How other businesses doing it?

[tloonya]

I want to echo another thread and ask how other business owners doing it because I do not seem grasp it completely...

We had doubled and half our sales since October of 2010.
However money yet to be seen...
We do invest back.
We are buying more groceries and becoming a small supermarket.
We had started as a produce store (for those who weren't following)...
We are building shelves. Buying refrigerators. Freezers. Stocking up on everything under the sun!

I often wondering...we have moderately high rent. $1800 per 1000sq.f
I see owners of small businesses who pays tons of dollars in rent and they are surviving for years and I am always wondering HOW!
What it takes for business to be called 'established' and not having to spend money on improvement and investing back?
When am I going to have my 'usual' set of products that I am buying...if ever?
Is it even normal to keep spending on improvement and all mentioned above?

Just wondering.
I really am want to start making some money for myself finally...

[Savoir Faire-Demogague in NJ]

Any business not constantly improving itself, either through it's services or products, or is not seeking out new markets, is a stale business which will be put out of business by aggressive competitors.

Similar to employees who refuse to keep skill sets up to date. They eventually become unemployable.

[tloonya]

SF! But what is the right amount of money that me-like person is supposed to allowed to be re-invested and never seen again? Is there amount of time (estimated at least) and money when someone must say 'enough already! 10 kinds of juices is plenty for the convenience store. We are really not a supermarket...'

We have 4 rows of tables and space under the tables is empty. So we are building shelves there and aslo my DH has built some above everything so we can have juices above each fruit so people can take a juice and a fruit or choose either...
So far 3 rows are shelveless. We will build more. We will need to buy stuff to fill it in with.
Next year it might ne IT!!! Should we expect profit THEN???

[Savoir Faire-Demogague in NJ]

SF! But what is the right amount of money that me-like person is supposed to allowed to be re-invested and never seen again? Is there amount of time (estimated at least) and money when someone must say 'enough already! 10 kinds of juices is plenty for the convenience store. We are really not a supermarket...'

Do you bring in new and exotic and/or gourmet produce in from time to time. Does your establishment serve some ethnic community?
Do you give out recipes? Perhaps bring in a local chef on a Saturday to give cooking classes using ingredients in your store.

[bean29]

Isn't her rent high? Anyone know what rent goes for per square foot in her area.? Does the rent include heat, taxes, maint etc?

[tloonya]

I am feeling no one is listening. You guys need to read original post.
I've asked
What it takes for business to be called 'established' and not having to spend money on improvement and investing back?
When am I going to have my 'usual' set of products that I am buying...if ever?
Is it even normal to keep spending on improvement and all mentioned above?


I am looking for some inputs. Not about bringing exotic fruits FS! No one can afford them anyway. Do you have any idea how much they cost? 1 dragon fruit is $60 in Wegmans!!!
In my area people can hardly afford tomatoes!

My question was about when do I stop investing back and starting to go with routine of buying/selling without unexpectable extra spendings?

[jeffreymo]

I'd stop investment when I could calculate that it wasn't generating a return. It's like any investment. You should have all your financials to analyze so that you can answer that question. I'm not sure how long you've been open, but you should have some good data after a year or two of what sells, who your customers are, what they want, and why they will spend their money with you instead of your competitors.

[tloonya]

Exactly what I was looking for jeffreymo!
Look here. I am buying stuff that SELLS! Everything new I am bringing - sells.
I am building those shelves because I am generating profit but I am spending it right on the spot to buy another piece of equipment!
This is why I am kind of glad but tired of my own what? greedeness or lack of sense?
I need help!!!!!!

[hsclassic]

When I had my business, I kept reinvesting and had those same feelings as you do. All I can suggest is declare a moratorium on reinvesting your funds - maybe for 3-4 months. Take a part of what you would have reinvested in the business and invest it in yourself.

[jeffreymo]

If it were my business and stuff was flying off the shelves as you indicate, I would play around with the margin. It sounds like you're selling more (which means you're buying more from your suppliers). Have you thought about asking your supplier for a reduction in price since you keep increasing the size of your order? Have you thought about raising your prices a little maybe 1%?
Maybe instead of investing in additional capacity, you could spend some of your profits make the appearance of your shop more comfortable/inviting/pleasant for your customers. "Right size" your building. Fill it with products until it seems full. Don't overwhelm your customers with product on every inch of every wall.

