Opening A retail Business??? Business owners come on in!!

[Rick D]

So I have a question? I am thinking of opening a retail store, but I have never been down this road in retail. I have run several body shops and part owner of a shop so I know about what's involved in running and owning a business.

My question is in retail what's the best way to get capital for the inventory and such. I know for the start up cost what I need at least as far as setting up the place, phone, build out, signage, fixtures. I know what and how to get that done (at least I think I do ). But at the beginning how do I go about the working capital? Loan from a bank ok that one is easy, but do I look for investors?? If so how would I go about that? My brother-in law as over 20 years in retail all the way up to regional manager for Home Depot, he has shown an interest in getting involved in this project but again he has worked for major corps with their own capital, (or at least they had their investors already) so not much help in that department.

Just looking for some ideas on what others have done?? So please let me know what you think good or bad?

[NAPA 68]

If you don't mind me asking, what type of retail business? Many franchise type companies have financing programs to qualified individuals.

Tim

[Flash68]

Savings is a good way to fund a business. You don't have to give away ownership/profits to investors.

Of course if you want to spread your risk around and not take on all the financial risk (whether you have the savings or not) then investors/partners are an option.

Partners = some level of involvement.

Investors = passive = no involvement (or minimal at least, depends on how much they invest/own)

I have an SBA loan (not for startup costs, but for saving us after the 2009 slowdown in my industry). It is a lot of red tape but it is a great loan program.

For any kind of a bank loan you will likely have to show your background in the niche you are getting into. That's where the question above comes in - what kind of retail business? Do you have the experience?

Small business is the heartbeat of America.

[Rybar]

Well, from my experience. I used my own captal. Which does limit what you can do as far as advertising, merchandise and stock.

You should really budget for advertising and a lot of it. Lots of money can be wasted on different forms of advertising.

Also, try to keep your overhead as low as possible. Otherwise if your prices are too high its tough to be competetive. And if you start dropping your pants to get sales its a losing battle.

The other thing about retail is expect to work a lot of hours. Work weekends, evenings. And if you hire someone you still have to be there to oversee daily operations. Its a customer driven business so you or your employees need to sit there and wait for people to walk in the door. How you get people into your store and its location and PARKING are crucial. I would also target local people in your area or locate the store near other business that have a lot of traffic to generate more exposure. Like I said advertising can cost huge dollars and you have to be repetetive with it or it won't work. Depending on your products you might not see the fruits of yours ads for a few years.

Anyways, good luck with it. Everyone I know it retails knows its a very tough go. Esp. The long hours and remember the customer is ALWAYS right, even if you have to lose money to make them happy.

[Sieg]

Originally Posted by Rybar

Well, from my experience. I used my own captal. Which does limit what you can do as far as advertising, merchandise and stock.

You should really budget for advertising and a lot of it. Lots of money can be wasted on different forms of advertising.

Also, try to keep your overhead as low as possible. Otherwise if your prices are too high its tough to be competetive. And if you start dropping your pants to get sales its a losing battle.

The other thing about retail is expect to work a lot of hours. Work weekends, evenings. And if you hire someone you still have to be there to oversee daily operations. Its a customer driven business so you or your employees need to sit there and wait for people to walk in the door. How you get people into your store and its location and PARKING are crucial. I would also target local people in your area or locate the store near other business that have a lot of traffic to generate more exposure. Like I said advertising can cost huge dollars and you have to be repetetive with it or it won't work. Depending on your products you might not see the fruits of yours ads for a few years.

Anyways, good luck with it. Everyone I know it retails knows its a very tough go. Esp. The long hours and remember the customer is ALWAYS right, even if you have to lose money to make them happy.

Good info.

Can you leverage your suppliers for start up inventory extended terms or dated flooring?

How much and what type of advertising are you planning? If you don't have a location with high traffic count you need to reach out to your potential customers with reasonable frequency.

Graphic designers, websites, social media, email lists, direct mail, print, TV, radio, billboards, in-store signage, etc. use up cash fast. What can you get for co-op from manufacturers and suppliers?

