How to Start and Run a Gift Shop
WHAT SORT OF BUSINESS AM I GOING TO HAVE?
There are many questions to ask yourself when you decide to set up a business. These will range from ‘Why am I going into business and what do I want to achieve from it?’ to ‘How will my business operate?’The answers to the first question may be very complex and personal to you but the second question is answered in this chapter:
The legal classifications of a business
You are on your own, no one to answer to, no one to tell you what to do – you are your own boss.You will, however, be responsible for purchases, sales, advertising and marketing, accounting, shopfitting, cleaning …
If there is someone in your life whom you trust and respect, you may prefer to share the responsibilities – but also the profits.
It is good to have someone to share the burden of work and to throw ideas around with. This helps to keep you focused and stops you taking the business off at a tangent. Beware, however: you need to be sure that your objectives and those of your partner(s) are the same. Be quite clear about the allocation of work, how much each has invested financially and how the profits will be split. Unless these matters are clear from the start, there will be arguments about who is pulling their weight and who is not, who has put the most into the business in terms of time, effort and money.
The other problem with a partnership is ending it. If you are undertaking a specific venture for a set length of time, that should be fine. If it is to be an ongoing venture, then when and how will you arrange to go your separate ways? Anyone who has ever been divorced will tell you that when a marital partnership breaks up the main asset usually has to be sold to give each party their share. In a divorce this will be the family home, but for a business … the business will be the main asset.
A limited company
This is a legal and regulated entity, which must be registered with Companies House.The advantages of being a limited company include:
- the potential to reduce your tax and national insurance liabilities
- greater personal protection financially should the business fail
- protection of your business name to prevent other people trading with it
- potentially a perceived higher status of your business.
The downsides include:
- extra administration and costs, both in setting up and ongoing
- the inconvenience of closer scrutiny of your financial affairs
If this is the option you prefer seek free advice from your local Business Link (see ‘Useful contacts’ page 216) and then from your accountant and/or legal advisor.
HOW DO I WANT TO TRADE AND WHERE FROM?
If you are a plumber or electrician selling a service, you can probably work rom home, storing your equipment in the garage and using a desk in the corner of the lounge as your office. If you plan to sell goods you will have a supply of stock. This must be stored and possibly displayed somewhere, and you will need some way by which your customers can obtain these goods from you. How you do this will determine whether or not you need premises to operate your business from.
You take your products to your customers so do not need premises. Small items work well, such as jewellery, cosmetics and the original party plan classic –Tupperware. Certainly in the early days of your business, stock can be stored in a corner of your home with paperwork being done at the kitchen table.
Going into people’s homes in the evenings or offices at lunchtimes, to sell to them in their own environments, is a cheap way to set up a business. This way of selling relies very much on the personality of the seller and would suit someone who is gregarious and outgoing.
To do this really well, traditionally you would have needed to produce a glossy, colour catalogue, showing photographs of all the products you sold. This was a costly exercise to produce and frustratingly inflexible to maintain when you wanted to include new products or delete those that were no longer available. Postage was expensive to send copies out to all enquirers, not all of whom would have placed an order.
Nowadays, with the invention of the digital camera and the Internet, this is a much more appealing way to trade. There is no question that a professionally photographed catalogue should look superb but you can get started by taking photographs yourself and setting up a website (see Chapter 10). Email prospective customers or post them a one-page flyer directing them to your website for the full catalogue.
With a web-based catalogue it is possible to change the contents of the pages as often as you want.
Fêtes, fairs, festivals or markets
This can be a cheap and flexible way to start up. It provides market research on what sells best whilst earning the capital to set up a permanent business should you decide to do so at a later date.
Some events provide everything you need but for others you will need a decorator’s paste-up table and a cloth to cover it, or even your own market stall. These, together with your stock, can all be stored in your own garage, garden shed, or rented lock-up garage.
You need to be strong and hardy to work this way. Setting up a market stall and carrying all the stock from your car to your pitch is hard work, especially if it is pouring with rain or worse, snowing. Some trading days will be a complete washout when trading in the open air.
Shops can be set up from scratch or taken on as a going concern by buying an established business.
A moderate investment is required when setting up from scratch, together with the need to research thoroughly both the market and the proposed location.You start with a blank canvas but can create a lasting and growing empire to be proud of.
Buying an established retail business is the most expensive option but it benefits from the security and goodwill of an existing client base and an established location. The risks of an all-new venture are reduced, as you have access to the business’ accounts and can judge whether fresh impetus will even improve takings.
For more information about these two options see ‘Buying an existing business v setting up from scratch’, page 21.
FUNDING THE VENTURE
Try to be more imaginative than rushing to your bank for a loan.These are some alternative ways to fund your venture:
- A redundancy payment can provide the basis for your business.
- With most deposit accounts offering less than 1% interest, offer the ‘bank of Mum and Dad’ a better return on their money and you could be paying a lower rate of interest than your High Street bank would demand.
- Reduce your personal outgoings to a minimum; after all, you won’t have time to use that gym membership with a new business to nurture.
If you do need to borrow, make sure it is for essential costs but do not under-estimate your needs and pay off the debt as quickly as possible.