Your customers have all the answers.

[Deleted]

You should be capitalizing your equipment and depreciating them over their useful lives. That will help you with your profit, although it will not affect your cash flow...

[tloonya]

hs
I would love to declare 'me' money time.
However if I did that - my shelves would be naked for month and I would be looking bad to my customers.

jeffreymo
We are investing into appearance since the beginning (Oct 2010)
We have a very clean beautiful store people are constantly commenting on.
We bought TV that runs music videos. We have a lot of lights we installed so our stuff looks bright. We do everything to make people love us and to be honest it seems like they do.
This is why they come here like if we were their convenience store for all their needs.
We use to be fruit and produce.
they asked for stuff and now we are 'bit of everything so you don't have to go far'

We have about 20% of the store that can be 'expanded within' still.
We have to invest maybe another $5K and investment into 'hardware' must stop.
All we are going to be doing is bringing more groceries.
We are going to bring as much as we can fit into the store.
And it will eventually going to have to be xxx amount of dollars.

I am asking is this is going to be time for us to spend $X and sell and make $x of profit?
Or there are some other surprises are waiting around the 'business corner'?

[tloonya]

deminmaine
I think it is exactly what I know but wouldn't want to admit.
I am desperately looking for a pat on the back with 'everything going to be fine in a few month' pep-talk...
I am ain't getting it am I? :-(

[cronewitch]

You can decide for yourself when you can start taking home your profits. Once you have an idea what your annual profit is you can decide how much of a draw to take. You might consider what you are worth if you were being paid as an employee and take that so if you would pay a clerk $10 and hour take home 1.6K a month. Reinvest the rest like you have been or put it in the company account for expansion or improvements. You might save enough you can see you can afford a bigger draw or buy a building instead of rent.

[tloonya]

Yes crone but isn't there a data of some sort that gives you an idea about how this sort of business should be doing on a first/second/third year? I know I am asking for too much but one of my suppliers saying that he knows his business will not get him anything for first 5 years and then it must become very profitable. He is living up to his word so far. they are growing but all the trucks and stuff they are buying are keeping them in debt up to their eyeballs.
They are not worried however. they keep working as dogs. I am not sure how they had this estimated. Maybe there is some ways?

[AgeOfEnlightenmentSCP]

I would look at expenses. I would stop spending money on anything that you can't track directly back to either keeping the doors open, or increased sales-- and that means you can measure it. Generic "advertising" is something I'd cut WAY back on- or do none at all. I would do direct marketing to the target customer in a targeted radius around your store.

But here is the bottom line- you can increase the size of the transaction-- charge more money at the checkout register, you can increase the frequency of transactions-- more visits by the same customers to the checkout counter, or you can increase the number of transactions-- more customers in line at the checkout register.

Other than that you need to become a lean machine-- keep costs low, and keep pushing them lower. This often means not being "nice" as most people understand it. It means shopping aggressively and constantly pitting one supplier against another. It means things like keeping the store warmer when it's hot out, and cooler when it's cold out, installing motion sensors for lights in employee areas like bathrooms, and storage areas (be mindful of state and local ordinances).

But back to my favorite topic and area of expertise-- you need to get good at marketing, and specifically direct selling. I would take a look at some direct marketing copy writing materials-- I like Dan Kennedy's stuff.

What you'll learn (especially from Dan) is that you can feel good about yourself, and paint a nice picture of your business for your mommy, or to feed whatever psychological need you have to have your marketing act as a salve for every inadequacy you perceive that you have-- or you can sell stuff and make money. You'll learn if you stumble across anything by Jay Abraham that you should, "Be loved, be hated, but not tolerated". You want to be on everyone's mind in your community.

Take a look at Caputo's Market in Naperville (Google it). Take a look at Oberwies Dairy in Aurora and consider some of those niches-- like home delivery of premium products..

[ssdawood]

Investors usually look for 2 to 3 % rate of return per month. This is what a good established business returns usually.
So say hundred thousand dollar store should leave you with 2 to 3 thousand a month after all expenses. This does not include payroll. This is only the profit.

When I buy a business I shoot for the above profit. In your case I think(cause I have been following you since u opened) you opened up a new store. There was no existing business, you just rented a vacant storefront. The startup cost was low for you. Now the money you are investing in store is the cost of building business.

