can also be approached if a
candidate wants to understand what it is like to provide Post Office® products and services –
start with looking through the content of our general website.

2. Routes to Buying or Setting up a Post Office in a Retail Business

There are three distinct routes:

            You seek to buy an existing retail business with a Post Office that has been
             advertised by a commercial estate agent (or another advertising medium) by the
             current business owner.
            You are an existing retailer responding to an approach from a Post Office
             representative or responding to a Post Office Ltd opportunity advertised on its
             website to install a Post Office® Operation within your existing retail business.
            You respond to a direct Post Office opportunity (where there is no existing retail
             business) advertised by Post Office Ltd on its website and consider setting up a
             new retail business to also incorporate the running of a Post Office.

While there are key differences between the three types of opportunity there are also
many common considerations to each and a disciplined approach to evaluating any
business venture is crucial before undertaking any significant investment.

3. Types of Post Office® Branches

A full explanation of the different types of Post Office® Branches is set out in the
previous section of Post Office Ltd’s website. If you are responding to an existing
retailer’s advert via a commercial estate agent or other advertising medium, check that
the opportunity you are developing is based on the correct branch type subsequently
advertised by Post Office Ltd. For any fully commercial propositions the most likely Post
Office types available will be the ‘Mains’ offer or the ‘PO Local’ offer.

4. Understanding what you are Investing in

People will often want to know what makes a successful independently run retail
business with a Post Office. The point is that all Post Offices and retail businesses will
have unique aspects based on their locations and type of premises so there is no one
‘magic formula’. The following list summarises a few common factors you will find in
such successful businesses:

    The retail turnover is often more than 5 x the total Post Office Fees or
     remuneration
    The operators are dynamic and progressive in their outlook
    They are sales and customer focused
    They recognise the important role they have in their communities and build on
     the opportunities that this can provide
    Their shop has a professional retail format and often operates under a symbol
     group (e.g. Londis, Spar, Premier, etc.)
    The store opening hours optimise the opportunities to sell retail and match or
     beat the competitors in their same catchment.
    The Post Office and retail business is fully integrated in its staffing and operation
    The layout of the branch has a logical flow ensuring all Post Office customers
     pass through the retail offer on their exit from the shop
    The operator keeps track of all aspects of the shop performance and regularly
     reviews and makes changes to keep their shop competitive and profitable

5. Contractual Obligations & Responsibilities

Ensure you clearly understand the contractual obligations and responsibilities of being a
Post Office Operator. If you have expressed an interest in a Post Office opportunity we
will send you some details of the terms and conditions for operating a Post Office.

6. Overview and Evaluation of Advertised Post Office Fees (or Remuneration)

Any Post Office opportunity advertised by Post Office Ltd will include a range estimate of
the total Fees (or remuneration) that can be achieved. Post Office Fee levels are entirely
dependent on the sales performance of each operator so any prospective buyer of such a
business needs to appreciate the performance based payment structure. This is not a
salaried or employee based offer you will be a self employed business person or a
Company – there are no guarantees regarding the levels of Fees or remuneration that
can be achieved. You need to conduct the research to support the Fee levels you provide
in any final business plan submission.

 The Post Office offer also does not carry substantial margins once you fully assign all
the costs of operating them. The key attraction is the potential footfall generator you
are acquiring. You can become a destination store if you have a Post Office in your shop.
The challenge is to get those Post Office customers to spend in your retail store. Don’t
forget that many Post Office customers leave a counter with more money than when
they came in.

When you are considering a Post Office opportunity you can request a breakdown of all
the business currently conducted at the proposed location. You can assess from this the
types of customers you may have or retain. You can also conduct your own analysis
around how you think you could develop that business. Think about the market areas
and the trends and assess those products that may be growing and others that maybe
changing.

If you are buying an existing retail business with a Post Office do not rely on the buyer’s
information concerning the Post Office business. Always compare any data provided
with the information available from Post Office Ltd.

7. Evaluation of Retail Host Business

When evaluating any Post Office and Retail business you should be looking to ensure
there is evidence of good integration and optimisation of the opportunity. Here are a
few of the elements you should evaluate:

    Make sure of the customer profile and check the ‘pitch’ of the retail offer – is it
     the best to suit the profile and optimise sales and margin.
    Assess competition in the area and consider what will make a customer come to
     you instead of them. What is your USP (Unique Selling Point)?
    Why would customers be loyal to you, how price sensitive are they?
    How is the retail presented and laid out (merchandising).
    Is there a Post Office offer at the retail till for quieter times and out of hours
     service? (Note: this is the only option for a PO Local offer).

