retail operations for art materials retailers business … · it’s critical that you create a...

NAMTA

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VOLUME 4: How to Write a Business Plan

RETAIL OPERATIONS MANUAL

RETAIL OPERATIONS FORART MATERIALS RETAILERS

Business Plan

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©2017 International Art Materials Association.All Rights Reserved

While every effort has been made to provide up-to-date information, this manual is not to be used as a substitute for consultation with accountants, legal counsel and other qualified professionals who may be able to make specific recommendations for individual stores.

NAMTA does not certify, approve or license art materials retailers or recommend that any general or specific business strategy, policy or procedure described in this manual or elsewhere be employed by art materials retailers in operating their business.

This book or portions thereof may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without prior written permission from the International Art Materials Association.

All inquiries should be addressed to:International Art Materials Association20200 Zion Ave.Cornelius, NC 28031

Introduction This book is not meant to be read and then put on a shelf. Instead, like all the other books in the NAMTA Retail Training Series, it is created to be continually utilized.

Your business plan is not a one-time exercise. While the first time that you create your Business Plan will likely be the most intense, re-reading and tweaking it annually is necessary to keep it relevant and useful.

Each year there are likely to be changes to the retail landscape: new niches of retail open up; competition moves in and out of your trade area; art trends change. So the art materials retailer who continues to update and use the business plan has the best opportunity to sustain and grow their business.

Most likely the best business plan for you is researched and written by you. Sure, there are accountants who can write a business plan for you that will attract investors or the desired response from lending institutions. But there are drawbacks to having someone else tackle this important project.

The most obvious is expense. . . . it costs money to have someone do this for you. Plus, it’s likely the author will use industry standard numbers and the content will be more generic. It won’t have the authority and passion you will bring to it after you’ve done your research and analysis.

By having to research the details of your plan, you will have thoughtfully constructed it and understand every number and word. THAT is why your business plan will be an important part of your success and ensure we will be seeing you at the NAMTA’s Art Materials World trade show for many years to come.

In cooperation with Tom Shay of Profits Plus Solutions, Inc. this text on retail How to Write a Business Plan is the fourth in a Retailer Training series developed by the International Art Materials Association (NAMTA). Prior booksinclude Managing People, Advertising & Marketing and Merchandising. Visit the Resource Section of NAMTA’s website – namta.org – for more details.

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If you’re the owner of a successful Art Materials store or you aspire to own your own store a business plan is essential.

Given fast pace changes and new challenges of owning and/or managing an art materials business a clearly written Business Plan is crucial to your success.

Unfortunately, too many small business owners either create a Business Plan that doesn’t include what they need or don’t create one at all!

In an attempt to at least get some kind of plan together current or prospective art materials store owners often turn to their accountant to generate a pro forma – generally a projection of where the owner of the business thinks it should be in a period of time—one year, three years or longer.

A financial pro forma is important, but it is NOT a business plan. It is part of the financial analysis and is not always fully understood by the owner. It can be given to a lending institution by the accountant for its approval without the business owner understanding the data contained in the statement.

For those who do understand the information, the pro forma should be a frequently reviewed and updated tool for the business owner. For those who do not, it is recommended that you sit with your accountant and go through a financial and pro forma primer.

So, why take the time, effort and brain power necessary to put together a written Business Plan?

It’s all about your business’s future:

The objective is to unemotionally and critically examine your goals and objectives for opening and running an art ma-terials store – and how you plan to accomplish those goals. It will allow you to evaluate your plan from an investor’s point of view by giving you the information you need to put together a marketable financial proposal. Having a well thought-out start-up Business Plan shows investors that you’re serious and understand all that is involved in opening and operating in the art materials industry.

It helps you develop a step-by-step guide for your future growth and serves as a road map that you can continuously use to help keep you on track towards reaching objectives and goals. It is something to measure progress against. It can help you make “stop or go” (more on that below) decisions and evaluate the ever-changing course of business. It’s a logical outline of what you need to do over the next three to five years to be successful.

A business/marketing plan is often compared to an airplane pilot’s checklist. A pilot can have many thousands of hours of flying time, but regardless of how experienced he/she is, the one thing that pilots will never skip is making sure everything on their check list is in order. If something isn’t right, it’s a “stop.” Only after everything is checked off and everything is a “go” will a pilot ask for a push back to start to the runway.

It’s not only the pre-flight checklist that is important. Airline pilots know the procedures to follow if they run into turbulence, fog, or any unexpected problem. It’s all in writing.

Your business is no different. A written business/marketing plan can get you from point A to point B. Without a pre-determined, well thought out checklist, you’re gambling with your business and financial future.

Do You Really Need A Business Plan?

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It’s not just having a finished plan that is important. Much of the value is in the actual writing of the document. Doing so commits you and your team to honestly, objectively and critically address difficult business situations that you know will arise, in a systematic and logical way.

Having a written Business Plan shows potential investors, bankers, employees (and yourself!) that you’re serious about establishing and growing your business.