Premises are a substantial cost when setting up. As a new business, unable to provide references from your (business) bank manager and a commercial (not residential) landlord, you will be required to pay:
- three months’ rent in advance;
- six months’ rent as a deposit.
A 250 sq ft shop in a reasonable, secondary location could cost £10,000 plusVAT per annum in rent. This could mean paying nearly £9,000 to the landlord alone before redecorating, fitting out the shop or buying stock to sell, let alone getting to the stage of opening the doors to customers and earning any money.
I was fortunate to set up in business during the recession of the early 1990s. There were many empty shops in the town and my landlord was anxious to find tenants. I was able to negotiate a rent free period and there was no suggestion of paying a deposit. As a result, I had been trading for two months and earned the rent before I had to pay the landlord a penny
WHAT IS YOUR USP?
USP stands for Unique Selling Point. It is what makes you and your business different from the competition.Why will customers buy from you and not someone else?
Will it be because you offer:
- better service;
- greater convenience;
- faster delivery service;
- a better after-sales service;
- a wider range of products;
- car parking;
- child-care facilities;
- or has your product got a story to it?
Small shops can compete with the big boys because of their uniqueness and diversity. Independent stereo and television shops sell the same products as the likes of Dixons and Comet, but by offering a delivery or installation service they will be particularly attractive to the shopper who does not have a car or is technologically challenged. That is the story that will attract the older shopper.
Small businesses can be much more on the edge and up to the minute than large stores, getting involved with trends at a much earlier stage.
I had been selling combat trousers for two years before they started appearing in shops like Marks & Spencer or even New Look. Once they were on the High Street combat trousers quickly became over-trendy and largely died out as a fashion item. Incidentally, I bought only combats from that supplier, until they suddenly brought out a range of Tommy Hilfigger fleece tops. These proved to be tremendously popular for a few months and then that trend died completely. I would never have become involved with selling them had it not been for the combats.
FINDING YOUR MARKET
The following are examples of what some people have found customers want to buy in their particular area:
- Imitation perfumes for £2.99 a bottle from a car boot sale near a council estate.This worked because although the people there did not have much money to spend, they were prepared to treat themselves once a week.
- An Internet café thrives in a town where there is a base of foreigners who want to keep in touch with home, for example a barrack town used by the Gurkhas.
- Fish and chip shops often rely on those leaving the pubs after last orders but one located by a market, opening early to cater for stall holders, can afford to close early. Much more sociable working hours for the owners and staff, and they avoid the hassles and dangers of drunk, and sometimes disorderly, customers.
- A seaside town increases its population dramatically during the summer months and gives its traders a new set of customers each week. Competition comes directly from other shops selling the same products as yours, and indirectly from other ways that customers spend their money.
- Home ownership
- Great Britain 66%
- West Sussex 75.5% (above average. A fairly wealthy middle class area perhaps?)
- Economically active (% unemployed)
- Great Britain 9.3%
- West Sussex 6% (lower than average. Surprising as this is a rural county with few industrial areas.)
- Great Britain 21.2%
- West Sussex 26.5% (above average. The retired are not great spenders when it comes to shopping.)
- West Sussex was where I lived. It was too far to commute to another county every day so I would have to think of something that the people of West Sussex would want (and need) to buy from me.Was my idea of a New Age gift shop the right one? More research required.
- I have experience of running a business.
- I have qualifications and experience in management and accounting.
- I am fit and healthy.
- I do not need to take a wage initially as I have savings to support me for the first three months.
- I have the skills and tools to do my own shop fitting.
- Who will cover if I am ill?
- I am new to the town and do not have local family or friends experience in management to help out.
- Lots of pots, i.e. many chimney pots indicate there is a high density population living in area.
- Several schools in the town.
- University campus in town centre.
- Tourist trade in summer.
- Strong pedestrian flow.
- On route from car park to main shops.
- On route from beach to main shops.
- Like-minded businesses around eg music shop.
- ‘Essential’ businesses around eg lunchtime sandwich bars.
- High population of retired people.
- Will there be enough trade in winter?
- Shop quite small; will I quickly outgrow it?
- Do locals shop in town or go to the larger, trendier town nearby?
- No direct competition in town.
- Selling consumable items eg candles (repeat sales).
- Regular sales eg greetings cards.
- Stock will be trendy and can adapt to changes in taste.
- Goods will be bought for self as well as for presents.
- Stock will be bought on 30 days credit.
- All sales will be over the counter (no bad debts).
- Is New Age too trendy?
- Is there a lack of product familiarity?
- Stock will appeal to a young market (kids tell their friends).
- Prices range from ‘pocket money’ to expensive.
- A long journey to work every day takes up valuable time. Especially in the early days, when you will need to be in the shop early and stay late.
- An hour each way in the car could have been the day’s bookwork and orders done.
- Will the local population provide sufficient trade to keep you going out of season?
- Could you afford to close?
- Would your lease allow you to close?
- Could you use the quiet part of the year constructively, say to travel abroad sourcing and importing stock?
- low rental;
- customer parking;
- easy access;
- street frontage;
- back-room workshop or storage facilities to a business that does not rely mainly on passers-by, impulse sales or high volume trading.
