Determining Overhead for Your First Brick-and-Mortar Business
Let’s start with the assumption that you already have an e-commerce business established, that you are not going into retail blindly, and that you understand all of the good reasons to expand your internet-based retail with a brick-and-mortar store. For you, the learning curve is not about retail, but the specifics of running a face-to-face selling establishment. To do that, you will need some capital and start-up funds as well as a five-year projected budget. Here are the overhead costs to keep in mind when expanding your online business to a brick-and-mortar operation.
To open a brick-and-mortar store you will need the brick, the mortar and everything in between. Unless you have the resources to purchase a building, you will most likely be renting. To get an idea of the range of retail rental prices for your desired location, check an online commercial rental database. While searching, keep in mind that prices are quoted per square foot for a year, not a month. For instance, if you need 1,000 square feet and the listing says $50 per square foot, then the space is $50,000 per year, making your monthly rent approximately $4,167. Beside the space, you also need furniture, display shelving, point-of-sales machines, etc., to need to make the place look the way you want it.
For most businesses, employees are the largest line item on the budget. For a store that is open 10 hours per day, seven days per week, you will need a minimum of 112 labor hours. The federal minimum wage is $7.25 per hour, with some cities being as high as $15 per hour. At the federal level, this is $812 per week, plus the employer’s portion of FICA at 7.65 percent, giving a weekly total of $874.12. Realistically, to position yourself for success, it will be twice that amount.
One-Time Startup Costs
To help keep track of inventory, your store will need to invest in a security system and inventory software; these elements are usually a one-time purchase. To help keep theft down and for your own peace of mind, install asecurity system with cameras before moving into the store. Having this added protection can also cut your insurance costs down. Keeping track of inventory as it’s being brought in the store and sold to customers can be a challenge. Invest in a retail management software solution that helps you stay organized. For startup costs and cash reserves, consider getting a loan or establishing an open line of credit at your bank.
Taxes and Insurance
There is good news and bad news with taxes and insurance, two costs that tend to go together because they both sneak up on you at the end of the year. The good news is that the IRS has a number of deductions against those capital startup and reoccurring expenses. Likewise, business expenses are all something that can be taken as deduction when tax time comes around. Your brick-and-mortar business will have more of them than your online retail shop had. The bad news is that you will want to insure your physical shop against major theft and damage, and this can be costly. Make sure to speak with an accountant and an insurance agent before making any moves toward a brick-and-mortar business.
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