The art materials industry is full of stories about entrepreneurs who successfully started their retail stores out of their basements or garages perhaps mostly with talent and an idea. But if they were successful, eventually they created a written plan for the future.

Business Plans differ from retailer to retailer. While the components of a Business Plan are basically the same re-gardless of what business you own, or want to start, each business faces unique challenges and must offer specific solutions to those challenges. It’s critical that you create a plan that addresses your individual business situation and circumstances. It is also important that the Business Plan expresses your passion to be a part of the art materials in-dustry. Remember that passion includes the personal and financial sacrifices you are willing to make for your business to succeed.

Show that you’re taking the same chances with your time and money that potential investors are being asked to take. It also speaks to the fact that people buy and invest in WHY to do something, not just WHAT you do.

A good Business Plan allows the reader to understand exactly who you are, what you’ve done, and your skills and background that will allow you to accomplish the goals you have outlined. The reader should come away knowing the feasibility of your objectives and goals and what tools you need to achieve them—and, most importantly, how you’re going to do it.

Once you have completed a rough draft of the plan, it is helpful to have someone you know and respect read it and comment. Consider someone who is not involved in the art materials business so they can offer an unbiased opinion and hopefully ask questions about things you may have overlooked.

If you know a successful business owner, you may want to have them review the plan as well to tap into their knowl-edge of general business trends, market conditions, investment strategies, etc.

Once finished, the Plan must be the constant reminder of goals and objectives. It should be something you review on a regular basis and be the standard by which you measure business success.

If you decide to expand your business, use the Business Plan as a guide, making sure your new components match your existing plan. If not, adjust your Business Plan to include them.

Your plan is a working document and should include not only how you plan to operate and grow the business, but long term, how you would close it when you are ready to retire or do something different. Answers to all these questions and ideas reside in the business plan.

With that passion, background and business knowledge in mind, let’s start the real work.

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There are ten basic parts of a Business Plan:

1. Table of Contents .......................................................................................................... 5

2. Cover Sheet .................................................................................................................. 6

3. Introductory Statements ............................................................................................... 8 Vision Statement Mission Statement Statement of Purpose

4. Executive Summary .................................................................................................... 11

5. The Company Description ........................................................................................... 14

6. The Marketing Plan ................................................................................................... 15 Naming the Business Attracting and Assessing Customers Location Marketing and Decision Making The Competition Pricing Advertising vs. Marketing Main Types of Advertising Community Relations

7. The Management/Personnel Plan ................................................................................. ? Selecting Managers Selecting Staff Policies and Procedures

8? Legal Considerations ..................................................................................................... ? Tax Issues Non-Tax Issues

9. The Financial Management Plan ................................................................................... ? Managing Inventory

10. Supporting Documents ................................................................................................. ? Personal Financial Statement Start-Up Cost Expenses Profit and Loss Projection Balance Sheet Projection Projected Cash Flow Chart Break-Even Analysis Competitive Analysis Advertising Plan

What’s in a Business Plan?

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1.

The Table of Contents

2.

Cover Sheet

Begin with a Table of Contents, which is basically an outline for you to follow when you begin to write your plan. It also serves as a checklist for doing your research. It’s your guide for writing the plan and keeping you focused.

There are different formats, depending on how many sections and how detailed you want to make the Plan. The more you plan and identify each section and its topics, the easier it will be for you to write your plan.

The cover sheet is simply the name of the business and should include the date, the name of the owner or principles, the address of the business, or in the case of a start-up, the addresses of the preparer, city, state, zip, telephone, fax, e-mail and cell phone number

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3.

Introductory Statements

The Introductory Statements contains three parts:

• A Vision Statement, which describes the future of the business

• A Mission Statement, which states how you want others to see your business

• A Statement of Purpose, which tells who you are and what your business will do

The Vision StatementThe Vision Statement is the first page inside the plan and tells how you see your business in three to five years in terms of growth, inventory, revenue market share, etc. It will describe what the business will look like physically, identify an acceptable measurement of success in a given number of years. It can also indicate the number and roles of other

The Mission StatementOften, a meaningful Mission Statement can be one sentence. If yours takes a full page, it is probably too long. You need to be able to state your mission in two or three well thought out, succinct sentences. Write precisely, keeping in mind “less is more”.

If the Vision Statement takes the entire first page of your plan, the Mission Statement will be the second page. A Mission Statement is an overall business philosophy. It should include a brief synopsis of what your business is and is a written description of what your company stands for. It can describe what your desired public image is, present a description of the target market, detail the products and services you’re offering, and discuss the moral and ethical position of the business.

A Mission Statement does not have to be lengthy, but it must be succinct and include the core values of the business. Mission Statements can change once goals are attained.

employees and what you see as your role in the business during that timeframe. It should also state your idea of the customer experience from the time they decide to visit the location, through ease of parking, appearance of the store, staff expertise, quality and depth of inventory, etc.