- Is your intended site near ‘like-minded’ shops? If you are a florist, can you find a location near an undertaker, a bridal wear supplier or outside the bus/train station to catch people on their way home from work?
- Are you in a busy thoroughfare with lots of people walking past? The more exposure your shop has, the more likely you are to make sales.
- Where is the nearest car park? Parking, particularly if free, brings people into the town and is important if selling bulky items that customers need to collect.
- If your product is aimed at young people or ‘clubbers’, how many schools, colleges or nightclubs are there in the area?
- If the target customer is retired, are there many bungalows or retirement homes nearby?
- the shops on the top floor of the indoor shopping centre that are never as busy as those downstairs;
- the street that used to be so busy before the one-way system was brought in and now nobody walks down there or can park there;
- the number of times in the past five years that the shop round the corner from the main precinct has changed hands … four, five, six? Make sure you are not number seven.
- the busiest part of the High Street
- the main entrance to a busy shopping centre
- the centre of things
- the quieter ends of the High Street
- the approach roads to the main shopping area
- not quite in the centre of things
In 1999 mobile phones really took off with every teenager having one. Girls’ spending habits changed from using all their pocket money to buy nail varnish, to buying top-ups for their phones. Initially my takings took a dive but I retaliated by selling funky mobile phone holders and cases.
RESEARCHING YOUR AREA
1. Consulting the census
Your local library will have a copy of the latest census. From this, and your own knowledge of the area, you can compare different areas to find out about the ages and relative wealth of the people living there.
Before setting up my first shop I made a comparison between the county I lived in, Great Britain as a whole and my personal knowledge of the town I was interested in.
The 1991 census showed:
Personal view: Appears to be quite high. Not many council estates but a lot of bed-sit type rental accommodation in the town centre.
Personal view: Unemployment seemed to be quite high. Also lots of young mothers pushing pushchairs around town all day – good customers.
% of Retirement age
Personal view: Very high numbers of retired people.
2. Assessing the pros and cons in your area
The marketing term for this is a SWOT Analysis. This stands for: Strengths, Weaknesses, Opportunities, Threats
The purpose of the analysis is to examine your intended project and pick holes in it. Think of all the reasons why your idea will work in your intended location; and then all the reasons it will not.
This was my analysis for a New Age shop in a small arcade of shops in a town in West Sussex:
Conclusion: There are a lot more positive than negative points. This idea should be looked into further!
FINDING YOUR LOCATION
Where do you want to be in business? Could it be where you live? Your local shops may not always seem the most obvious location but consider:
If your home town is a holiday resort:
Think about where you go to shop for your groceries, clothes, household goods, furniture and furnishings, presents, sports kit and so on. Ask your local family and friends where they prefer to go. If none of you shop locally for one specific type of goods there could be a gap in the market and the need for that type of shop in the town. If everybody you know prefers to travel for all of their shopping needs, your local High Street could be in need of more regeneration than you will be able to give it single-handedly by opening a shop there.
What am I selling and to whom? Am I a specialist, niche market, mostly mail order or do I need high volumes of sales?
The parade of shops at the end of the street could provide:
This would be:
Good for a specialist antique clock repairer advertised in Yellow pages, the horological magazines and on the Internet, distributing spare parts by mail order, with a workshop in the back room and parking outside for customers to deliver and collect repair items.
Bad for fashion jewellery, greetings cards or other goods where a busy location is needed to give high volumes of passing trade, often buying on impulse.
RESEARCHING YOUR CHOSEN LOCATION
1. Count the chimney pots
Every business benefits from high volumes of customers and the denser the local population (I am talking quantity here not IQ) the greater the number of potential customers. If you have enough people, all you have to do is stock what they want. The perfect product at the best price can only be a best seller if there are sufficient people to buy it.
2. Who and what is round about
The saying is ‘location, location, location’ – the three most important points to consider when setting up a business.
3. Counting the footfall to find the most customers
Once you decide on a location, the local council may be able to provide information on pedestrian footfall ie, identifying different streets in a town by the number of people who walk through them to discover the busiest areas.
There are market research companies that will sell you this information but you cannot beat checking for yourself.
Checking for yourself
Think of your local town centre:
The best location for any shop looking for passing trade will be the one with the most passers-by and you will be looking to rent the best location you can afford.
Shops are classed as being in:
Then there are others that I will put in a third group
- the ‘Terminal’ Location
the one where it is only a matter of time before the latest tenant goes out of business.
If the only shop to rent in the whole town is at the end of a no-through alleyway, with derelict and boarded up warehouses all around, don’t kid yourself. Customers are not going to come flocking down there just to see what you sell. If the location is in any way quirky – upstairs, on its own, off the main drag – it will not be as profitable as the one 50 metres away that is in a secondary, but conventional location.
Generally a primary location will be too expensive for a small independent just starting out.
In December 2008 the cheapest available shop to let in Bluewater Shopping Centre, Kent, was £108,000 per annum for 640 sq ft. In the Trafford Centre, Manchester, the smallest unit available was 1,989 sq ft for £355,000 per annum. With rates of £125,000, a service charge of £20,000 plus a management fee of 7.5% per annum, you need very deep pockets indeed to get started in places like these
Stand outside and check how many people walk past. Do this on particular days of the week and at particular times. Compare this to other parts of the town on the same days and times.
