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  • #965783
    Cedar
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    Hi

    I am currently working as an accountant whilst working in a gift shop on weekends. I used to manage the shop before I started my accounting job. I don’t enjoy the accounting job, but love working in the shop. I would like to start my own shop, along the lines of gifts/homewares as I know how to sell it and I am passionate about it.

    The problem is that I don’t know whether to go ahead and do it because of the huge financial risk involved, or whether I will actually be afford to do it.

    Basicially, my husband and I have a $310,000 mortgage on a house worth $550,000. Current mortgage repayments are $2400 and my husband earns $3100 a month from his job, so we need more than one income to survive as it is. Do you think I have any chance of borrowing against the equity in the property to start a shop? Is it likely that I could earn enough to make a living without losing the house?

    #1014020
    Accounts Studio
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    Hi Cedar
    Do you live in a well populated area or in the country? Have a look at potential competitors and try and analyse how well they are doing. Have they been around for a long time or do shops, particularly gift stores in your area have a high turnover in ownership? I would advise doing a well thought out and researched cost analysis and cashflow forecast first of all showing all costs involved, and potential income. Maybe you could try an online store first of all and use that as a test market to see which products work, before trying a retail store.

    #1014021
    MikeNash
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    Cedar, post: 15272 wrote:
    Hi

    I am currently working as an accountant whilst working in a gift shop on weekends. I used to manage the shop before I started my accounting job. I don’t enjoy the accounting job, but love working in the shop. I would like to start my own shop, along the lines of gifts/homewares as I know how to sell it and I am passionate about it.

    The problem is that I don’t know whether to go ahead and do it because of the huge financial risk involved, or whether I will actually be afford to do it.

    Basicially, my husband and I have a $310,000 mortgage on a house worth $550,000. Current mortgage repayments are $2400 and my husband earns $3100 a month from his job, so we need more than one income to survive as it is. Do you think I have any chance of borrowing against the equity in the property to start a shop? Is it likely that I could earn enough to make a living without losing the house?

    Hi Cedar,

    You have some equity in the home and the loan to value ratio is pretty good, so there is at least a chance at least that the bank might lend you money (secured against your home), or you could remortgage it as another possibility.

    The question is – should you do it? I haven’t been involved in retail for some time, so take my advice with a grain of salt – but if it were me…

    Before you get too far into it, some back of the envelope calculations:

    I presume you have a rough idea of what goes through the till on the weekend at the gift shop you’re working at.

    Do you have any idea of the profit margins made on the sales? Have you researched where to purchase the stock, and what the terms of trade will be with your suppliers?

    Does the gift shop where you work do much trade during the week, or mostly on weekends?

    If you know, for example, that you could expect to sell $5,000 of stock on a weekend, at a gross margin of 50% – then you know roughly the gross profit you will make before costs – at least on the weekends – would be $2500 (minus GST). You then need to think about what the sales may be like during the week.

    This gives you a rough guestimate of the possible gross profit per week, after the cost of your stock.

    Next, you need to think about your other costs.

    Unless you can negotiate something, like some spare space in someone elses location there will be a commercial lease. They will want a commitment in time, a bond, or a personal guarantee, or all of the above.

    In our case, we signed a 3+2 lease (3 year lease, with an optional 2 year extension) on our office which had been vacant for 12 months. By doing this we were able to secure a substantial discount year 1, a moderate discount in year two. It helped in our case – but office space is a bit different from retail space as you need passing traffic and the right location.

    How much, roughly speaking, does the location you’d need cost per week?

    Next – what do you get paid in the shop you’re currently working in? Factor that in (the total, including tax and super) – because that’s what you’d have to pay yourself (or someone else) to staff your store. Figure out how many people you need. Cost it.

    Of course, like anyone who is passionate about what they do, chances are you’ll do a lot yourself at first, but you should understand what the “proper” staffing costs are because:

    a) You’d like a salary, and
    b) You’d like, at some point, a holiday , or to not work so many hours.

    You have to put a value on your own time, even if you don’t take the payment for it at first :)

    Next – how much will your starting stock and fitout of the shop cost ?

    Where will the money come from? If you need to take a loan then what will the repayments be?

    I checked out a quick calculator at Commbank (http://www.commbank.com.au/tools/pl_calculators/aspcalculator/repayments.asp) – on a $50,000 personal loan over 7 years, the monthly payment is around $900.

    For sure, there are other costs like heat, light, power, accountancy fees, phone and I am sure a large number of other details – but these would be your main big numbers.

    So now we have the “rough” numbers. You may make $xx gross profit per week on sales, for roughly speaking $yy of costs.

    Does X exceed Y? If income doesn’t exceed expenses, how long is that situation manageable for you personally?

    If income does exceed expenses, then it seems like it might be workable and it’s time to get into the real numbers, and start to make some more detailed plans – marketing, proper cashflow rather than back of the envelope.

    Mike

    #1014022
    Stuart B
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    Ideas Book, post: 15274 wrote:
    Hi Cedar
    Maybe you could try an online store first of all and use that as a test market to see which products work, before trying a retail store.

    I was going to suggest an online store too. It might be a lower financial commitment for you, you can test the interest, and then you just have to figure out a way to market it to customers. But I would have to assume all of that would be vastly cheaper than starting up an actual physical store???

    #1014023
    Martyn Fleming
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    Hi Cedar

    A good question and some great contributions already.

    I’m curious to know which path you took – did you take this online or operate out of a physical premises?

    I help people buy commercial property and happy to weigh in with my 2 cents worth, but I realise you may well have moved on since posting this topic.

    I do congratulate you on following your passion and work you enjoy doing. I also have an accountancy background and willingly put that aside to build our Buyer’s Agency business. Isn’t life grand when you need to remind yourself that you’re working? ;)

    Hope it’s all working out for you! Happy to answer any questions you may have about buying commercial property vs leasing, etc.

    Cheers, Martyn

    #1014025
    Martyn Fleming
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    • Total posts: 8
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    DreamscanbeVisions, post: 76480 wrote:
    Nothing better than online real estate ;) uhoh I said too much..

    I think you’re right and there’s nothing wrong with an online presence (last I heard, Facebook and Google aren’t doing too bad). It comes down to having a product that matches your distribution channel.

    Sometimes false assumptions can be made about a product or service when it fails to get a favourable response from the market (evidenced by low sales volume). However, the issue can be more to do with a poorly operating distribution channel – you can make as many mistakes with setting up online as you can with a physical premises, so getting it right is critical.

    Also, some products just seem to do better as a physical premises and don’t convert as well online. For example, most fast food outlets seem to do better through their restaurants or service windows, although the pizza shops are starting to buck the trend a little…

    I’ve noticed some gift shops doing quite well in partnership with coffee shops. Looking for cafes with excess capacity could definitely be worth looking into. You’ll get cheap space to lease and could even share resources. It might help you to open several gift shops within different cafes.

    If you’re keen on the online presence, I’d recommend getting an SEO specialist to ensure you’re website’s visible. As a colleague of mine put it – no point having a flashy billboard if it’s sitting in the middle of the desert. Better off having a smaller advertisement in the middle of the CBD.

    Another tip given to me by a colleague when you’re putting together your business plan. When you get to the cash flow part, halve your expected revenue and double your expected costs. Work on that basis and ensure your trading solvent using those figures. That’ll give you a fair buffer when times are tough.

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