1.2. How to start a retail business and create a business plan

Starting up in business can be both demanding and rewarding, and for those looking to establish themselves in the world of retail the choice can present unique challenges. There is the initial decision over whether to establish the business as either a bricks-and-mortar operation, or whether to go completely online. Then there is of course the competition – the retail sector is tough and it is worth bearing in mind that any business no matter how unique is going to have to compete, not just with similar retailers but with a wide variety of different shops for the consumer spend.

Is the retail sector right for you?

Sit yourself down and consider if retail is really the type of business for you, because it is important to be committed. As many of the larger high street chains are proving at the moment, business is tough and with consumers tightening their belts there is less spending money to go around.[2]

Owning a shop is also hard work. If you decide to run a high street outlet you must ideally work in the shop yourself to get to know the business from the bottom up. This leaves less time for other important tasks like managing the finances and marketing the business. Even if your business is online you will have to manage stock and the mailing of purchases to customers as well as promoting the website online.

Many retail start-ups now establish a customer base for their products online before venturing into the world of the high street. This is a less risky way to get started because it requires less start-up capital.

What will you sell?

Many people want to own a shop because they have a special interest in something, for example fashion or crafts. The decision as to what type of retailer you want to be and what type of products you will sell will form the foundation for your business and it is very difficult to change once you are up and running. [2]

Doing some research into what customers are buying and into your competitors is an important step. It will help you to clarify who your customers will be and what they will buy. For example you may want to open a shoe shop. So you would find out: which other shoe shops will be in competition with me, what type of shoes do they sell, who is their target customer, what is the quality and price of their shoes? Is also useful to find out what the demographic is in the local area, for example what is the average age of residents, where do they usually shop, what employment opportunities are in the area?

Doing this research will show you who your potential customers are and how much money they have to spend. It would be pointless opening a designer shoe shop in a town where most of the locals are over 50 and most people work in a factory!

Objectivity is the name of the game here. If a particular hobby or product is close to your heart you may not be able (or want) to see that selling it it would not make a profitable business.

Hitting the high street

If you have the funding and the right type of products, you may decide that the bricks-and-mortar shop is for you. [2]

If this is the case you need to think about finding a premises in the right location first and foremost. Shops rely on what is called footfall, or the number of people walking through the doors, and this will not happen if nobody knows your shop is there. The only shops people tend to set out with a mind to visit are grocers or supermarkets in order to buy necessities. Even if they are doing some personal shopping or gift shopping it is most likely they will visit the shopping centre with a view to browsing rather than with a specific shop in mind.

What this means for you is that you need your premises to be in close proximity to other shops – either those that sell the necessities or those that offer the opportunity to browse.

Financially, a bricks-and-mortar shop also carries a burden. You will need to be able to cover rent, business rates, energy bills, the cost of re-fitting the inside and fitting a new fascia on the outside, plus many other costs. As it is unlikely you will generate enough revenue to begin with to cover all these costs it is important to ensure your start-up capital will cover you for at least a few months.

Getting online

You may decide that your type of shop is best suited to the internet, in which case you will need to consider a different set of factors. [2]

Setting up your website is your first priority and if you are serious about your business it is best to get it professionally designed and developed. This is especially true when you need a shop-front function as this needs to work smoothly and give customers confidence in you when they are handing over their credit card details.

Many people think that just creating a website is enough and that the customers will start flocking to it in their droves. Of course when you consider just how many websites and more importantly, online retailers, there are on the internet you will know that this is far from the case. Invest time in learning how to optimise your site to rank near the top for the search engine terms that fit your business. Key things to work on are creating intelligent, relevant content and getting other relevant websites to link to your site.

Other things to consider when running an online shop are: the amount of stock to buy and where you will store it; how you will deliver goods to customers and what your terms will be; how you will take payment and what payment options you will be able to offer to customers; how you will keep your website up-to-date with new products and new content; where you can advertise and how you will differentiate your business from its competitors.

Get advice

When starting a new venture, it is a good idea to get as much advice as possible from the broadest range of sources, particularly on legal or financial issues, or for help creating a business plan. Retail is not an industry to be entered into lightly, especially in the current economic climate, so doing as much preparation and research as possible beforehand is doubly important.[2]

Compiling your business plan can seem like the most difficult and the least exciting part of starting a new business, but it really is the most important.