I compared a shop unit by the railway station on a main road with one in a covered arcade. My expectation was that there would be more people passing the unit by the station. The actual result was that far more people walked through the arcade.
The opinion of fellow traders
Whether you are planning to buy a business or take over vacant premises, speak to the other traders around and see if you can get a feel for what business is like in that area. Some may view you as competition and not tell the truth but if you speak to enough people you will be able to build up a reasonably accurate picture of the situation. If you are planning to take on premises in a communal development where you will share the same landlord, find out if there are any particular issues you would want to know about.
I enquired about the landlord with one group of tenants and found that for some time not all tenants had been paying their service charges. As a result there were a number of serious maintenance issues with the property and existing tenants were being asked to contribute large lump sums of money to effect the repairs. I found out more information than the landlord had volunteered to me and was able to make a more informed decision on whether or not to take on the lease – I did.
Is it opposite the busiest bus stop in town? If it is in an arcade, is it walkthrough or dead-end? What is at either end? Where is the nearest competition? Will your neighbours complement or compete with what you are planning to sell?
I opened my second shop, selling ethnic and alternative clothes, jewellery and accessories, opposite my first, a New Age gift shop. Next door there was a CD shop and an Extreme Sports shop, which made that part of town quite a centre to draw in young people. The street was a covered arcade, the main thoroughfare from the beach and the town’s main car park, to the High Street and town centre bus stops
Getting it wrong
Remember the boom time of the 1980s? A study was done to find a centre of mass affluence in South East England – a place where a shopping centre would be built that would be in the centre of what was deemed to be the wealthiest part of that area. The idea was to build a specialist shopping centre for small, exclusive, up-market shops that would be highly attractive to the surrounding high-income earners.
A, B and C represent areas in the South East of England, where people with high incomes had been identified as living. The hatched area represents the most central area for all of the above people to travel to. This was calculated to be the most favourable place to build the new shopping centre. The place chosen was Hatfield in Hertfordshire and the new building was called The Galleria.
Hatfield was hit badly by the recession of the late 1980s/early 1990s, losing the town’s main employer – British Aerospace. The shop units in The Galleria failed to attract sufficient exclusive boutiques to fill the centre. Those that did sign up quickly closed down.
It was eventually turned into a discount outlet centre and although pretty much the opposite of what it was designed to be, seemed to survive happily in that format during the economic boom of the early twenty-first century. It remains to be seen how the centre will cope with the latest downturn.
FINDING A PROPERTY
Registering with an internet site such as www.shopproperty.co.uk will enable you to search any town in the country and provide you with a list of shops available, together with brief details of size, rent and a map giving the exact location. Such sites are good for the big locations but not all the smaller premises available are listed, so try the following:
- The local paper – commercial property to let is usually at the end of residential lettings.
- Specialist trade magazines, such as Dalton’sWeekly, which advertise businesses being sold as going concerns.
- Commercial property agents and business transfer agents listed in local telephone directories.
- The local authority – many keep lists of property to let/for sale.
- Walk the streets of the towns in which you are interested, there may be a ‘To Let’ or ‘For Sale’ board outside the shop you want.
THE FINANCIAL AND LEGAL ARRANGEMENTS OF TAKING ON PREMISES
In town centre retailing it is highly unusual (if not completely unheard of nowadays) for the retailer to own their own premises. Dedicated property management companies or investment companies such as pension schemes own most commercial property in desirable locations. These landlords will offer you either a licence or a lease to occupy their premises. Taking on a lease. A lease is a legally binding document that entitles the tenant to trade at a specified address for a stated period of time. If you leave during that period of time, then you (the tenant) are still responsible for paying the rent. If you can find a new tenant, who is acceptable to the landlord, then you should be able to assign (hand over) the lease to the new tenant, who will take over paying the rent for the remaining period of the lease. Legally, however, you (the original tenant) are still liable should the new tenant, or any subsequent tenants, stop paying the rent. This is the standard type of agreement for renting a shop.
Taking on a licence
A licence is also a legal agreement, but one which can be terminated at any time by either the licensee or the landlord.This can be an advantage if your plans are short-term but it does not give you any long-term security.
A licence will be issued for example:
- on a shop that is available only for a short period of time, eg if it is earmarked for re-development;
- for an indoor market stall, which is not a permanent trading location but the licence gives you the right to the same location on the market, each week of your licence;
- for most small storage units, such as lock-up garages. Length of lease and rent reviews.
Shop leases have traditionally been for 25 years or more but following the recession of the early 1990s, this has tended to be cut to shorter periods such as 12 or 15 years.You might even be lucky and agree one for six years.
The period of your lease will probably be split into three or five year periods, depending on the length of the lease. At the end of each of these periods you will be subjected to a rent review. Most leases specify an upward-only rent review, meaning that even if other rents in the area have fallen, yours will rise, or at best remain the same. If your landlord is pushing for a rent rise above inflation, it is worth employing the service of a commercial property surveyor, who will charge in the region of 10% of the finally agreed rent. (See also ‘Renewing the lease’, page 174.)
