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Costs of Starting a Business: Bricks & Mortar Retail Startup

Figuring the costs of starting a business in a bricks and mortar retail location only begins with the retail space and your goods inventory.
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Establishing a bricks-and-mortar store can be one of the costliest forms of starting a business. And yet it’s also possible to save a lot on expenses and to leverage minimal resources into big results — if you know what you’re doing.

As in many other things, real-life examples can be the most instructive. So to help get a handle on the costs of starting a bricks-and-mortar retail business, we’re bringing you the story of Rob and Tina Doin, who opened Adirondack Wine Merchants, in Queensbury, N.Y., in 2004.

The Doins, parents of two small children, had held corporate positions and operated other kinds of businesses before they decided to open a retail store together. Being wine buffs and avid entertainers, Tina says, a wine and spirits shop seemed a natural choice. Some research into the area’s demographics confirmed that it was likely to be a profitable new business as well.

But there was much work to be done — and a wad of cash to pony up. Beginning with the biggest chunk of change, the retail space itself, let’s look at how much it cost Rob and Tina Doin to become wine merchants.

Retail space                        

Rob and Tina investigated retail space in the area, a thriving region between Saratoga Springs and Lake George, and settled on a storefront in a plaza anchored by a home improvement warehouse. Just before signing the lease, however, they learned that an existing discount wine and liquor business had become available.

Entrepreneurship calls for flexibility, and the Doins quickly shifted gears. Attracted by the prospect of owning the space, and of acquiring at least a limited customer base, they arranged to purchase the building for about $720,000. Rob and Tina leveraged real estate and other personal assets for 20% to 30% of the tab and took out loans from several lenders for the balance.

Then they spent an additional $40,000 on an interior overhaul of the former Murray’s Discount Wine and Liquors, including stripping wallpaper, applying fresh paint, upgrading lighting and ceiling panels, erecting a faux stone wall, constructing a new tasting bar, and putting up new wood shelves where they arranged wines by country, varietal and producer. An outlay of about $3,000 for new exterior signage was also part of this total.

Inventory

The Doins purchased an inventory from the discount store they annexed for about $150,000. As the character of the shop and its customers has evolved from Sutter Home to Chateau D’Yquem, the value of its inventory has swelled to about $250,000. Tina says they spend about $60,000 per month to replenish stocks of popular wines and liquors, and to snag those rare bottlings and exceptional values that they know their customers will appreciate.

Payroll

The shop has two part-time and two full-time employees. Tina prepares the payroll, which she says adds up to about $2,000 per week, plus 20% to 25% for worker’s compensation insurance and Social Security contributions. The employer’s portion of the health-insurance premium for eligible employees totals $250 per month.

Marketing

Rob compares the Doins’ retail shop to a restaurant. “To set ourselves apart from the competition, we needed to offer a menu that was extremely diverse and different,” he says.

But the first order of business was to get the word out. To do so, the Doins paid $600 to have a television commercial produced. It costs $300 per month to air the spots, which are aimed at customers who match the store’s target demographics. Arrangements for the taping were made by the local cable company, which sent a producer and cameraman to work with Rob and Tina.

As part of their marketing strategy, the Doins make $300 to $500 in charitable contributions per month, depending on the season. For example, they recently donated wine for a silent auction that raised funds for a local wildlife rehabilitation center. As lifelong residents of the area, Rob and Tina like having the chance to help the community while generating goodwill toward their business.

Insurance and licenses

The Doins paid $1,650 to transfer the New York State liquor license from the discount wine and spirits shop to Adirondack Wine Merchants. They also paid $400 to secure a federal liquor license from the Bureau of Alcohol, Tobacco, and Firearms (ATF).

Tina and Rob’s property insurance requires an outlay of $5,000 per year. The policy covers inventory loss as well as liquor liability should someone be injured after drinking alcohol purchased at the Doins’ store.

Computers and equipment

A laptop computer they picked up for $1,500 and accounting software with a $600 price tag were all Rob and Tina needed to set up their books. Down the line, they plan to sink $5,000 into an integrated software program to automate their accounting, inventory, purchasing, shipping and receiving, and point-of-sale procedures.

Other products and services

Telephone expenses at the store average about $100 per month. Utilities for the building, which has 3,200 square feet of floor space, amount to $1,000 per month. The Doins also budget $100 per year for subscriptions to trade journals and wine magazines such as the Wine Spectator.

In total, the Doins spent $777,215 to open for business:

Retail space (including real estate and remodeling) – $610,000
Opening inventory – $150,000
Payroll for first 30 days – $10,250
Marketing – $1,200
Licenses and first 30 days’ insurance – $2,465
Computers and equipment – $2,100
Other products and services – $1,200

Of course, every retail business is different, so it’s up to you, the resourceful entrepreneur, to put this real-world example to good use and create a smart financial projection for your startup costs and operating costs.   Just know that since a bricks-and-mortar business is such a costly type of startup business, understanding your budget well in advance is key to making sure you’ll have the funds needed when starting a business of this type.

Melissa Martin is a freelance writer for StartupNation.

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