The idea of buying products at a wholesale price and selling them at a retail price for profit can seem like a dream business, especially if you’ve become accustomed to working for an hourly wage or providing services that require ongoing labor.
However, before you start thinking that owning a store is a complete cakewalk, it’s important to consider all of the unexpected twists and turns that you’ll encounter on your way to launching a successful retail startup.
With that said, here are the top seven things that nobody has told you about starting a retail business:
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You’ll Be Learning Something New Every Day
There are so many tiny steps that come with each of the major steps you’ve already considered. For example, you might think that storing cold food products in a walk-in freezer is as easy as keeping the temperature low, until you discover more than you wanted to about ice build-up in freezer panel joints.
After a year of running a retail business, you’ll know all sorts of odd facts that you didn’t before, and most of them will be indirectly learned due to the necessity of having to solve business problems.
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Price Doesn’t Have to Be Your Selling Point
Many people start a retail business because they think they see an opportunity to undercut the competition on pricing alone. While this strategy can certainly get you customers, if you’re basing your entire business model around being the cheapest provider, then you might be in for an unpleasant surprise. Instead, try to offer a balance of affordability and value to make sure you’re bringing something else to the table other than just the lowest price.
There will always be other more established companies out there with strong buying power, which means they can afford to buy larger shipments and receive bulk discounts that you can’t. In fact, you might even be better off positioning yourself as the most premium provider in your niche, charging the highest prices instead of the lowest. Starting with the highest prices gives you the advantage of catering to the premium-only audience – that group of buyers in every niche who are willing to pay more for the best.
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It’s Wise to Have a Reserve Fund
There are all sorts of issues that can create the need for extra funding out of nowhere. For example, your merchant account or PayPal account could suddenly be limited or frozen, at which point you might not be able to continue operating without a reserve.
Some merchant account providers like PayPal may require that you leave a set reserve available in your account at all times as a safety net for disputes and chargebacks. Unfortunately, many retail businesses start off without a reserve and wind up finding out about the importance of financial redundancy the hard way.
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There’s No Such Thing as ‘No Competition’
Everyone wants to find that one niche that has no competition and is just waiting to be exploited. That ‘golden egg’ mentality can be detrimental to the success of your business because it causes you to chase an unobtainable goal.
Even if you were to create a brand-new product or service for which there was no existing competition, within a few weeks to a few months there would be knock-offs and competitors coming out of the woodworks with alternatives to your once one-of-a-kind offering. The point is, if there isn’t any competition now, there will be shortly, so don’t spend your time trying to run from it.
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Cash Flow is of the Essence
You might think that your carefully allocated budget is going to take care of everything, but you’re going to need adequate cash flow if you want to stay afloat and continue expanding. After all, you can’t make inventory purchases at an optimal rate if your available balance is lacking.
Many retail businesses choose to seek external funding to improve cash flow. However, you don’t want to fall under an exuberant amount of debt either, as that will increase your company’s ongoing overhead in the form of monthly loan repayments and may actually wind up impeding cash flow in the long-term. Ultimately, there’s no better way to prevent cash flow problems than to have a reserve of $5,000-$10,000 set aside at the launch of your business.
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Web Design and Marketing Are Crucial
Most aspiring entrepreneurs don’t realize just how many topics you need to specialize in to be considered a well-rounded retail business owner. Any retail store that’s trying to optimize its income will need to participate in the world of eCommerce, which means you’ll eventually need to learn how to develop a website and promote it or you’ll have to pay professionals to take care of those steps for you.
While you could just outsource everything, if you want to take the cost-effective and hands-on approach, learning internet marketing and web design should definitely be at the top of your to-do list.
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There Will Probably Be Hidden Overhead Expenses
No matter how long you sit there with a pen and pad trying to come up with worst-case scenarios, there’s always going to be at least a few expenses that you simply couldn’t plan for. It’s important to keep such variables in mind when formulating a retail business plan, as it’s not wise to proceed if you’re going to be cutting it close mathematically.
For this reason, many retail businesses follow the general rule of thumb that they need to sell their products for at least 3-5 times the wholesale price to account for payroll, overhead, and unforeseen expenses.
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Starting a Successful Retail Business Isn’t Easy
If you thought that opening up an online shop or brick-and-mortar store was going to be walk in the park, you’ve probably been duped by too many gurus selling you the dream of running a successful business with hardly any effort. Everyone wants you to buy their turnkey system to success, but nobody wants to tell you that you’ll need to do a bit more than just turning a key to open the door of opportunity.