At the end of my first leases, the landlord tried to push the rents up from £7,750 and £9,750 to £9,500 and £14,000 respectively. Having failed to negotiate a more reasonable figure myself, I employed a commercial property surveyor to negotiate on my behalf. The process took over 18 months, cost me £1,750, involved both shops being re-measured (one was found to be smaller than it had previously been!) and resulted in new rents being agreed at £8,000 and £10,250. These figures were less than the £8,500 and £10,500 I had originally offered to pay!
Rent is a complicated calculation. It is charged at so many pounds per square foot, but not every square foot of a shop is worth the same value. The front part of a shop, looking from the window inwards, is the most expensive part.The rent for a shop that is wide but not very deep, will cost more than the same sized shop next door, which is narrow but goes back a long way. If there is an upstairs sales area, the rental for this area will be less expensive than that downstairs.
The value per square foot varies depending on which part of the country and which town the shop is in. It will also vary depending on which part of town and the exact part of the street.
Premiums and other charges
A premium (or key money) is a sum of money charged by the previous tenant, payable by the new tenant for the right to take over an empty shop for the remainder of the lease.You get nothing more for your money than that. Premiums were routinely charged in the late 1980s when the economy was booming but fortunately, this practice does not seem to have been resurrected since and I am not aware that premiums are currently being charged.
Another practice that was commonplace in the boom-time of the late 1980s was the need for prospective tenants to make payments to property agents just to ensure that they were sent details of properties that were available to let. Those who were not in the know about this did not receive any mailings. I do not believe in subscribing to such practices but suspect that some agents (who have not sent me information on shops I know to be available) still operate in this way.
Unless you have been in business before, prior to taking possession of theshop, most landlords will require you to pay a deposit of six months’ rent (plus VAT if the landlord is VAT registered) in addition to the first quarter’s rent. If you are going to beVAT registered you will be able to claim all the VAT back but remember to include it in your setting up budget as it must be paid in advance.
The British Property Federation (BPF), which represents the UK property industry, has been campaigning for flexible leases and a fairer rents regime. As a result, there is beginning to be a move in rental payments from quarterly to monthly in advance. The BPF is encouraging landlords to sign up to its Commercial Landlords Accreditation Scheme (CLAS), which highlights landlords committed to offering the best service. Landlords can sign up to it via www.clascheme.org.uk.This should be raised with any prospective landlord as part of your lease negotiations. Flexibility has always been possible if the landlord is desperate to find new tenants, such as during an economic downturn, but even on my current shop, the lease of which was negotiated prior to the credit crunch of 2007, I negotiated six weeks’ rent free to help with the fitting out. All fitting out was done within two weeks and I had four weeks rent free to earn the first quarter’s rent.
A licensed conveyancer specialises in the transfer of property and will do the same job for you in taking on a straightforward lease as a solicitor, but will probably cost less. Look in your local phone directory or online business listings to find one and remember that you do not need to use a local company.
On the sale of two shops in 2003, a licensed conveyancer charged the seller a flat fee of £500, agreed up front. The buyer used a solicitor, did not agree a fee and was charged by the hour. The buyer’s final bill was over £4,500.
For retail premises, categories include:
- A1 General use;
- A2 Financial and professional services;
- A3 Food and drink.
Applications are normally acceptable for A1 usage but there may be a limit to the number of A2 and A3 premises that your local council will permit within a parade of shops.
Categories for industrial warehouse uses include:
- B1 Light industrial use;
- B2 General industrial use;
- B8 Storage or distribution.
You will need to consult your local council about the planning consent for the shop you intend to take on but there should be no issue unless you are proposing a change of use.You will also need to consult them for planning permission if you intend to change the shop front or erect imposing signage.
If you are taking on a shop in an indoor market, arcade or small shopping centre, where you and your neighbours will share the same landlord, there may be restrictions on your intended usage. This should protect the interests of existing tenants and prevent a new tenant coming in and competing directly with the same products that are already being sold. Keep your usage broad to allow you flexibility but be specific about the lines that you want to protect.
BUYING AN EXISTING BUSINESS V SETTING UP FROM SCRATCH
When buying a business as a going concern you are buying:
- the goodwill;
- the existing customer base;
- the concept of the business;
- the owner’s expertise.
You will agree and pay a price for all of this, as well as for the shop fixtures and fittings and the stock.Some people will pay a lot of money for a business and change it substantially because they do not actually want that business, but buying it is the only way to be able to trade in that particular location. Others will buy a business that they plan to make major changes to because poor management has led to it performing at well below its potential.
Unless you have good reasons for making changes, such as the above, any business that you buy should continue to be run in the existing format and full advantage taken of the advice and guidance of the current owner.
Otherwise, why are you buying the business?
The cost of buying an established business is likely to be far higher than the financial outlay involved in taking on an empty shop unit and setting up from scratch. However, banks may be more willing to lend money for the purchase of an existing business than for you to set up from scratch.
Buying an existing business
This will involve a high initial financial outlay but you will know from having examined the books what trade is being generated and how much can be predicted as an ongoing income. See page 187 for information on how to value a business. In the first weeks after taking over the business the established stock base need only be replenished until you have found your feet and are ready to tweak it.