Here are some examples of mission statements of corpora-tions you may recognize:

“Become a $125 billion company by the year 2000.” — Wal-Mart (1990)

“Organize the world’s information and make it universally accessible and useful.” — Google

“Ford will democratize the automobile.” — Ford Motor Company (early 1900’s)

Or perhaps “To be the single most reliable source for art material products and supplies in the any town market. We will strive every day to deliver a quality customer experience and ensure customer satisfaction second to none. We will develop and enhance our relationship with our suppliers and vendors as partners in our mutual success.”


The Statement of PurposeThe third component following the Vision and Mission state-ments, should be the Statement of Purpose. While a Mission Statement is normally written with a slightly loftier mindset without a lot of detail, a Statement of Purpose straight-forwardly describes who you are and how you’re going to use your Business Plan once it is completed. A business Statement of Purpose expresses your company’s reason for being and what you will provide the customer every day.

If you intend on using your Business Plan to secure financ-ing, you should include that in your Statement of Purpose. Here are some things that investors or bankers want to see in and learn from your Statement of Purpose:

• Who exactly is asking for the funding and what is their financial status?

• How much money is needed?

• What is the purpose of the funding request?

• What is the justification of the funding?

• How will the funds be used to benefit the business?

• How will the funds be repaid and at what rate and timeframe?

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4.

The Executive Summary

The executive summary sums up everything in your Business Plan, but not in depth. Again, while it is at the beginning of the document, it is actually the last thing you write. The executive summary section briefly tells the reader where your company is, where you want to take it, and why your business idea will be successful. It is a summary of the total plan and should not restate everything in the sections of your Plan. If you are seeking financing, the executive summary is also your first opportunity to grab a potential investor’s inter-est. Below are several key points that your executive sum-mary should include based on the stage of your business.

If you are an established business, be sure to include the following information:

• The Mission Statement

• Company Description

• Market analysis and research

• Your Products/Services

• Financial Information

• Summarize future plans

With the exception of the mission statement, all of the infor-mation in the executive summary should be covered in

a concise fashion and kept to one page. The executive summary is the first part of your business plan many people will see, so make every word count.

If you are just entering the art materials business: You won’t have as much information as an established organization. Instead, focus on your experience and back-ground as well as the decisions that led you to start this art materials store.

Demonstrate that you have done thorough market analysis. Include information about a need or gap in the market, and how your particular solutions can fill it. Convince the reader that you can succeed in your target market, then address your future plans.


5.

The Company Description

The company description is one of the most important and most difficult parts of your Business Plan to write. It has to be simple, to the point and leave no doubt in the mind of the reader exactly what business you are in, how you are going to run it, what makes your store different from your competi-tions’ and why you think you will succeed. You should be able to describe your current or future business accurately and concisely. Your Company Description should answer these questions:

• What exactly is your business and what niche are you filling?

• What is your status? Are you a new to the art materials industry or are you established? Are you planning on enlarging your store? Are you a single location store or an independent retailer with multiple outlets?

• What is the legal structure or form of your business? Are you a sole proprietorship? A partnership? Sub Chapter S Corporation? C Corporation? Limited Liability Corporation?

• Do you have a specific philosophy on how to do business? What are the principles of your business in regard to working with customers, selling your products, internal management and employee relations?

• Who is your customer and what does he/she look like?

• If you are currently in operation, what is the history of your company? Who started the business? Why was it started? When? How did it grow and why is it successful? What kind of reputation does your store have in the community? What is your sales and profit/loss history?

• What are your corporate objectives and goals short and long-term and your time-frame for meeting them? Make sure that your goal is realistic and attainable because in the marketing section of the Business Plan you need to justify and explain, in detail, how you plan on attaining that increase.

• What markets do your serve or are targeting to serve? Are they growing?

• What is your current market share and what are your growth plans?

• What makes your company unique and why do you think you can become (or are) profitable?

• Is there one thing you want to be known for or identified with?

• What will drive customers to you as opposed to your competitors? These can be price, selection, location, etc., but be as specific as possible.

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Before getting into the weeds of a marketing plan, don’t make the mistake of thinking of marketing as just advertis-ing. Rather, keep in mind that marketing is not a single thing, it is EVERYTHING you do! The look of the store, the store name, cleanliness, staff expertise, selection, the way you answer the phone or greet customers when they come into your location, your signage, your logo, your advertising … everything you do in facing the public regardless of how or where that takes place is marketing.

Naming the businessThe Marketing Plan really starts on the cover sheet of the Business Plan. It is where you say, “Business Plan of (your store name).” It is here that any reader of the Business Plan is going to begin asking several questions:

“What kind of store is this?” “What kind of merchandise or service does this store sell?”

“Where did they get this name?”

The name of the business needs to tell customers about your business and help them locate you quickly in all forms of media.

There is not a right or wrong way to name a business any more than there’s a right or wrong way to name a baby. But you should not take either decision lightly, because you and your business are going to be living with it for a long time!

You may want to include art materials as a part of the name of your business. This will be fine until you decide to add painting or drawing classes to the business. Will these ad-ditions require you to rename your business? As your name builds recognition and equity, changing it can cause prob-lems so give this a lot of thought.

