How Much Does it Cost to Start a Retail Business?
A Detailed Business Plan Will Give You the Answer
How much does it cost to start a retail business? The actual costs will vary based on the type of retail business you're starting, the location and the size of the store as well as many other factors. Every business is different and the first step in finding out what your store will cost to open is to have a solid plan and put it all down on paper.
Start with a Business Plan
To determine how much money you will need to start your business, it's best to put together a business plan.
The research you put into your planning will show the startup costs and monthly operating expenses involved in running your store. It will also show how long it will take until your business reaches a break-even point.
Not only will a well-thought out business plan give you an idea of the viability of and funds needed for your business, it is a requirement of lenders. You need to prove to the bank that your idea is a good one, that you have calculated all costs and risks, and that you are worth investing in.
When it comes to borrowing money for your business, the cost of financing a start-up business is usually directly related to the amount of risk involved. The higher the risk, the more expensive the venture. One of the biggest mistakes many small business owners make is underestimating their expenses. It is important to be realistic and overestimate rather than underestimate.
There are sure to be costs that you didn't plan for that will pop up as you prepare the store for opening.
Many of these oversights will be small, but some can be large and they can all add up, possibly affecting your success in the long run. You can attempt to prevent these surprises by being as thorough, accurate and realistic as possible.
Business owners are often dreamers. Successful business owners are also practical.
I remember planning for my first store. I thought I had the best idea and people would flock to it. I predicted my sales, my margins, my expenses all through that very optimistic lens. After two years, I realized I had way overestimated the sales of the store. In fact, my sales were about 35% less than what I thought they would be. However, my margins were much higher than what I though they would be and I was sustainable. But I was fortunate. Many retailers do not have the same fortune.
What Are Your Start-Up Costs?
Your list of start-up costs should involve everything that you need to open the doors. Sit down and brainstorm every single cost - right down to the toilet paper for the bathroom - that you can think of, then start researching how much each line item will cost.
Start-up costs include:
- Store fixtures including shelving, display racks and cases, furniture, etc.
- Equipment including cash registers, computers, time clocks, security cameras, etc.
- Initial inventory to sell in the store on opening day.
- Office supplies including paper, pens, schedule books, accounting software, etc.
- Fees and permits through the city, state and federal governments.
- Business insurance including liability and any coverage required for employees or yourself.
- Advertising material including business cards, in-store and street signage, etc.
- Professional services of accountants, lawyers, graphic designers, etc.
- Building rental deposit, renovation and other necessary costs associated with the retail space.
- Janitorial supplies including those needed to clean the store initially and maintain it after opening.
- Any other costs you can think of.
What Are Your Operating Expenses?
You will need to cover the operating expenses until your business reaches the break-even point. It is important to remember that your business will not be profitable in the first several months and it may even take years.
You need to keep the lights on, pay employees and cover every other expense until you hit that magic number your break-even analysis points to. This is when you project that your monthly profit from sales (not sales, but profit) will be able to cover your store's monthly expenses.
Monthly expenses include rent, phone, wages, utilities, taxes, advertising, inventory, insurance and anything else required to operate your business on a daily basis.
If you are an entrepreneur, then you will most likely want to pay yourself a salary to run your store. Don't forget to include this cost. The truth is, you shoals only pay yourself if you are physically working in the store. There is rarely enough money in a retail startup to pay the manager and the owner.
What Will Your Store Cost to Open?
Your business plan should give you the answer. As you can see, there are many factors that go into starting a business and no two businesses are exactly alike.
If you need advice, ask for help. Talk to another business owner and ask if they will review your plan.
Many cities also have business incubators and classes where people can get help while planning their business. Some charge a small fee and others are free. They may even be an opening to a low-interest loan through the U.S. Small Business Association or a similar organization, but you need to do the work and create a business plan.
My best resource was the trade asscoaitons. I had shoe stores and the National Shoe Retailers Association was invaluable to me in my start-up period. I was networking with and being mentored by retailers who sold the same products as me. Even though retail is retail in some aspects, the truth is that the products you are selling have a lot to do with your success. Try to learn from similar store types. Don't rely on the numbers you get generically from government agencies. Do you research and plan conservatively. Retail is MUCH harder than people think. But it can be a very rewarding career.