So say I like a store that makes 2000 dollars a month. So the price of the store is hundred thousand plus the inventory.
Now if your store does make 2000 a month after expenses you can sell it to the next guy for around hundred thousand. But when you bought the store you didnt pay hundred thousand. Say but you did invested 30 to 40 thousand so you end with 60 thousand profit.

At the end of the month I hardly worry about how much money I am spending in the store as long as it will increase the profit of the store. If the profit goes up I can find a buyer who will give me best dollars.

New shelves equals new products equals more sales equals more profit. You will get paid for the business eventually. Its money well spent.

[jeffreymo]

Feb 25, 2011 11:43:39 GMT -5 @ssdawood said:

Investors usually look for 2 to 3 % rate of return per month. This is what a good established business returns usually.
So say hundred thousand dollar store should leave you with 2 to 3 thousand a month after all expenses. This does not include payroll. This is only the profit.

2 to 3%? That wouldn't be enough incentive for me to invest in a business. I will say that I have no experience in retail. Are the margins really this thin?

[ssdawood]

2 to 3 percent is the profit not the margin. At the end of month thats what you take home. Margin ranges from 20 to 30 percent but you deduct expenses from it.

You really think 2 to 3 % return is slim. What other investment you have that returns 24 to 36 % per year. Think about it?

[jeffreymo]

Feb 25, 2011 12:43:40 GMT -5 @ssdawood said:

2 to 3 percent is the profit not the margin. At the end of month thats what you take home. Margin ranges from 20 to 30 percent but you deduct expenses from it.

You really think 2 to 3 % return is slim. What other investment you have that returns 24 to 36 % per year. Think about it?

Nevermind. My bad. I was reading it as $100k in monthly revenues nets $2k. You were talking about purchasing a store for $100k and that store will generate $2-3k a month in profit.

[tloonya]

There we are toking!!!
I say I did not understood half of what you were saying but I had realized I am a financial moron one more time and thank you now!
However I am trying to understand what you are saying.
...and I failed again...

So tell me please...
if I am making $1200 per day sale ($30K per month. I am counting 25 days)...
...what is my take home money should be expected? By smart people like you are.
Because if I knew that I might going to start saving some from myself and don't let myself to build a shelf for a month or two...

And little correction...we walked into a store that was a produce business for 30 years.
Once it was good. About 10 years ago it got sold to people who killed it.
Our 'thing' became is to bring 'em back...and they are coming.
So we are looking into $2K per day in sales and hoping that we can do it.

[ssdawood]

Tloony here you go


Sale per day times number of days in month you operate. This is you monthly sale.

Now subtract all the expenses from it. Such as rent, electricity, telephone, garbage pickup, payroll ( if you work yourself u still have to write what you pay urself even if you dont). If you take credit cards add merchant fees also.

Now the number you get is your profit . thats what your store made in month.

Never write anything that you plan to sell in the expenses. Thats inventory. But money spend to build shelf or improvement is expenses.

Now 1200 a day times 25 days equals 30000 per month.
At 30 percent profit margin 9000 per month.

Expenses ( these are approximate values please fill )
Rent $1800
Electricity$500
Tele $50
Garbage $50
Payroll $2500 ( assuming store is open 10 hrs per day and wage is 10 dollars per hour)
Credit card $ 300 ( assuming 10 to 15 thousand dollars of sale is credit, credit cards usually charge you 1.85 to 2.25 %
Insurance $300
Payroll tax/ corp tax other taxes 200


Total expenses are 5500

Profit $3500. at the end of month.

You might be making less than this
If you have more people working and payroll is higher
Margin is not 30 percent

Lemme confuse you a little bit and tell you about profit margin and profit markup.


Profit markup is selling price-cost price/cost price

Profit margin is selling price-cost price/selling price

So an item cost you 10 dollars , you sell it for 13 dollars

Profit markup 13-10/10 = 30%
Profit margin 13-10/13 = 23 %

Inorder to have 30 % margin on a 10 dollar item the selling price has to be $14.30

[tloonya]

ssdawood
Thanks so much. Your estimation is very close.
Let's say all these $3500 I could have taken home had been spent on extras for the store.
So I think that when we are done injecting money into the store - we can start making some.
I certainly hope so...I need some vacation...