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If you are an aspiring or established entrepreneur looking to open a small retail business, there are many things to consider before opening your doors. Options abound with regard to location, types of merchandise you will sell, and other factors that will ultimately affect the success of your store. It is important that you or someone you will partner with has extensive experience working in various roles within a small or large retail business to navigate through the process of opening a retail business.
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1. Choose a product in which you have interest and knowledge.
You don’t have to be an expert, but you should have a working knowledge of and a genuine interest in the product you will be selling. Understanding your product will help you to make good business decisions in the future. Also, you may already have contacts with suppliers and other professionals in the business who can help you get yours up and running. To decide what to sell, you can:
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- Evaluate your hobbies. If you have a hobby about which you are passionate, investigate whether it could turn into a retail opportunity. If you already spend a lot of time on something, chances are you know a lot about it. Your excitement for and knowledge about the product could help you to educate customers, which translates into more sales.
- If you are an avid gardener, consider selling gardening supplies.
- If you like to refurbish items purchased from flea markets, consider running an art and antiques store.
- Use your line of work and education to inspire you. Your education and work experience have likely imparted useful knowledge that you can use to run a retail business. Think about the skills and practical knowledge you have acquired while building your career. Ask yourself if could see yourself selling related products.
- For example, a hair dresser might consider running a beauty supply store.
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2. Gauge the demand for a product.
No matter how much you love something, it will not sell if there is not a real need or desire for it. Do some market research. This will allow you to determine whether or not people will purchase your product.
- Investigate whether people are purchasing a product. Visit online marketplaces like Amazon or eBay. Amazon has a Best Sellers Page that lists products that sell well. On eBay, you can do a search for completed sales within a category. Study how well products did in auctions. If it sold quickly or there was a bidding war for the item, it might be a product worth selling.
- Visit Google Adwords Keyword Planner. Type in keywords related to the products you want to sell, and see how many searches have been done on these terms. This can help you to assess demand for a product.
- Visit retail stores that already sell the product you’re thinking of selling. Evaluate performance by noticing how long the products have been on the shelf and if they sell for full price or only when they’re marked down. Ask proprietors what their bestsellers are.
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3. Read trade magazines and academic journals related to your industry or target market.
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4. Search for actual facts and figures.
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5. Estimate your potential profit margin.
Get to know suppliers through trade organizations, by attending trade shows or by visiting online platforms like Thomasnet.com. Compare wholesale information, trade prices and minimum order requirements.
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- Determine the retail price by researching what other stores are asking for the product. Visit an online marketplace or a brick and mortar store to do this research.
- Compute an estimated direct costs margin. The formula is Direct Costs Margin = Sales Price-Total Direct Costs.
- If it costs you $5 to produce an item and you sell it for $20, your direct costs margin is $15.
- Calculate the direct costs margin percentage. The formula is Direct Costs Margin Percentage=Direct Costs Margin/Sales Price*100.
- Using the above example, you would calculate {\displaystyle 15/25*100=75\%}.
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6. Write a Company Description and Market Analysis.
Provide a high-level review of the type of store you want to open. Describe the kinds of items you intend to sell. Identify your target customers their distinguishing characteristics, and how you are going to meet your customers’ needs. Identify your competition and explain how you have a competitive advantage.
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- For example, suppose you want to open a small pastry shop. The items you will sell are gourmet coffee and pastries.
- Your target customers might be commuters on their way to work, or diners from nearby restaurants looking for a place to enjoy dessert.
- You may plan to meet your customers’ needs by offering quick service, special seating or even a drive-through window.
- Advantages over your competition might include your location, a well-known pastry chef or a special recipe you use.
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7. Describe your organizational structure.
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8. Describe your marketing strategy.
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9. Explain your plan to fund start-up expenses.
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10. Provide financial projections.
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Discount pricing strategies include price bundling (offering a discounted price for multiple items purchased together), complementary pricing (charging low prices on one common item, such as coffee, and higher prices for others) and customer loyalty discounts.
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11. Work with a commercial real estate agent.
An agent experienced in retail businesses will be able to show you properties that might meet your needs and are available for lease within your budget. You could also contact the commercial real estate development company that owns a specific property that interests you.
- A good alternative would be to take over an existing retail store that has a loyal client base. A commercial real estate broker will know about these opportunities as well.
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12. Conduct research on your potential business location.
Search public records of how the location was used previously and statistical data such as the average income in the area. Find out if there are competitors and similar ventures nearby.
- When you find a potential location, observe the area for a few hours and analyze the foot traffic in the neighborhood. Is it near public transportation or highways? Is there enough parking? Being near the competition can help attract the right customers if you believe your products will be superior.
- You will want to also analyze the demographics of the area. Does the income level match the type of clientele you hope to attract? Your local librarian or commercial real estate broker can help provide this information.
- Once you find a location purchase insurance policies for general liability and fire insurance.
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13. Determine your needs.
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14. Develop a budget.
Determine what you can afford to spend on rent each month. Be aware of hidden costs, such as repairs. Start-up costs may include renovations and decorating your space. Budget for local property taxes.
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15. Plan for future growth.
