How much does it cost?
The cost of premises is obviously something you need to consider very carefully. Your turnover needs to greatly outstrip what you’re paying on rent or mortgage of the shop. The location of your shop will determine how much you pay on to rent. For example, around 800 SqFt on the high street in Chester will cost about £22,000 a year to rent. However, the same amount in space in central Manchester can top £100,000.
Julia Minchin owns Hippychick, a children’s retail business in Somerset. “I don’t think you’ll find anyone setting up a business who doesn’t want to make money so margin is absolutely key. Keep your overheads down in the early days. Watch your costs and maintain your margins.”
Your biggest expense after the cost of the stock will most probably be staff costs – unless, that is, you are running the shop on your own. It’s very common for staff wages to make up 8-10% of all your costs, and with a high turnover of staff in the sector due to the relatively low wages, you may need to set aside a regular allowance for recruitment and training.
If you are buying an existing business remember to factor in an amount for goodwill. This is the amount designed to cover the previous owners work in building the business up in terms of reputation and customer base. There’s no set amount here – you’ll just have to negotiate with the seller.
When Julie Goodwin bought her first store, which was already a health shop, she paid about £9,000 for the stock, and a further £2,000 goodwill to the previous owner.
Unless you are buying a beautifully presented shop you will probably also need to spend a fair bit on refitting and signage. Dawn Burden has all the shelving and display furniture in her Bath toyshop made bespoke when she started the business.
Burden says the first couple of thousand she spent on the business was for market research. “We didn’t want to be in the dark about the kind of people that would come to the shop.”
Neil Thompson of Business Link says there is a lot of market research out there but it can be quite costly. “The larger documents can cost thousands in certain cases,” he says. However, if you go through organisations such as Business Link, certain sections of the documents can be singled out for a lesser cost depending on what information would be useful to you.
Teresa Andrew said buying an existing butchers was the only way she could afford to open. “If you wanted to set one up from scratch you’d be looking at £100,000 at least because of all the equipment involved.”
When she opened the butchers back in 2000 she got a bank loan for £66,000 which covered fixtures and fittings as well as giving her some working capital. She now turns over between £150-200,000 per year.
You will also need some kind of till system. An electronic point of sale (EPOS) system can give you sales information, and keep track of stock levels which will help with inventory and projections. A small individual unit for smaller shops can be bought for a couple of hundred pounds but for a series of units networked together, cost can run into the thousands.
As with any business property you will also have to pay business rates to your local authority, and it’s important to factor in the cost of building and contents and public liability insurance.