Ask yourself if this project really meets the needs of your business. Do you need to expand your facilities to meet growing demand or to increase productivity? Do you aim to increase your income by leasing space to other businesses?
As soon as you have decided to move forward, don’t expect an easy path. “Unexpected problems such as budget overruns, unreliable contractors and delays are common. We see dozens of cases at BDC, and it’s just a sample. You have to be willing to manage change when it happens. The more time we have, the better equipped we are to adapt our plans accordingly,” says Elizabeth Olley, Senior Director, Corporate Finance – drafting loans at BDC.
Because of its size, a construction project requires a significant commitment on the part of a contractor. It should be remembered that the time and energy invested in building a building could just as well be devoted to the company itself. Even if you hire a contractor to supervise the work, you will still need to be involved in day-to-day decision-making, which will inevitably leave you with less time to deal with daily activities.
Consider other possible scenarios, such as leasing space or buying or renovating an existing building. If in doubt, use a financial advisor or consultant to help you assess your situation. After you’ve carefully set your goals, you can also hire engineers, architects and interior designers to help you find the best solution for you.
Whatever your decision, your long-term needs are another important factor to consider. Will the space available be sufficient to cope with the growth of your business in the future? You want to avoid being too cramped in your new premises and being forced to make other costly investments.
A bank advisor can help you determine the financial viability of your project, the amount you will need to complete it, and the financing solutions best suited to your needs. It is important that you have a good business plan in place at the outset that allows you to make realistic revenue forecasts, and in doing so, you will reassure lenders about your ability to complete a project of this size without jeopardizing the financial health of your business.
Once you have decided to build a building, the next step is to make sure you have complied with all local regulations and have the right permit. It is wise to take care of these formalities as soon as possible, as it is not possible to undertake the construction without a permit. Regulations can vary significantly depending on whether you build new premises, transform existing facilities, or change the appearance or purpose of a building.
Under Canadian law, the regulation of construction projects is the responsibility of provincial governments and is often managed by municipalities. Building codes generally apply to new construction and typically address fire safety, structural strength and occupant health. The more recent codes have additional regulations regarding accessibility for persons with disabilities, and energy conservation.
Consult your municipality to find out exactly what you can do with and without a permit.
Discouraged by the high cost of professional services in building design, contractors will sometimes neglect the essential step of hiring a good architect or designer. Even if you think you can save money in the first place, you will ultimately lose out because of problems like the misuse of available space. “It’s not just a box you’re building, it’s a project that has to meet all your requirements,” says Olley.
There is a need to hire experts to ensure that functional and efficient buildings are built. In a manufacturing plant, for example, you have to make sure that your building and layout allow you to integrate your equipment. BDC’s consultants offer improvements to business and planning processes to help companies build production chains that maximize productivity and eliminate waste.
Ms. Olley advises business owners to realistically assess their time commitment to the project. Firms often lose contracts during construction projects because the management team places less emphasis on the firm’s performance than on the construction of the new building. Depending on the scope of the work, Ms. Olley recommends hiring a construction manager to manage this complex logistics and ensure that the architect, fit-up designer, engineers and contractors work in harmony.
It is also essential to ensure that the cost price is correctly estimated at the outset. BDC and other banks can give you helpful cost and budget advice and tell you if the proposed price per square foot is fair.
Business owners should also be wary of quotes that seem too good to be true. “Always read the inclusion and exclusion clauses in your contract. Seemingly minor details, such as the siding on your driveway or the water easement fee you have to pay, can significantly change the price at the end,” says Olley.
Since it is not always possible to predict costs, make sure you can cover the extra costs by developing an emergency plan that represents 5% to 10% of the total cost of the project. Even if you get a fixed price contract, some aspects of the work – such as additional costs for landscaping, electrical or plumbing changes related to the installation of the equipment, or additional moving costs – may elude you.
“Don’t wait until the last minute to make an appointment with your banker and discuss your financing needs with him. Involve your bank in your project from the outset. It’s never too early to do the right thing,” says Olley. A financial advisor can help companies assess the economic viability of a building and the amount of money needed from start to finish. Companies seeking financing must expect to demonstrate strong balance sheets and sufficient profits. BDC provides funding for building construction, which covers all aspects of a project. “You won’t need interim financing, because the great advantage of doing business with the BDC is that you are usually given a single loan, spread over the entire construction period. You will know all the costs of your financing right away,” notes Olley.
It is essential to select a competent construction contractor. When you do your research, don’t just look at the price offered. Consider other factors. Check whether the company has the necessary authorisations, is financially stable and is willing to provide references and guarantees for the work carried out. Ask your contractor to guarantee the maximum price to protect you against cost overruns. This will encourage contractors to provide accurate estimates and to manage costs effectively.
Architects and banks can often refer you to successful contractors. It is useful to get at least three quotes. “It’s a good sign if the entrepreneur listens to you and you have a lot of chemistry with him. After all, you will be called upon to work closely together. A conscientious contractor will show you around other buildings he has built and shown you the results of his work. You need to know that he will live up to his commitments,” says Olley.
See if your contractor has expertise in sustainable construction. Ask satisfied clients to give you references, and make sure you get all the information about possible legal conflicts in the past. Ask your contractor if he is using new construction methods and is aware of new methods to achieve energy efficiency.
Also, check who does what. Small entrepreneurs often work only in a specific geographic area and subcontract to larger companies. Also make sure your business has no cash management problems.
Once the building is under construction, the most common mistake is to make last-minute changes.
“It’s what I call the syndrome of’ while we’re at it, why not” says Olley. Never take hasty decisions, as they can cause delays and budget overruns.»
It recommends that business owners remain in close contact with the architect or designer to ensure that any changes are justified and do not result in the loss of their portfolio. “I’ve seen a lot of well-managed projects go over budget because of last-minute decisions. Stay alert from start to finish,” she concludes.