Shopkeeping

January 5, 2004 10:18 AM

Has anyone had experience opening a small shop as a business? What are the pros/cons of such an undertaking? If you have, please share a bit of the highlights and lowlights of the endeavor! (more inside)

My spouse and I are considering opening a shop in our town of 50k people. While exploring the idea, we are asking for feedback from anyone with a related experience. Any help is greatly appreciated.

posted by BrodieShadeTree to work & money (11 comments total)

What type of shop?
posted by five fresh fish at 10:56 AM on January 5, 2004

Well, I would start by making an in-depth business plan. Research, research, research. Then let it sink in that you will have no life and no money for 3-5 years and that what money you might have left could be wiped out - possibly through no fault of your own. And take a look at these AskMe threads about Opening a Computer Mini-Brewery and Employed SB Owners. Not to sound pessimistic, but FFF hit it on the mark. What, where, when, how and why are at least the beginning, and it doesn't seem that you have a lot of that here. Ask your local Chamber of Commerce for advice, go to a lawyer and talk about incorporation or forming a Limited Liability Corporation, not to mention insurance, taxes [You have a CPA, right?], Real Estate Agents, etc. It really is important to have a plan short [1-2 years] and long term [5-15 years]. Do you want to work full time for the rest of your life? Who are your competitors - local and Regional? What are you selling? Is it a commodity good or is it a niche product? Ask your friends and family if they would buy your product, and then ask strangers.

I'm sorry if I sound snarky, but I have worked at places that had so much potential, but because of poor planning, the places have never taken off. Never underestimate the process of planning, and of waiting a few months to think about it, and never underestimate your competitors or the economy.
posted by plemeljr at 11:08 AM on January 5, 2004

Location is key. Obviously, you want to be somewhere that your customers can access you, but this is only the simplest concern. You should also consider: is there any competition or potential competition in the area? For example, it might seem like a great idea to open up a hot sandiwch joint next to a pub. Natural combination. That is, until the pub wises up and starts serving hot sandwiches. Similarly, a supermarket will undercut a wine shop, offering less selection but better prices for the mainstream customer. Keep an eye out for anyone with the purchasing power and floor space to swallow up your segment in a heartbeat, as soon as they see what you're up to. The last thing you want is to be stuck in a position where the bulk of the business goes somewhere else, while you're left serving some discerning elite slice of the customer base. That's almost never profitable, outside the bounds of the film "High Fidelity."

One of the reasons to go with a shopping center as opposed to an independent lease space, is that you can strike an agreement with them that no one else can sell hot sandwiches in the center. It gives you some breathing room to develop your business and lock in your market. Just something to keep in mind.
posted by scarabic at 12:43 PM on January 5, 2004

Excellent ideas all, and thanks! We have plans to goto the SBA and get a plan drafted up. We have researched similar shops, which exist in most towns our size successfully, and yet we don't have one of our own, and no competition in siight either, so we shall see. As far as working forever goes, well, currently I am a school teacher, so thats out there anyhow.
posted by BrodieShadeTree at 2:13 PM on January 5, 2004

I'm going to strongly disagree with the "plan for everything" approach.

As long as you are comfortable with the fact that you might fail and are ready to fail then follow your heart and passion (if you aren't doing this out of passion and are not ready to fail then don't do it). Anything more could kill your motivation.

Client-plug: listen to this guy's radio show and read his books.
posted by Mick at 2:14 PM on January 5, 2004

"...but FFF hit it on the mark."

Out of curiousity, what did I hit on the mark?

I'll disagree with "plan for everything," too. Do some back-of-the-napkin estimates, be pessimistic about success, and if it still looks good, go for it.
posted by five fresh fish at 4:27 PM on January 5, 2004

You might see if there is a chapter of SCORE near you - it's a nonprofit of retired and volunteer business people who help small businesses and entrepreneurs. I haven't used them but have heard good things. You can search by geography or by the type of business expertise you need.

A lot of colleges and universities have small business or entrepreneur programs that work with the community too. When I lived in Portland Maine, the University sponsored brown bag dinner meetings that would attract a lively and creative crowd of local business people. The meeting format included case studies from local business owners who would present their business plan and ask for advice about alternative courses of growth and development. A lively and creative help session/critique would follow. They were really fun and informative...and great networking too.
posted by madamjujujive at 5:32 PM on January 5, 2004

If you're considering a bookstore, be sure to contact the American Bookseller's Association, and email me if you'd like. I bought an existing bookstore and sold it after 5 years. All profitably, and had fun while learning a lot and working my tail off. If there's a trade association for your business, join it and subscribe to trade journals.