In naming the business, consider how it will impact your ad-vertising message. It should be easy to remember, perhaps take advantage of your name recognition in the market and if possible, give some idea of where you are located.

It is critical to have a website for your business, even if you do not intend to sell online, so before deciding on a name, do a simple Internet domain search to see if the name you have chosen is also available as a “.com, .net, .biz, etc.

Many people want to name the businesses after themselves; either their first name, last name, initials or a combination of all these. Keep in mind how that name will appear in a listing of your competitors’ names.

One challenge with naming the business after yourself is the issue of what happens when or if you sell it. Will you want the new owner to be using your name as a part of their busi-ness? What if their business runs into an issues? Your name is what people will continue to see and hear in the media. You may not want that if you are no longer the owner

You want all your potential customers to have the same type of reaction to your Marketing Plan. When they hear or think “art materials” you want them thinking of you.

Attracting and Assessing CustomersWe’ve already established the fact that you sell art materials and possibly classes. The next step in the Marketing Plan is to assess your customers by asking some questions:

• Who are your customers and what is their demographic profile? Where do they live? How old are they? Which age group will spend the most money? Are they married? Do they have children? What is the average educa-tion and income level? What are their occupations? Do they own their own homes or rent. You must define the market segments that best fit your major product lines and services, and state that definition in this part of your Business Plan.

• Whatarethesizesofyourprimaryandsecondarymarkets, both in number of prospects and dollar levels? Are the markets growing, static or shrinking? How will different product lines affect store traffic? Are there ways to expand the penetration within market segments?

• Whatarethekeymotivatingfactorsthatwillbringcustomers in your door and open their wallets? Are you positioning yourself by price point? Value? Extra services? Inventory? A knowledge-based helpful staff? Convenience and ease of shopping?

6.

The Marketing Plan


Some of these questions can be answered by talking to non-competing retailers in other markets, manufacturer and independent sales reps, your art materials vendors and, most importantly, your customers.

The Marketing Plan should mention the products and servic-es you plan to sell and the customers you plan to buy them. The reality is that possibly other brick-and-mortar stores in your market, plus catalogers and Internet-based businesses sell art supplies and material. You must give customers a reason why they should buy from you.

On the surface, as an art materials retailer, the products you sell may include paint, brushes, canvas, easels, pencils, paper, markers and much more. Your customers buy those things from you for a variety of reasons. Your inventory is wide and deep; you carry hard-to-find items; you have a knowledgeable and helpful staff; your prices are fair, you have a convenient and safe location with good parking...a whole host of things. Develop a long list of appealing reasons why customers should choose you, and promote these rea-sons in all marketing aspects of your business.

It is a truism that approximately 80 percent of your sales will come from 20 percent of your products and services. Iden-tify those products and services and calculate what percent-age they comprise of your total gross sales.

Possibly there is a seasonality factor in your market and category. If you are in a market with schools that offer art classes and instruction, you will probably sell specific items students require. Consider working with the local schools to ensure you have the items they require. In some colder markets, you may find winter months can drive sale of items customers use when spending more time indoors.

Identify sales peaks and valleys to get an idea of what your future cash flow needs will be and use this peak-and-valley information to understand your inventory needs so custom-ers see it as an advantage. The inventory-needs plan is also referred to as your “open to buy.” Each category of merchan-dise in your business should be controlled by an open-to-buy so that as you reach the end of the season of a category, you

do not find yourself with excessive merchandise sitting on the shelves until the next seasons begins.

Features are what a product offers. People do not by fea-tures. They buy the benefit those features provide so convert your features to benefits. For example, a feature is a wide-and-deep inventory. The benefit is that will find what they are looking for by shopping at your store. They’ll save time, gas, aggravation and will have more time enjoying using what they just bought!

Don’t think of your store as just selling art materials. You are providing a complete shopping experience for customers. You are also in the business of transforming customers. You can transform people from hobbyists to professionals. You have the opportunity in either capacity to create an experience they want to share with friends, neighbors and colleagues.

LocationIf you have an existing store your location is obvious. If you are opening a new business or considering moving your store, where you locate is critical.

Giving your store a competitive advantage doesn’t happen accidentally. Obviously location is a huge factor in the suc-cess of your store. If you’ve been in the same place forever, it’s tough to just pick up and go. But if you are opening your first business, you will need to put a good deal of thought into determining your first location.

A store builds equity in the market— your regular custom-ers know where you are, how to get there, the local traffic patterns, etc. If you move, you need to figure out what steps you’re going to take to overcome customer fallout.

If the heart of your customer market is women aged 25-to-54 years old who have become serious artists, and the neighborhood around you has evolved into a college crowd, it may be in your best interest to search for a new location.

But where would you go?

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Choose a retail location logically and thoughtfully. Consider traffic patterns, store access, demographics and competition. Often local media have demographic research that can help in these decisions. One point: basing your location solely on wanting a store in your hometown won’t work.

Here are some questions that you need to consider if you’re opening your first store or planning on moving to a different location.

• Are you going to buy or lease?

