Fully understanding the costs before you open a retail store is important to being financially prepared for the road ahead. While some retail store start-up costs are obvious, others are not. The key is to develop a comprehensive business plan and budget which take into account all possible start-up costs. This is best done by people connected with the business as well as external advisors who have experience in the area.
Here is a list of retail store start-up costs which will apply to almost any type of business. The list is broken down by area:
The store itself: lease preparation costs, legals, shop-fit, signage, electrical, lighting, plumbing, parking, window signs. In developing these costs, get quotes from a range of suppliers and use the higher quotes for budgeting purposes.
Stock: initial floor stock, backup stock. Make sure that you have ordered enough stock to support the opening of the business, to fill the space and have enough to replace stock as it is sold.
Infrastructure: computer system, security system, motor vehicle(s), phone system.
Other: business incorporation, accounting fees, other legal fees, any government registrations necessary, initial supply of stationery and consumable items, insurance, banking relationship setup fees.
Employees: hiring costs, uniforms, training and any other sign-on costs.
Opening: marketing, promotional gifts, advertising, additional employees for any event. This needs to cover all costs to support any opening event as well as marketing to be undertaken by the business for the first three months of trading.
Early trading: budget for the cash necessary to pay the bills of the business which it is establishing itself. This will depend on how soon you expect revenue to kick in. Budgets for between three and six months coverage.
Contingency: once you have all of the expected costs worked out, add a line for contingency – for anything which may go wrong. As a guide, this should be in the vicinity of 10% to 15% of the total start up costs.
The more accurate the cost assessment the better prepared you will be should the business plan proceed. A retail store starved of cash is a business waiting for all sorts of challenges. This is why deciding not to proceed because of lack of cash is better than just scraping through and opening with barely enough cash.
Take your time and work out what the real start up costs are likely to be. This time spent before you sign any agreements could be invaluable down the track even once the business is open.