MadameJJ, if you're in Portland visiting, we Maine Me-fiers are few, but it would be fun to get together.
posted by theora55 at 6:21 PM on January 5, 2004

And remember, if the bank suggests you get an SBA loan, that means they don't think your business plan is strong enough to risk their money on it without a government guarantee. The SBA exists to give banks incentive to make high-risk loans that they would ordinarily never touch. This can work to your advantage, of course, but it is a vote of no confidence in your business plan.
posted by kindall at 7:28 PM on January 5, 2004

Heheh.

Location, location, location. It can make or break your business. Period.

As a small business owner, here's my expenses, from big to small:

($CDN)

- Rent ($1200/month)
- Advertising ($500 - $1000/month)
- Pay ($400 x 2 partners / month [Yes, you'll be doing the same for about 1 year if you want to stay in business])
- Taxes ($500 a month?)
- Insurance (About $350 a month)
- Electricity/HVAC ($200 monthly)
- Food ($200 monthly)
- Customer Returns ($100 or so eaten monthly)
- Overhead / Damage (Hard to gauge)
- Credit Card "overdue" payments ($50 - $100 monthly)
- Fuel ($80 monthly)
- "Protection Money" (BBB, Chamber of Commerce, etc) ($30 / month)

I have a 900 Sq Ft. store in front of a drive thru. This is why my advertising is so low. Normally expect advertising to cost $2000+ a month. An average newspaper ad will run you $500 per issue.

In my case, a computer store, the minimum profitable margin on parts is about 10% or $10 (whichever is higher). At that point the store is on life support and I make no money. Find out what it will be for you.

A business plan is required if you haven't already spent time thinking about this, or you want a loan, or your landlord requires it. In my case, it was a family loan, and I'd been discussing this (all the way down to the logistics of dealing with a customer) for over 2 years so a business plan was a waste.

Fact: BE PREPARED TO PUT 120+ hours WEEKLY into your business when it gets busy. There is NO getting around this. YOU WILL NOT GET WEEKENDS OFF for a long time. Oh, and DON'T HIRE ANYONE (The laws, minimum wage, etc, make it way too expensive). Within 1 week you will hate all union whiners and people that complain about slave labour (you think the workers in China have it bad? Try working a 36 hour work / 8 hour sleep schedule for half a month). ;-) Always consider putting "sweat equity" in when there's a choice between buying things and spending a bit more time getting something done. WORK WORK WORK.

HTH. Oh, and yeah, I'm probably showing you the worst of it. Being a computer retailer is the most ruthless, unprofitable business possible (it's like drawing blood from a stone). Not that I don't enjoy it thoroughly, anyways.

Which brings me to my second point: Don't hesitate to do more than one thing at your shop. At mine I do computers, ModChips and Satellite equipment. This way I'm covered for pretty much all seasons. And most work is seasonal (which can make a big difference).

Don't let the customers walk all over you. Be prepared to grow a really thick skin and be willing to say no whenever a customer goes too far. Be ready to "fire" bad (cheap and whiny) customers (I have) by poisoning their service in a manner they can't use against you.

As an example, which will come up someday for you, I've dealt with jerks so cheap they won't cough up $10 extra to buy a $40 item. They want that $10 off. They say nasty things like "You're just full of Christmas Spirit, aren't you". Always retort NICELY. "The warranty on your computer won't be any good to you if we run out of money and go out of business." Don't just let it go.

BTW: Nothing beats labour. When you charge for that it's pure profit and will cover all sorts of expenses. :-)

For some more tips, watch this movie. Ooooo, here's one: During a large sale, the first person who speaks (after the price has been announced) loses. Stare them square in the eye. It works.

Another technique, if you happen to be in a business where people negotiate prices (ethnic satellite business, for example), find out how much they want to talk you down. Then work out the amount you want. Then advertise it with the amount they'll talk you down, that price, and another 5% (annoyance/waste of time labour cost for talking you down in price). Yup. Guess what, consumers. When you haggle a price down, you actually cause the prices to go up. Who'da thunk that cars would be cheaper, period, if people just paid sticker price?

And yeah, I started this business with just $30k. Imagine that! :-)

One other handy stat to figure out are "burn rates". As in, how long will the business continue without any sales? Will you be able to cover rent? How much in sales do you need to stay open? To pay yourself the amount you want to make? Etc, etc, etc.

That should cover it for now. Email me if you have more questions (especially about finances, as I don't deal with those -- that's the business partner's job).
posted by shepd at 11:24 PM on January 5, 2004 [1 favorite]

WOW! Great answer and it really does address many of our concerns in this shop idea. Thanks so much!
posted by BrodieShadeTree at 8:22 AM on January 6, 2004