• Isthephysicalinfrastructureinplace?Witheitherapurchase or lease, you should ask the owner or landlord about ‘build out’? Build out is a negotiating point with a purchase or lease in which the owner of the business is asking the other party to put the building into a certain condition before the business moves in. It could include ceiling, fixtures, lighting and anything else that the busi-ness owners would otherwise have to provide themselves.

• Aretheutilitiesworking?Whenwasthelasttimetheywere serviced?

• Arethereplannedroadrenovationsthatcouldaffectstore traffic and sales? It is a good idea to spend some timeatthelocalgovernment’szoningandengineeringoffice to find out details about what changes might be planned for the immediate area. If the parking lot a few doors down is scheduled to be turned into a car dealer-ship, your business will be affected

• Defineyourcustomer,andmakesureyoulocatewherethey are. Locating your store in the middle of nowhere may work if you want to become a store of destination. While it’s true that customers will drive to get exactly what they want, don’t put too many miles between your store and your major customer base. Ask your customers how far they’ll drive to see you? You also don’t want your customers driving by your competition on the way to your store. If you determine that your customers will drive up to25milestovisityourstore,havealistbrokerdoazip-code radius search to find out the demographic composi-tion of those neighborhoods.

• Whatotherkindsofbusinessesareinthearea?Arethere restaurants, hotels or other stores that will gener-ate walk-in traffic? What kind of customers do these other businesses attract? Do they look like the customers you hope to attract?

• Doesthelocationofferadequatespace?Ifyourbusinesstakes off, are you able to expand?

• Doesithaveadequatepropertyaroundittohostspecialevents and outside sales?

• Lookatthelocationfromthecustomer’spointofview:Isit in a safe, well-lit location? Is there adequate parking? Is it easily accessible from major highways and express-ways? Would you feel comfortable shopping at your store? It is a good idea to drive by the location on nights and weekends to see the traffic patterns.

Marketing and Decision MakingA written Marketing Plan allows you to run your business, not have your business run you. Without a written Marketing Plan, outside forces and circumstances can influence your direction.

Effective marketing means paying attention to the retailing’s six R’s. Having the right product, in the right quantity, for the right customers, at the right time, in the right place at the right price.

A smart Marketing Plan is based on educated, well thought-out, researched assumptions utilizing both primary and secondary research.

Primary research is when you talk to customers, competitors, vendors and collect your own data first-hand. Secondary research is information taken from reference materials, trade publications, Internet sources, county and local business groups, local media, etc.

A lot of secondary research information is available at your local library. If librarians don’t have the material physically at the library, they can help you navigate the Internet to find what you need. You can also find secondary data at trade


associations, local and regional chambers of commerce, U.S. Census reports and at other manufacturers.

Local media can also provide market information and research about the market, who their customers are, local re-search they have conducted, age and income demographics, etc. And of course a good source of information is NAMTA, which produces a tri-annual Artists and Art Materials Study that’s packed with data.

The CompetitionThere is also the direct competition in your category, and this isn’t limited to the art materials stores in your market. The internet is a major price competitor and so, too, are the big box stores and large regional retailers. The mass merchants of the industry are also known for drawing customers from a much larger area than a traditional independent business. While there may be another independent art materials shop 10 miles away that you consider a competitor, one of the mass merchants that is 30 miles away could be a larger competitor because of convenient parking, larger selection, lower prices – whatever the market considers an advantage.

Art material retailers know that they may not always be able to compete on price with online competitors, but their retail stores do have some competitive advantages. There is a section on this subject in NAMTA’s Retail Training Manual on Merchandising. For NAMTA members the manual is free to download on NAMTA’s website – www.namta.org.

Everyone knows that the mass merchants have the lever-age to buy product at substantial discounts because of the volume they buy. Independent art materials retailers will be hard-pressed to compete on price points. Competition with mass merchants is a matter of filling a niche they do not fill. That can be a deep selection in one category, highly trained and expert staff, better customer service, special ordering… whatever space you think you can fill.

Learn all you can about your nearest independent competi-tors and their operations. Send in a secret shopper to find out how, exactly, they try to sell to a customer who is interested in buying a major purchase.

Learn all you can about your local mass-merchant operation and keep up-to-date records and files. If they advertise in the newspaper, clip their ads and build a series of file folders to see what they promote and when they promote it. Check their Web sites – and then check yours! What is the focus of their business? Do they emphasize price, selection and/or service? What products are they using as loss leaders? What items aren’t they carrying that you can offer to gain market share? What are your competitor’s price points and how can you sell around them? Are there services that they’re not offering or effectively promoting? How are their stores the same or different than yours? Are their businesses growing or flat? How are they advertising?

Monitor your competition continuously so you can respond to opportunities when they arise and minimize threats.

Competition isn’t always a bad thing. Automotive dealers don’t cluster their dealerships together because they’re afraid of competition. They recognize that being close to each other drives more traffic to all dealers involved.

Continuously monitoring your competition allows you to stay on top of the demands of the marketplace. Once you’ve identified your competition—in general and by category—it’s time to determine what, exactly, they’re doing better than you are and what you’re doing better than they are.

