It is hard enough to start a new business, even when you have the capital and the knowledge to operate such a business. Something that can make it even worse is taking on debt to do it. Debt will put a lot more pressure on any business owner to find the right ingredients faster. Good luck or bad luck can play roles in the outcome of your business but having money in the bank and little or no debt will give you breathing room to continue onwards, when others might not be able to. Here is a great example of that from a discussion on the Gopher Lawn Care Business Forum.
One lawn care business wrote “here is my experience with luck, debt, and business. Years back, my wife and I wanted to do something to get out of the rat race and decided on buying a small retail specialty store. It was a little store inside a local mall. We sold little nick knacks, beanie babies, collectible items, t-shirts, beads, greeting cards etc. It did about $300,000/year in sales. Friends of our’s sold us the biz. They had it for about 5 years previously.
My wife did the product ordering and book work and I did the delivering and stocking of product. We also had 6 part time employees running the cash registers and stock.
After going through that, I feel there is a lot of luck involved with running a successful business and I’ll tell you why. When we looked over the books, we thought we were buying a profitable business. The 1st year we took over the business was our best financial year. What made it the best year was that it was the only business year we broke even. Then in 2000 the economy started going south. In 2001 the terrorist attacks effected the economy even more so. Luckily we both had full time jobs to carry us through that ugly time and our home and cars were payed for. We wouldn’t had survived if we had taken on any debt then.
Had it not been for the recession and terrorist crap I think our retail business would have survived and continued to flourish.
While all this was going on, I was working full time and had started another side lawn care business with 6 accounts. My wife also had a full time job. When the retail business expenses began to rise well beyond profits, our full time jobs made it easy for us to walk away, however we lost a lot of money. Retail can be tough. You have to put a lot of money up front for product and hope that it sells.
A service type business such as lawn care or landscaping is much easier to start for sure. If you fail, your investment in equipment is still worth something. In the specialty retail business, the unsold product is worth pennies on the dollar.
Our operating expenses for the retail business were quite high. The rent was $4,000.00 a month. Employees part time wages were $4,000.00 a month. Insurance, workman’s comp. was about $500.00 a month. Taxes had to be paid quarterly. There were accounting fees and a pay roll service at $200.00/month. Advertising and other supplies came to about $250.00/month. These are costs just off the top my head but there were more.
Our basic mark up was 100%. So if we averaged $20,000 in sales we spent $10,000 in product. You then need to add that to your monthly costs. In retail, your sales in the 4th quarter equal what you sold in the first 3 quarters of the year. So you better have a great 4th quarter or you are sunk.
Running that business taught me a lot but was definitely a strain on my family and my 2 kids. Most of my friends and family consider me a workaholic but I always managed to be involved in their school and sports events when they were growing up. I will never go into retail again though. At this stage of my life I more enjoy being outside and running my lawn care business. I love the work and interaction with some of the customers.
As far as offering advice, I now tell people to really do their homework on the particular business venture they are considering before they spend any cash. 70% of new businesses will fail for one reason or another. Know your true costs and don’t get blind sided by fluff numbers people tell you, especially those trying to sell you a business. Instead of looking at the fluff number, you would be better off asking them, why are they selling and go from there.”