[John510]

A bank will not loan you money if you have no experience in that industry especially the SBA. SBA will want a track record in that industry. Banks will want a UCC filing also on all of the assets which may not be a lot in a retail store. I have had 2 SBA loans and each one took over 6 months to fund.

You can also use a hard money lender. They typically charge 20-25% and you have to pay them back in 6 months to a year. I would only recommend something like that as a LAST resort. Ive used these guys twice. http://www.ondeckcapital.com/ One for 60K and the other for 75K. They fund you in 2-3 days.

If you get rejected for every loan possible there are always credit cards you can advance cash from.

Negotiate with the landlord and have them pay the TI's. (You will most likely have to pay up front then they reimburse you)

I would not partner with anyone whether it be a friend or family member. It will kill your relationship with the person especially when there is money involved. Plus, who wants to give away half of the profit?

When I open a new store I plug everything I need in full detail on a spreadsheet. I factor in inventory, equipment, construction, permits, etc. As far as working capital goes you should have capital coming in as soon as your are open. Use that money to pay for new inventory, bills, etc.

Advertise, advertise, advertise. Plan to spend 3-5K a month on some decent mailers, coupons, etc to get your name out there.

[Rybar]

Originally Posted by Sieg

Good info.

Can you leverage your suppliers for start up inventory extended terms or dated flooring?

How much and what type of advertising are you planning? If you don't have a location with high traffic count you need to reach out to your potential customers with reasonable frequency.

Graphic designers, websites, social media, email lists, direct mail, print, TV, radio, billboards, in-store signage, etc. use up cash fast. What can you get for co-op from manufacturers and suppliers?

Seig, I bought my retail space and own it. Also did all the TI's like John mentioned and that is a huge cost. Let's just say that used up most of my capital lol. It has given me a huge break for monthly overhead costs. However, because I wanted to own it limited the locations I could choose from. I would recommend to really research and put a lot of thought into the location, it's a major part of a retail store.

I've done most of those forms of advertising. My family is in that field of business it helps me out a lot with what to do. The best ads for me have been ads on the sides of the transit buses.

Mfg's offered me very little for co-op. my business is all about volume and I can't compete with the volume that the big boxes do to negotiate lower cost. You can buy product by the container but then you tie up lot of capital on inventory you're not sure when you will ever sell

Good luck Rick, if you need any help shoot me a PM.

[Rick D]

Went and did some more research today with my kids, 16 miles on our bikes today . Well let me tell you I found a few yes few more bike shop along the bike path today that I didn't know where there

I went in to two of them, nice places clean very friendly and seemed to know their stuff about bikes. Neither owner was in, or at least wouldn't admit thery were the owner if they were. One was low end and used bikes, the other had some middle to higher end stuff and a few tradins.

The one thing I did see was that neither stocked much of anything in the way of parts (small stuff yes) but no wheels, hubs, cranks,! Mostly just tires and tubes and a few seats and a couple of bars. My daughter needs a taller set of bars but they didn't have a 3" rise in black in stock.

So the research continues. But I am starting to rethink this idea? I have another idea for the industry I know very well. Anyone know anything about setting up to be a franchiser (the one doing the franchising)

[John510]

He is not nuts at all. You will have to pay triple net, you will need a personal guarantee, and the reason he is asking to make sure you have 5 years is to check your net worth. Normally they don't ask for 5 years of rent in the bank but they WILL want a minimum net worth to make sure that you can afford the place to begin with. It is not like renting a house. If your credit is bad or you have a very small net worth then it is also common for them to make you have multiple personal guarantors on the lease. The triple net can and may have a 3% increase each year.

Were both of those bike stores super busy? Busy enough to justify a third bike store? Maybe they don't stock stuff because it doesn't sell. Bikes are not something people buy everyday.

I can tell you how to franchise a store but you will need a successful store first. People aren't going to buy a franchise unless they can make money from it. Once you get a store you will need an attorney to do the Franchise Disclosure docs for you. This is NOT cheap. 30-50K in attorney fees (you were asking at the beginning where to get money for inventory, where would you get the attorney money?)

[GregWeld]

Good info John!


It's the oldest saying in the world --- it takes money to make money....