When doing a competitive analysis, list the products and services you offer, your strengths and weaknesses in those categories and those of your competitors. You want to be able to match your strengths with their weaknesses and try to bolster your weaknesses.

When doing a competitive analysis, shop your competi-tion and have a checklist in hand to keep you on track. Be objective and honest in your evaluation. If your competition is doing something better than you do, take action to do it better than they do.

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A competitive analysis form can be easily constructed on any spread-sheet program. Starting from left to right, these are the column headings.

Category My Store Strength Weakness Competitor #1 Competitor #2 Competitor #3

Categories can include, but certainly not be limited to:

• Image or reputation in the marketplace

• Products carried

• Presence on the Web

• Quality

• Price

• Exclusivity of products

• Selection

• Store guarantee

• Service

• Friendliness of staff

• Knowledge of staff

• Sales ability of staff

• In-store credit policies

• Layaway policies

• Availability of accessories

• Location/access

• Parking

• Hours of operation

• Lighting

• Exterior signage

• Interior signage

• Ease of in-store navigation (layout and traffic patterns)

• In-store merchandising

• Impulse point-of-purchase items

• Cleanliness of store and rest rooms

The list can go on forever and might seem like an exercise in micro-management, but details matter. The more data you can uncover about your competition, the more likely you are to find something that you can capitalize on to increase your business.

For example, you’ve identified the 20 percent of products you sell that equal 80 percent of your sales. You shop the competition and find out that they are selling 25 percent more of those products in the 20 percent category than you are. Figure out how they’re doing it? Obviously, it can make a difference on your bottom line.


PricingDetermining a pricing strategy is tricky. Correct pricing can depend on many components. It needs to be high enough to cover all expenses and ensure a profit.It must also be consis-tent with your image. If your goal is to position your store as a high-end retailer, it makes no sense to stock mostly low-end products at bargain-basement prices.

To have a representative selection of merchandise, imple-ment the tried-and-true good-better-and-best philosophy. It’s all about offering customers three different price point levels in a specific category to meet their needs.

Why offer three choices? The human brain thinks in terms of threes. Red, white and blue. On your mark, get set, go. Low, medium, and high.

The key is to determine what the customer needs, offer options, and price the products and services within the cat-egory to be competitive but still profitable.

It is valuable to check out the price-point at other art materi-als stores and then develop a strategy to price that merchan-dise competitively, without sacrificing margin. Check out the manufacturer’s suggested retail price, talk to a manufac-turer’s reps to find out how art retailers in other parts of your region are pricing the products that you are offering.

Determine your pricing objectives and stay flexible. How you price depends on what you’re trying to accomplish. If you’re trying to grow a new product line, you might have to price more aggressively. If you’re trying to maximize profits, you might sell at the suggested rate or use an inexpensive add-on premium to make the sale.

All retailers utilize margin. Don’t subscribe to the “I want to make $10 on a set of pens” philosophy regardless of how much it sells for. The “multiplier buyer” theory—asking the vendor how much an item costs and then multiplying the cost by a certain percentage to determine a retail price— seldom works: The smart retailer should examine an item, determine how much he can charge for the product, and then, work with the vendor to decide if he can live with that margin.

You should look to identify the items that are the loss leaders within your trade area, and be prepared to have prices that are similar. While this will likely mean products that have little or no gross profit, they are the necessary items that tell your cus-tomers that as an independent art materials retailer you are able to be price competitive and offer a reasonable selection.

Effective pricing is a challenge. On the one hand, if you want to be profitable you need to price merchandise with reason-able margins. On the other hand, over-priced merchandise often sits in inventory and doesn’t move and is not a con-tributor to positive cash flow.

Advertising vs Marketing

Up to this point we’ve addressed who you are, what you do, why you’re in business, who you’re going to sell to and what your image is (or will be). Now you need to outline how you’re going to make it all happen.

As mentioned earlier marketing is basically everything that faces the customer and forms how your store is perceived by the public. It encompasses everything you do that deals with this perception from advertising, customer-affinity pro-grams, public relations, special promotions, partnering with other retailers, sponsorships, community relationship pro-grams store signage, cleanliness, staff expertise to name just a few. A complete Business Plan must do more than just give a token referral to marketing and advertising. It should detail plans for each, so that those reading the Business Plan have confidence that you are competent in this area of busi-ness management.

Advertising, by itself, isn’t a silver bullet. It is just part of your total marketing mix. Advertising can create awareness, increase customer traffic, build image and reinforce prior buying decisions.

Retail Operations 17

Before you can put together any projections on advertising expense, you need to know how to calculate an advertising budget

For example, a store that enjoys high customer traffic, has little or no competition, is established with high-name recog-nition and does not sell only on price may have an advertis-ing expense budget that is relatively low. On the other hand, if you have low customer traffic, are in a very competitive market, with low name recognition and sell products based on price, the advertising budget needs to be higher.