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16. Determine your expenses.
Lists all of the expenses your business will incur when starting out. You may have to lay out a lot of money at first before you start making any money. Planning how to spend money will help you spend it wisely and start earning money sooner.
- Rent and operation expenses include your rent and, in the beginning, any security deposit you need to put down. Other expenses in this category include utilities and staffing.
- Property improvements and customizations include construction costs, furniture and fixtures, equipment and office supplies.
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- Technology and communications expenses include computers, phones, internet, point of sale (POS) terminals, card readers, scanners and printers.
- Calculate how much you need to spend in inventory to start your business.
- Marketing and advertising expenses include print, online, television and radio advertising, grand opening expenses, print marketing materials like posters, flyers and coupons, and design work for your logo and signage.
- Other required fees include licenses, permits, taxes, registration, legal fees and accounting fees.
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17. Identify funding sources.
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18. Contact the SBA for information on obtaining an SBA guaranteed small business loan.
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19. Consider a home equity loan.
Find a bank that will give you a home equity loan or home equity line of credit. You would be using your own home as collateral. Make sure you can pay back this loan or you risk losing your home. You will also have to have a credit score in the high 600s to take out this type of loan.
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19. Consider micro lending.
Internet micro lending services (also called peer to peer lending) help borrowers find lenders for relatively small loans, usually under $35,000. Research these sites and familiarize yourself with all of the rules and regulations in order to avoid misunderstandings later.
- Popular micro lending sites include Kiva, Prosper and Lending Club.
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20. Choose your business structure.
The structure you choose has tax implications. Learn about the different types of business structures. Choose the one that works best for your business.
- A sole proprietorship means you alone are responsible for the business. You claim all gains and losses on your personal income taxes.
- A corporation is a legal entity owned by shareholders. Shareholders are not help personally liable for losses of the business. Taxes are paid by the business on profits, and then the shareholders pay taxes on dividends that they receive from the business. Corporations must be registered with the state in which they do business. You will have to file articles of incorporation with the Secretary of State in that state.
- A partnership is an arrangement between two or more parties to run a business. Each partner contributes to the business and shares losses and profits.
- A limited liability company (LLC) offers the liability protection of a corporation with the tax flexibility of a partnership.
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21. Register your business name with your state government, if necessary.
You can do business under your own name, or choose another name for your store. Check with the U.S. Trade and Patent Office for trademarks, and choose a name that is available as a URL address so your website address can be your store’s name. A DBA (Doing Business As) is needed whenever you are doing business under a name other than your own. Registering a DBA name is typically done through your state government or county clerk’s office.
- Choose a name that not only looks good on a logo or a sign, but that also reflects your store’s philosophy and culture.
- For example, if you are opening a chic boutique, you want to use words and phrases in the name that connote style and will appeal to your target audience. You might choose to use your own name, or integrate your location with a name like “Charlotte’s Uptown Closet.”
- If your store sells cute things and you are targeting a young audience, use a cute name, such as the Dress Up Shop or the Rose Petal Boutique.
- If you are selling more sophisticated styles and are targeting a high-end clientele, you would choose a name that reflects that image, such as La Couture.
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22. Apply for a state licenses and permits.
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23. Apply for federal licenses and permits.
Only specific categories of businesses need federal licenses and permits. If you are selling something that is regulated by a federal agency, then you need a federal license or permit.
- To sell alcohol or firearms, you must comply with federal licensing regulations.
- If your store is involved in selling products related to aviation, commercial fishing, mining and drilling, maritime transportation, agriculture, nuclear energy, radio and television broadcasting or transportation, then you must contact the relevant government agency to learn about licensing requirements.
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24. Determine how many employees you need to run your store.
Write job descriptions that define each person’s role, responsibilities and work hours. If possible, plan to avoid hiring too many part-time employees. Instead, design a schedule that gives employees more shifts or longer hours.
- Part-time employees are disengaged from your store’s success. Full-time employees are more likely to be committed to the success of your store.
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25. Find and vet job applicants.
Once you have written your job descriptions and determined your optimum staffing levels, it’s time to find prospects. Search for job applicants by networking and by posting on job boards. Specify the work experience and educational background you want applicants to have.
- Ask for referrals from friends, family and professional colleagues. Employees who have been referred to a business by a mutual friend or colleague tend to stay longer and work harder.
- Use the recruitment tools on LinkedIn. Do a search for a relevant job title. You will see a list of members who match your search terms. Review their background, skills and references. Contact any whom you would like to interview.
- Advertise on job boards like such as the NRF Job Board, Craigslist, CareerBuilder, Monster and Seek/TradeMe. Thousands of job seekers will see your post.
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26. Interview applicants.
Sort through all of the applications you receive and generate a list of applicants to interview. Stay organized by making a list of questions to ask and taking notes during interviews. After the interview process, use your notes to assess each applicant. It’s important to meet all applicants in person before offering a job. Sometimes an applicant looks good “on paper,” but turns out not to be a good fit for your business.
- Be honest about the job during the interview so applicants understand exactly what will be expected of them.
- If possible, invite others to the interview to get additional feedback.
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