In order to decide whether a business is worth buying at the price being asked, the current owner will need to let you see the last three years’ accounts.
These will tell you:
- how profitable the business is (or at least how much is being declared to the tax man).You will want to see that there is a substantial amount of money left over for the owner after all the bills have been paid each year.
- what liabilities there are. In other words, what debts are owed by the business – and will you be taking these on if you buy the business?
Employ an accountant who specialises in small businesses to scrutinise the accounts and advise you accordingly.
If you do purchase the business, you will also need to:
- see a breakdown of each week’s takings;
- find out which weeks of the year are exceptional (either up or down) and why;
- ask what normal stock levels are throughout the year;
- find out how much stock to order and how often;
- find out if it is necessary to build up extra stock levels for exceptional times of the year;
- get copies of any available stock buying records, preferably going back over the last three years;
- ask what additional staffing is required over busy periods eg school holidays;
- have it written into the contract that there be a proper hand-over period when the previous owners work alongside you and tell you all you need to know. This will depend on the complexity of the business and your previous knowledge but you should listen, ask questions, take notes and absorb as much information from the previous owners as possible; even the best of us can always learn something new.
With well over 50 suppliers used on a regular basis and so many different stock lines held, I would recommend a month handover for a novice buying my business.
Setting up from scratch
Obviously none of the above information is available for a business that is not yet in existence.Your SWOT analysis, footfall investigations and other market research will be much more important to you than if you are buying a tried and tested going concern. You will be the one taking this research and testing it in the marketplace.
The big advantages in setting up from scratch are:
- The initial financial outlay will be much lower.
- You will be able to make your mark on the business from day one.
- There will not be any inherited ‘baggage’ from the previous owners (a history of bad practice which has sent customers elsewhere).
The downside (or perhaps the scary side) is that:
- The amount and regularity of initial income can only be guessed at.
- It can take time for customers to know you are in business and build repeat sales.
- All stock will be new to you. There will be no tried and tested sure-fire lines that you can rely on to provide a steady income.
Anyway, with your mind on that old proverb ‘scared entrepreneur never earned her first million’ (or something similar), you do have this book, which will lead you through the areas you need to address to set up a thriving business – starting with the business plan. A thorough business plan will help you to establish in your own mind why you are doing this and what you need to do to succeed. It will also provide you with credibility when you approach banks and other professional advisers.
WRITING A BUSINESS PLAN
Before you get to the stage of signing a lease, write a business plan.
This needs to cover the following.
- Why you are going into business.
- What your personal goals are.
- What you want to achieve from the business.
- Why it is going to be a success.
- Why people are going to buy your products.
- Why your business will survive and thrive when so many others do not.
(see examples of Goal Setting on page 205 and a Business Plan on page 207.)
If you need to borrow money to set up the business you will have to write a very full and professionally presented business plan for the bank.
This should include details of:
- the company structure – sole trader/partnership/limited company;
- what the business will do;
- the market size and potential;
- cash flow forecasts;
- projections of takings and growth;
- a complete résumé of all the people involved;
- your qualifications, experience and the strengths you will bring to the proposed business;
- the proposed premises;
- any plant, machinery and vehicles;
- your assets and financial needs.
Calculate how much money you need to earn for the shop to break even and how much money you need to earn to live off. There is no point saying you can live for £50 a week when the mortgage on your house is £1,000 a month.
When writing the cash flow forecasts you will be able to enter accurate figures for the likes of rent and rates once you have found your proposed location, but will have to estimate how much you will be spending on telephone or stationery. Remember that the more your turnover goes up, the more you will spend on things like carrier bags and probably wages, but your heating and lighting costs for example will remain the same. (See Cash Flow Forecast on page 209.)
Turnover ratios are available for some types of business such as grocery and menswear shops.This means that if £x of stock is held in a shop floor area of y square feet, then turnover can be expected to be £z. For most types of business, however, you can only guess.
CHOOSING A NAME
This is the identity of your business. It needs to:
- stand out from your competitors;
- reflect the personality of the business;
- be memorable.
Think of any connotations, both positive and negative, and also of the type of graphics that can be used with the name to get your business noticed.
‘Co-operative Funeral Directors’ is tasteful and describes the business. 'Bodies Are Us’ certainly describes the business but can only be described as offensive.
‘Clippers’ or ‘Snips’ are safe names for hairdressers. They would suit a barber where older men are the main clients.‘Expressions’ or ‘Images’ would appeal more to women and younger men who want something more than a short back and sides. Greys’ and ‘Curl Up & Dye’ are names I have actually seen for hairdressers but somehow they just put me off!
‘Expressions Bridalwear’ implies new, exciting and individual.‘Basket of Threads’ paints a good picture for a needlework shop.
The name needs to reflect the personality of the business. ‘Enchanted Sun’was the name of my first shop (a New Age gift shop). It encompassed the mythical aspects of the shop and was very in keeping with the dominant themes of the day. The name was a hit.When I first opened, I kept a dish of little sticky address labels on the counter so that customers could take my details away with them (these can be stuck straight into an address book or diary and kept, unlike a business card which is easily lost). The local school children kept coming in and taking them.This was very puzzling until I found out that the coolest thing was to have my shop details on your pencil case!