The key to effective advertising is to find the right balance of reach and frequency. Running a too small advertising sched-ule is a waste of money because you’re not reaching your target prospect enough times to build any brand awareness. Running too heavy of a schedule is overkill and can actually create negative feelings about your store. You have likely seen or heard a commercial that has been used so many times that you have tired of hearing the same message. The solution would be to decrease the frequency of the ad, or use several different ads.

Running an advertising schedule that provides the right frequency, but not a large enough audience won’t help you build your business either. The response to your advertis-ing may be fine, but if you’re not reaching a critical pool of qualified prospective buyers, you won’t be able to sell enough products to cover the cost of the merchandise and the advertising expenditure.

While many retailers believe that advertising is an expense, the truth is that advertising is an investment. Stores that continue to advertise during slow periods or a soft economy rebound faster and better than stores who cut back on adver-tising expenditures. Keeping your store in front of the public 12 months a year at some level, is critical.

Main Types of AdvertisingYou don’t have to be an advertising expert, but you have to understand what you want the advertising to accomplish.

The obvious is that you want to drive traffic to your location and, as a former marketing executive at a large soft drink company once said that his definition was “selling more stuff to more people, more often, for more money”. Not a bad concept!

If you have the talent yourself or the resources to hire an advertising agency, that can be a huge help. Starting and running any business is a full time job and seeking experts to help in creating effective advertising is money well spent.

If you cannot afford to hire a professional agency, consider using the resources of the local media outlets – newspapers, radio, TV – and their creative staffs. They can take your general ideas and turn them into spec commercials and print layouts for you to review.

Your supplier vendors may also be able to help in the promo-tion of their goods and services and in many cases will help defray the actual cost of media buying. Make sure you ask them what programs they have available.

You also need to have a website that at the very least tells your story even if you do not plan to sell online. Again, many local media outlets offer these services and can help build as comprehensive a website as appropriate. There are also easy self-help services like SquareSpace and WordPress that can walk you through the basics of building your own website.

Advertising is a science, and there are specific ways to determine how much to spend on what type of advertising. In today’s changing market, there are also myriad places to spend your money. Each has benefits and pitfalls. For more information, see NAMTA’s Advertising and Marketing Manual for more detailed information.


Community RelationsWhile the return on an investment is difficult to gauge, it’s important to cultivate good a community relationship, which helps to build positive word-of-mouth promotion. Whether you’re sponsoring a little league baseball team, buying an ad in a high school year book or working with a local charity, partnering with groups builds and reinforces your image as part of the community team. But you can also bankrupt yourself trying to be everything to everyone.

Pick your causes, and then budget a certain amount to spend per year. This year you might pay for an outdoor ban-ner at the high school football stadium and also sponsor a young-artist competition for the local youth center. Next year there will be a couple of other worthy causes.

People love free stuff. And a gift card or gift certificate to your store may just give you a new, loyal customer. By giving these as prizes, you have required that the winner come into your business to see all the products and services you offer.

You may also want to include discounted coupons or offers in your advertising to offer customers another reason to visit. Loyalty Shopper Cards are also popular where customers who will share some contact information with you received discounts off purchases or special offers. You use direct mail or email marketing to reach out to these customers.

A retailer’s checklist of vendor specifications, Exhibit A, can be found in the Appendix.

I did not get an appendix?

7.

The Management/Personnel Plan

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While the Marketing Plan identifies the steps you need to take to reach your goals, the Management Plan addresses the structure of your business and what resources—both in-ternal and external—are required to make it a success. This is where you identify all the smaller but critically important details.

While you’ve briefly identified such details in the Description of the Business section, you can get into more depth with the Management Plan. If you’re a corporation or partnership, this is where you’ll identify the principals and what percent-age of ownership they have. Who are the officers? Will they get paid for their service? How much? What is their general job description and what is the expectation of how they will be successful in those rolls.

Should you have an advisory council? The answer is “prob-ably a good idea”. This is a team of confidants and cohorts who are willing to give you their brutal, honest appraisal of everything you’ve done, where you’ve gone wrong, what you’re excelling in, and how you can improve your business.

In creating your advisory council, you can choose one de-signed specifically for your art materials store, which means you’ll be drafting people in the business. NAMTA also offers great networking opportunities for peer-to-peer relationships.

You can also create an advisory council within your market where all the members act as advisors for each other’s busi-ness. This type of advisory council means that each person will likely be in a management position in a business, one that is not necessarily an art materials business.

If you opt to create an advisory council in which all the members advise each individual’s business, look for the best hardware retailer, the sharpest shoe-store owner or manager, someone that runs a great grocery store, a very attentive pharmacist; all people who do a great job of running their business. If you offer services, you will also want to include some individuals on your advisory council that provide services.

One technique that works well is to invite everyone for a once per month, early morning, Dutch-treat breakfast. Create an agenda of what you expect the members of the council to do for you as well as what you can do for each of them. You will likely find that what a person does well in their business can be adapted to your business. The mutual benefit each member derives from such an informative meeting is usually more than enough to off-set the sacrifice of time.

