Expect to invest a great deal of capital in your retail store prior to ever collecting a dollar of revenue from customers.
Opening a retail store can be a very exciting business opportunity. However, the landscape is very competitive and there are high costs to getting started. If you start a retail store, you will quickly learn that a great deal of your startup expenses are spent before you even have your doors open and can collect revenue from customers. Plan well ahead to ensure you have enough cash to get from idea to reality and then even more cash to give you some staying power while you build your retail store business.
Business Registration Costs
A business of any sort will first need to file with the Secretary of State and obtain all required state and local licenses and permits. Being properly registered is the first step to being able to conduct business legally. As a retail store, these costs are more important as you will be dealing with consumers and likely have a visible storefront. Failure to obtain the required paperwork can leave you vulnerable to law suits, fines and other enforcement actions from regulating agencies.
Storefront Development
In addition to leasing retail space, be prepared to invest some funds in the appearance and set-up of your storefront. You may have to buy shelving, remodel the interior and buy signage for your store. As you are making these improvements, you will also be responsible for the monthly lease and electric payments. These expenses can be tough at first as you are paying out cash without any mechanism to generate revenue until your store is open. Prepare your finances accordingly to allow at least two or three months of rent and lease expenses while you organize your store for opening day.
Inventory
Retailers need merchandise to sell and these products must first be bought from manufacturers and other wholesalers. In addition to buying merchandise to have available in your store, you must be prepared to spend some funds traveling to industry tradeshows so you can see some of these items first hand. Many vendors and suppliers will allow you to make payments via credit card or set you up on net 30 day terms if your credit passes muster. However, even if given great financing terms, be prepared to expend capital upfront to have items for sale prior to opening.
Marketing & Promotions
Once you are ready to open your retail store, plan to spend some funds advertising and promoting your newly opened business. If you do not spread the word, getting customers into your store may present a challenge. Consider all avenues, including radio, print, television, flyers and sponsorships. The money can fly out the door fast, so be sure to monitor your advertising spend as it relates to sales and visitors to your store. Consider also budgeting for discounts and promotional pricing to provide a compelling reason for new shoppers to visit your store. While a discount is not an added cash expense, selling an item for less than you planned can impact your cash-flow projections.
Operating Capital
After rent, renovations , registration fees and inventory, you may find your capital resources running low. Prior to getting started, plan to have an adequate cushion to cover projected operating expenses for at least six months. This includes overhead, payroll and other general operating costs. It would be disappointing to have to close up in month two or three just as things were getting started because you used up all of your cash prior to opening the store. Understand that it may take several months or even a couple of years before your retail store can establish itself and become a viable enterprise.
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