For my second shop (an ethnic and alternative clothes and accessories shop), I drew on images of Stone Age men and prehistoric animals for the graphics.
This logo looked great on carrier bags but customers seemed to be unable to read the font when it was used for sign writing the name onto the shop windows. Almost without exception, everyone thought it said ‘sale’ and that there was a permanent discount on prices!
Another problem I encountered with that name was its lack of originality. There were other shops called ‘Cave’ that used the same suppliers I did and deliveries often went to the wrong shops.
For my latest shop, ‘Polkadot Stripes‘, I wanted something that was unique and would give me the associated internet address, i.e. www.polkadotstripes.co.uk rather than polkadotstripes789.co.uk or polkadotstripesuk.co.uk
Check availability of internet site names (called domain names) on a site such as www.123-reg.co.uk before committing to your new name.
I also wanted a strong logo that would be identified with the words, hence:
Whatever you decide to call yourself, remember that people have an unfailing ability to find alternative ways to interpret what you thought was so clear.
- I always wonder at people advertising their business on the sides of their vans as ‘Shoplifters’ when I should be reading it as ‘Shopfitters’.
- In North London there is the ‘Theobrama Chocolate Shop’ (meaning ‘food of the gods’ in Latin), which is frequently read in the Irish way as ‘The O’brama Chocolate Shop’, much to the annoyance of its owner.
- In the music world there was that 1970s hit song ‘Sue Lawley’ (the band Police, who sang it, thought the words were ‘So Lonely’) or that great old Christmas carol ‘While Shepherds WashTheir Socks By Night’.
THE BUSINESS SIGN
The signs you have outside your shop need to attract passers-by to come in.They need to be:
- Clear and easy to read.
- Eye-catching. Remember that this effect will gradually wear off and for people who see the sign regularly, it will eventually fade into the background so it is necessary to change signs at suitable intervals.
- Compliant with your landlord’s requirements, local council bylaws and both fire and health and safety regulations. It would be a shame to design and make a fantastic display only to be told to remove it.
Maintain your signs so that they do not become shabby looking or dangerous. They are your ‘calling cards’ on the world and first impressions count.
CHOOSING A COLOUR SCHEME
For the shop front
As with the name, the colour scheme needs to make a statement about the shop and what it sells but also needs to make it stand out from the others around. I used a yellow/orange/red flame effect for the paintwork of ‘Enchanted Sun’, which stood out well between a conservative black gloss (very fitting for a jewellery shop) and a dark green (appropriate for a shop called ‘The Woods’). ‘Cave’ was painted a deep purple, which is probably the colour most closely associated with ethnic and alternative fashion.
My latest premises came with an aluminium framed glass front and a sign which was well above head height. It was dull and did not stand out from those shops surrounding it.To rectify this I had the metal frame and surrounding bricks painted magenta pink and covered the highest and lowest areas of the glass with magenta pink vinyl. Big white polka dot circles run in stripes to complete the image. Sales were up 50% the week after the work was completed, all accompanied by comments such as, ‘How long have you been here? I didn’t know you were here’.We had been open for six months at that time.
Look at what is next door. If you are surrounded by bright and wacky colours and designs, then make your shop stand out by being more conservative – and vice versa.
For the inside
The colour scheme for the walls inside is a different matter.Whether you stock goods that are brightly coloured or very dark, you want to display them against a plain background and much as I hate to say it, magnolia paint is probably as good a choice as any.
FITTING OUT THE SHOP
Wall fittings and other shelving
SlatWall is a display system using sheets of MDF, with horizontal grooves cut across the front of them, which are attached to the walls. Shelves,clothes hanging rails, glass display cabinets and so on can be hung from them and the heights easily adjusted. They come in a variety of colours: white; creams; wood effect; natural mdf, which can be painted.
Painting with Dylon clothes dye gives a subtle effect and the wide choice of colours can be used to tie in with the shop’s image. If you can afford to fit out with SlatWall straight away then do so. It is an expensive initial investment but gives flexibility for everything that you want to display in the shop.
Whether you use SlatWall or freestanding shelves, you will need a range of shop fittings.
These can be picked up second hand from:
- other shops closing down;
- small ads in the local paper;
- second-hand and junk shops.
Ikea is great for new glass cabinets and shelving at affordable prices.
The main choices are stone or ceramic tiles, wood or a laminate, linoleum or carpet.
The pros and cons are as follows:
- Tiles are long lasting, and easy to clean. It is a lengthy job to lay them. They can be noisy to walk on.
- Wood is very trendy but scratches and I would not want to own one should stiletto heels come back into fashion. Noise can be an issue.
- Lino style floors are to be expected in a supermarket but cheap and down market in most other shops.
- Carpets are quick and easy to lay. Cheap carpet will wear out quickly so it is worth spending more for industrial quality. Carpet tiles have the added advantage of being easy to move around, enabling worn or stained areas to be swapped or replaced individually. The downside is chewing gum, which is frequently trodden into my carpets and is difficult to remove.
The deciding factor for me is that things are always being dropped in a shop, whether by customers or staff. Carpet, being soft, means fewer breakages.