While you are getting carried away with product development, choosing a nice logo and dreaming about which shops you will see your product in, it is easy to forget about the more practical aspects of running a business. Creating a business plan will help you see your start-up from an objective viewpoint and give you a true idea of how successful you are likely to be. It is also vital if you need to secure any type of finance as you will need to present it to potential lenders or investors.

The best way to put together your plan is to take it step-by-step. Create a draft of each section and then perfect it afterwards once the hard work is done. Here is a brief guide to the structure and content of a typical business plan.

1. Create a brief description of yourself and your business

This should be the easy part and it will get you warmed up. You first need to write a summary of your own experience, your qualifications, and how you came upon your business idea. Then answer questions about your product or business: What does it do? What are the benefits for customers? Why you think it will be successful. Who is it aimed at? What makes it different?

Include the start date for trading and if the business has already launched, describe your progress to date. Write down the type of business and the sector (leaving out any jargon), and if you are buying the business from someone else include details about the history and past performance. You also need to state the legal structure of the business and list any patents or rights you have bought.

Finally, describe where you see the business going over the next few years.

2. Your customers, competitors and research

Deciding exactly which markets you want to target will help give your business activities focus. In your plan you should include customer profiles, i.e. who are they, where do they live, what types of products do they buy and what type of lifestyle do they lead? Once you have done so, go back to your business description and make sure that the product or service you are offering matches your target market.

In this section you should also give information about your competitors. Even if you feel you have a unique product, you will always have competitors so think this through carefully. Re-iterate what separates your business from your competition.

If you have conducted any research into the viability of your business, which supports your projections, include it here.

3. Sales and marketing

Often a last minute job when starting a business, putting together a sales and marketing plan is actually very important, especially when you think that this will be the means by which you tell the world that your business exists.

Use this section to describe how you will bring your product or service to market. Specify where you expect customers to be able to buy your product, listing which types of retailer you will target and whether you plan to sell online, offline or both. If you are selling a service, how will people get to know about it? List the marketing channels do you plan to use, such as PR, advertising, online, direct mail etc., and ad detail about how each will benefit your business.

Think about your position within the market and how you can create a niche for your business in the minds of your customers. If you have developed a brand, or plan to, include details and even any designs you have prepared.

Particularly important is how you price your products and you should include justification for your decision in the plan.

Finally, write a sales plan including which suppliers, retailers or customers you intend to target.

4. Your team

You may be setting up your company alone, in which case this section will be short. In this situation you write down your plans for hiring staff in the future and how this will impact on your business growth.

If you are starting your business with a team of people, however, you should use this section to elaborate on their skills, experience, interests and how each person will contribute to the business.

Give expected salaries or wages where available or if you do not plan to take a salary immediately you should say at what stage you are expecting to start.

5. Operations and Infrastructure

This is potentially the most helpful part of writing a business plan. It will help you get to grips with the many aspects of running your own business and remind you of tasks which you have yet to complete.

These topics should be included in your plan:

• Business premises – this should cover costs, location, whether you rent or own it, insurance and future plans for expansion

• Infrastructure – think about what technology and equipment you will need to get started

• Facilities, tools and stock – suppliers, new or second hand items, insurance

• What investment is needed?

• Start-up costs

• Your provision for: managing accounts, payroll, health & safety, quality control

6. Financial Projections

This is the most daunting part of writing your business plan, but you can download various free templates on the internet that should help you with the structuring of it. Your plan should cover at least a three year period, with the most detail showing for the first year.

Create a separate spreadsheet for each of the following: Cash flow plan (your cash balance and monthly flow patterns, considering all outgoings) Profit & Loss (the level of profit you expect to make over time, given sales and outgoings) Sales Forecast (how much income do you expect to get from sales)

Make sure you include all your outgoings, even the most insignificant, so that you get a true profit projection. Do not forget: premises (rent or mortgage payments), power (gas, electricity etc.), telephone, insurance, postage, stationery, equipment machinery or tools, advertising, bank charges & interest, wages / salaries, vehicle expenses, accountancy fees, legal / professional fees, tax, depreciation. Some items should be broken down further in the cash-flow plan, for example: bad debt provision, loan and financing repayments and VAT payments.

In addition to your spreadsheet, include a summary which details any capital you need, security you can offer lenders, a debt management plan, sources of revenue and any personal financial information you feel is relevant.