Event Venues: Capital Valuation

Congrats! What a celebration! Have a look at the blushing bride!

No matter what vision you’ve got in mind for your new potential foray to the events and hospitality industry, you are toying with the concept of owning an occasion place and you might be wondering exactly how hard it could be. All things considered, you enjoy the occasional party, right? You know how to manage your schedule and understand what makes an occasion great. You have an impeccable sense of customer services and understand the value of web design and development for better marketing outreach. So what else are you required to know to get it done well and make an old tired event area into a new money fountain?

As it happens, there is quite a little to know about this business before you dip in.

Today’s post helps you walk through the first step, one of the most important facets as you begin thinking about starting your own venture: The Capital.

Have You Got The Money?

Making a prediction on any future expenses of any startup company is a tricky process. Even if you consider purchasing an event business with an owner that is ready to let go of the business, both options require some know-how and insight to make your own budget and capital estimations. 

Bear in mind, the more sophisticated, polished and detailed your plan for the venue, the more likely that the process will immediately surpass seven figures. It is essential to be ready for what it charges to hit the mark and leave the impression that you need when you open your doors to potential clients and a lot of other industry professionals. 

Usually, expenses can be broken down into three (3) easy categories:

  • Assets
  • Operations
  • Regular Expenses

But for event places, expenses will probably be easier to consider in such five (5) enlarged classes and will serve as the foundation of your initial estimated funding:

  • Physical Assets
  • Operational Assets
  • Operating Expenses
  • Team
  • Estimated Budget

Let’s get into it.

◈ Category 1: The Building.

To begin with, do you have access to a commercial property, or do you have to find a person? Will you want to have your own building, or rent a building from an existing property owner? Both come with their very own challenges. Consider talking to a commercial real estate agent in your area to ask significant questions about what price per square foot they see selling for both industrial rentals and purchases. This will give you a reference point on what to expect depending on the square footage you require.

Bear in mind, if you intend on doing your own catering, you’ll need more square footage which isn’t rentable in the building to house the kitchen, walk-in coolers and freezers, ovens and ranges. Catering kitchens additionally call for a significant number of prep space for large, functioning teams to dish meals and get it out fast.

In case your commercial property demands significant build-out, remember the expenses of architects, structural engineers (especially if the property is historic), general contractors, electricians, contractors, and other technical contractors for noise, lighting, projectors, displays and high-speed Wi-Fi that’s suitable for lots of simultaneous connections. If you’ll have your own parking, do not overlook the cost of the parking lot and any completing it’s going to require.

Other areas to think about adding to your venue are a decorative party suite, meeting room breakouts and other small rooms for offices, coat check, etc.. In addition, don’t forget to leave some space for vendor load-in areas. It might also be beneficial for you if you try to follow what other successful event properties are doing. Properties like the Melbourne stadium, while it’s not currently being in the property market, is an example of a high traffic venue with an extensive list of facilities. You will want to set this as a standard for your new venue.

◈ Category 2: Operational Assets.

While the building and its elements are one of the expenses you’ll make, another big part of your expenses include items like furniture (tables, chairs, cocktail rounds, etc.), staging, dance floors, audio-visual gear, construction signage and potentially other specific rental items like podiums, microphones, etc..

Your staff will also need a multitude of supplies such as computers, desks, printers, and similar operational items. If you are planning on serving food, you may also need plates, glasses and silverware. If you are planning to rent out a bar service, make sure to get at least a team of bar staff ready. Take a look at the nearest event spaces with bar for hire in Melbourne for reference.

Think through precisely what your venue performance will look and feel like and jot down each possible thing you’d like in place because you open your doors. It is much easier to trim your budget than to realize you’ve forgotten thousands of dollars of items you need to be successful.

◈ Category 3: Running Expenses.

This category covers the regular operating expenses of the business. Matters that fall within this area include utilities, maintenance fees and Wi-Fi services, security system tracking services, cleaning fees and other small business services such as legal, accounting, finance and taxation, promotion and maybe even a web maintenance if you had a custom web design done for your establishment. You might also have other industry-specific tools and place software purchases.

These are the sorts of expenses that will often occur for the company and needs to be considered as part of their monthly budget.

◈ Category 4: The Team.

Technically speaking your group’s expenditure will roll into your own working budget, but breaking it out in your head will help you separate fixed aspects of your financial plan vs. other bits that have more flexibility.

The team might just consist of you in the beginning, and you may opt to forgo a salary as you begin to keep expenses minimal for the new place. Or, you might plan on hiring a ton of sophisticated and experienced venue personnel immediately.

Do a little research for what estimated venue manager salaries are suitable in your town and include what you believe is probably the approach you will take on your budget. Don’t forget that employees will also require several additional expenses for taxes, health care and other benefits.

Independent contractors (1099) may also be an option for you as you begin your new venue, and could be engaged on a per-event basis. Verify your country’s employment laws along with your lawyer to pursue the option that is best for your situation.

◈ Category 5: Estimated Monthly Budget.

After you have a solid idea about what the cost side of this new place will need, it is time to manage an estimated annual revenue projection so it is possible to determine how many months it will take until you hit your break-even point together with the new place. A way to predict the revenue projection is by conducting a property valuation.

More research should be completed to ascertain what rental prices are appropriate for your new venue operation. In addition, you will need to be realistic about how much time it will take to start generating any rental revenue as you are finishing your renovation or built-out process. There will likely be a 6—12-month gap in full operational income from a flourishing rental business that is predictable and quantifiable as well as your funding projections should account for as much.

It’s a good idea to have anywhere from 6 to 12 weeks’ worth of operating expense surplus on hand along with the entire build-out budget with an extra 30—50% margin for unforeseen expenses.

Therefore, for instance, let’s say you estimate your build-out costs are $1M and your monthly expenditures will be $15K.

You might choose to set aside $1.3 — $1.5M for build-out budget, and another $117K — $270K (6 x $15K + 30% gross up to 12 x $15K + 50% margin) for its operating budget.

You can see how having as much as $1.8M readily available to you versus merely the $1M starting figure may give you more breathing room if anything goes as planned along your place ownership journey that year.

Adding an investment partner to have the event venue along with you may help minimize your risk and help share the expense of the startup costs associated with this area of the company. It is certainly an option worth considering if this is going to be your first attempt at owning and operating an event place. 

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