A classic mistake that new business owners make is to over-do the refitting of their premises. The ultimate in this is taking up a perfectly serviceable floor covering and replacing it with a carpet that has been specially woven to incorporate the name of the premises.
One of my shops was fitted out with carpet tiles when I took it over. They did not fit to the wall, however, as they had been cut to go around previous shop fixtures. Did I put down a new carpet? Not when there was a supply of half-price carpet tiles to be had at the local DIY store. The new ones were brown; the original ones were blue but who noticed!
Another carpet that I inherited when I took on a lease had been very worn where the previous counter had been. I moved the counter and these patches were exposed for all to see. Did I replace the carpet? Not likely. A subtle application of carpet tape kept the worn part in check as a temporary measure until the shop had earned enough to afford a new carpet.
Both the mismatched tiles and the tape were still in place when I sold the shops many years later. Had they affected sales in the meantime? Not in the least. Did they prevent the sale of the businesses? Clearly not!
Price labels, clothes hangers, paper bags and other sundries can be sourced locally through Yellow Pages or The Trader. If there are no local suppliers, then buy mail order from a company likeMorplan (see ‘Useful contacts’ page 216).
There are a number of shop-fitting suppliers which you can visit in Commercial Road, in London’s East End.This is a centre for the rag trade, with numerous clothing wholesalers supplying to small retailers and market traders.
LAYING OUT THE SHOP
The area just inside the door of your shop is known as theTransition Area or the Decompression Area. Thinking of a supermarket, this is where thebaskets and trolleys are kept. It is where people adjust to coming inside,unbutton their coats, change their glasses and get ready to start shopping.
Customers tend not to see much in this area and so merchandise is kept to a minimum. For the supermarket, this area will be up to the first 15ft of the shop, for the smallest of independent retailers this will be the area of a large doormat at best.
Behind the Transition Area, the first third of the shop is the Prime Selling Zone. This is where people will see price tickets for the first time and where they will make their first impressions about your shop. Keep this area eye-catching, attractive and average priced you do not want to deter people at this early stage. Moving to the back of the shop, this is where the shop’s signature items, also called demand items, are kept. These are the goods that the shop is known for and that you encourage your customers to walk through the whole shop to find. Supermarkets keep bread at the back of the store; Marks & Spencer have underwear in this area. These are the goods that people come in to buy on a regular basis. But the shops generate further sales by tempting their customers with all sorts of things that they had no intention of buying before they came into the store.
People generally turn right when they enter a shop and this is where seasonal items or particularly trendy items should be placed to generate maximum sales.
Impulse items, that people will buy on the spur of the moment, should be placed strategically around the shop to encourage purchases. The larger the shop, the easier it is to define these areas and this theory is most easily demonstrated in a shop which is on more than one floor: the ground floor is the first prime selling zone, attracting the greatest number of customers; the first floor will be the second prime selling zone, attracting fewer customers; the second floor with be the third prime selling zone, attracting even fewer customers and so on as you go up the building.
Positioning the till
Think about security when positioning the till.Theory has it that the best location is just inside the entrance way to the left, so that customers mustwalk the whole way round the shop before making their purchase. In reality you will need to site the counter so that you can stand and view as much of the shop as possible. Having it right next to the door may also help to deter shoplifters but I like to have it a little further back into the shop.This is so that genuine customers do not feel intimidated when entering the shop by having to make instant contact with the shop staff.
Ideally you should be able to see every nook and cranny but in reality you cannot see through customers, so decide which areas are the priority.
Leave plenty of space for access
Make sure there is room for customers to move freely around the shop. The gangway should be at least the width of a child’s buggy. Customers will be put off coming in if the shop looks too crowded.This is less obvious on weekdays when it is quiet but most important on Saturdays when people have come out deliberately to spend their money. You will probably lay the shop out several times over the first few months before you find one that suits best and will then start selling something large that requires a complete change about – but that’s retailing.
KEEPING COSTS DOWN
Keep your costs as low as possible when setting up to give your business every chance of success.You need to be ploughing your initial takings back into the business, expanding on your stock and introducing more expensive and unusual lines.
Cars and vans
Do not, particularly when you have just set up your business, blow your money on a new car – either bought or leased. Give your new business a car that is paid for rather than expecting the business to pay for one.
If you must buy a car, look for one with low mileage that is a quarter of the cost of a new car. With regular oil changes it should last you 80,000 miles and will do very well for your business. It is an absolute waste to ruin a brand new car, particularly if you are carrying stock around.
Beware of buying a van and putting your shop logo down the side, which will advertise to thieves what might be inside. Unless you need to deliver furniture or other such bulky items, there is no need to waste money in this way, whatever your accountant tells you.
Forget it. They are a waste of money and of little benefit to you, particularly when you are starting out and need to spend money firstly on stock and secondly on display. Unless you are a limited company you do not need headed paper. Simply set up a master on the computer and print it as part of each letter you send. If you are VAT registered, remember to include yourVAT number on all letterheads.
When going round trade shows, suppliers will ask for your business card but it is not necessary to go to the expense of having these printed – they are of no benefit to you. It is quick, easy and more cost-effective to write down your details or use sticky address labels (see Chapter 3, ‘Making the sale’).