 How does the customer flow through the branch (typically ensure the Post Office
     operation is at the back of store (if a Main Post Office) and the best ‘impulse buy’
     products are positioned in normal customer flow.
    Retail tills normally near the exit and allowing full view of store to deter stealing
     (‘shrinkage’)
    If there is a lottery terminal is it in the right place?
    Are their untapped potential vending opportunities to investigate (e.g. coffee
     machine, ATM, etc.)
    Get the balance right between customer access, environment and optimised
     selling opportunity

8. Evaluating Current Post Office and Store Operation

Assess staffing of both the Post Office and the retail in relation to customer demand.
Consider rates paid to staff and establish how your own attendance may impact on this
and the need to factor in possible redundancy within any purchase price. Make sure you
understand all relevant employment laws.

9. Assessing the Value of an Existing Post Office and Retail Business

You should approach this with caution and negotiate hard in the same way you would
approach any large purchase. Here is a list of some factors that may be material in your
valuation assessment:

      What type of property is being provided (Freehold/Leasehold)?
      How much is the property worth without any business?
      How much is it worth without the Post Office operation?
      What is the current business plan?
      Get a copy of the accounts (and preferably audited) seeking independent
       professional financial advice on the most recent business performance.
      What are the most important and profitable market areas and what are the risks
       and opportunities?
      What is the potential to develop the business further?
      What is the stock valuation and is it accurate/valid (stock needs to be sellable (in
       date, in good condition, etc.)? Physically and thoroughly check yourself. If not re-
       negotiate.
      Where the premises is leasehold, check that the current rent is at the current
       market value for that location. Ensure that any rent review due is not going to
       result in a significant rental increase.
      Note that the main drivers of the business value will be the property value and
       the retail turnover/ net profit margin not necessarily the size of the Post Office
       operation.
      What developments are planned for the area in the next ten years? – contact the
       local council to obtain this information.

 Is your money better staying in the bank? – What is the return on your
     investment?
    If something went wrong how would you exit with the minimum loss? – Test the
     principle even if you don’t think it is high risk.

As with any transaction there is a negotiation to be completed. You need to fully satisfy
yourself that what is being presented is accurate and realistically priced – If not make a
lower and more realistic offer. The final option is to seek a better proposition elsewhere.

10. Is the Business right for you?

Make sure you have the right skills for the operation, for example:

    Large Post Office branch (3 positions or more) – You will need to manage people
     – what are your management skills?
    Do you intend to work in the Post Office regularly yourself (providing personal
     service) or do you intend to appoint a manager? What controls do you need to
     put in place to ensure the business is operated effectively and you can trust the
     people you select to run your store?
    Are you sociable and like people? – You will have many regular Post Office
     customers and some may need a friendly and patient person.
    Are you ready to take on a role that makes you a key part of the community?
    What experience do you have of retail? – are you prepared to open the hours
     needed to compete with other retailers?

11. How are you Financing the Purchase?

    Make sure your business plan is robust and not reliant on a heavy level of
     borrowing.
    Where substantial loans are required, factor in a range of interest rate levels and
     test the robustness of the net margin of each scenario

12. Other Contingency Plans

Consider contingency plans. What is the risk level and how would you manage it if:

    A major retail competitor opened nearby and seriously eroded your retail sales
    Post Office Ltd lose a key contract or cease to provide a key service

13. Taking Over a Business or Commencing a New One – The First Year

Things will rarely go well from day one. Your business plan should not assume you can
‘hit the ground running’ unless you are buying an existing well operated business and

you have taken the time to understand how it works and received appropriate training
before taking up the appointment. Particularly consider:

      How any changes will impact on existing staff and their support/co-operation
      How customers will respond to changes and how quickly
      How long it will take to build up any new or changed retail proposition
      What to do if performance is not meeting the original business plan
      Cash flow – make sure you have this planned and accurately track it. Most
       businesses experience their biggest problems in their initial months because they
       do not properly assess the cash flow requirements to set up and operate the
       business

14. In Summary

We hope you have found this brief guide and set of tips useful and interesting. We want
you to buy into a successful business venture. Taking care to buy the right one and set
it up properly is crucial to your future.

For many this will be a challenge with all the potential rewards from becoming your own
boss.

Make sure the rewards equal the risk and returns and we wish you every success in your
future venture.

Good luck!