What about a mentor? If you are starting out in the art materials business, but have a lot of retail experience, you’ll find the learning curve can still be substantial and difficult to overcome. By attending professional conferences, like NAMTA’s annual Art Materials World Show, you can easily meet individuals that have been in the industry for many years and have plenty of experience.

Another option is retaining a business coach. The position of the coach—different from that of a consultant—is to look over your shoulder at what you are doing and ask you the difficult questions. The coach is not there to answer your questions, but to help you determine what questions you should be asking and then help you to figure out where and how to find the answers. You can find resources for business coaches on the internet with a simple Google search.

Selecting ManagersIn general, most small businesses fail because of lack of planning, under-capitalization or managerial weakness. Retailing is not just a matter of creating a Business Plan, ordering merchandise, and opening the doors of your new store. Competent management is a crucial aspect of success-ful retailing – especially in the growing art materials field.

It is one thing to open and operate your art materials store as a single individual with perhaps one or two sales people, an accountant and hope for the best. That is one way to start, but probably not a long-term success strategy.

If your goal is to grow and/or expand, you will ultimately need to expand your management team which means bring-ing people on board who not only can work as a team, but balance and complement each other in terms of knowledge, skills and abilities.


Selecting StaffYour equity walks out the door at the end of the day and it’s not your customers—it’s your staff. Your customers basically believe that your staff is your store. With the exception of the small percentage of customers who will always shop for the lowest price, the rest are looking for a knowledgeable, friendly, helpful staff.

Identify how many positions you have and need, and write a job description for each in your Business Plan. Written job descriptions are worth their weight in gold, because they let everyone knows what is expected from them. This makes for clear internal communications and underpins the fact that your employees bring equity to your business.

Describe each job. Are they management, sales, profes-sional, service positions? Are they full-time, part-time or sea-sonal? Identify responsibilities and spell out lines of authority, required education and experience, hours of employment, their wage and benefit, vacation and holiday packages, train-ing methods and requirements and all the specifics you can think of for a given position. Are they to be filled by internal or external, contract employees?

For example, are you going to hire a part-time bookkeeper, full-time bookkeeper or a contract bookkeeper (part-time or full-time)? Are you going to have the bookkeeper just come in three mornings a week to do receivables and payables? Are you going to hire an outside service to do payroll and taxes? If you have a 401-K program, who will make sure that the matches are done correctly?

Policies and ProceduresOutline schedules and company policies and procedures. Policies are the rules that you establish for you and your employees. They should include things such as proper work attire work, the number of holiday and vacation days, as well as your policy for calling in sick or with family emergencies.

Procedures are step-by-step instructions of how to perform certain tasks. This could include how to open or close the store, write a special order for a customer, or document receipt of merchandise from a vendor or truck line.

Regardless of the size of your operation, all businesses need the services of an accountant, banker, attorney and insur-ance agent. Whether they are on a retainer or on an hourly basis, you need to estimate those costs and include them in your plan.

How are you going to pay your employee? Will you pay on a straight salary, salary plus commission, hourly or hourly plus commission? What are the requirements of state and federal governments with regard to the number of hours an em-ployee can work each week before you have to pay overtime? What are the legal requirements for claiming an employee as management, so that you do not have to pay hourly or track their hours? Are you going to make bonuses and special financial rewards part of the compensation package and what will they be based on? What perks are you offering your employees?

What about incentives? People respond well to incentives. Will you create a series of incentives to reward people for increasing sales, increasing the average ticket, or selling certain high-ticket items?

21Retail Operations

8.

Legal Considerations

Retailers need to consider the legal-entity classification of their businesses. It is highly recommended that you take advantage of the services of a business attorney to help in this area. In many cases, the owner is referred to as simply being the owner. However, as the business grows, it is likely that the owner will want to change from maintain-ing a checking account for the store that is separate from his personal checking account to properly establishing a distinct business entity.

Options for ownership include:

• Sole proprietorship

• Partnership

• Limited Liability Corporation (LLC)

• “C” corporation

• “S” corporation

Tax IssuesSome of the options for ownership require a minimum num-ber of owners. As the decision is made about the formation of the entity of the business, there are likely to be four main tax issues to be considered.

1. Even as the business is just opening, one of the first considerations the owners should consider is how they are going to get out of the business. Perhaps the exit plan is by selling the business to someone outside the busi-ness—an employee, a family member, or by liquidating the business.

2. Depending on how the business is set up, the profit passes to the owners, or pays dividends to the owners. The tax-rate percentage changes according to how the business is owned.

3. What happens when the business fails to make a profit and actually loses money? When this does happen, the loss of money can affect the tax returns of the owner(s) of the business. At the start of the business, when there is an anticipation of a period of years without profit, there would also likely be additional consideration given to the ownership format. An investor that is being asked to wait

several years before receiving any form of repayment is likely to want a stronger ownership position in case there is an unforeseen decrease in the cash flow.

4. Compensation packages become the fourth consideration with regard to taxes. The IRS knows that the various ownership formats affect the way a business pays income taxes. There are guidelines, given by the IRS, in regard to how the owners of the business take pay and dividends from the business. The balance between the two will likely affect the form of legal entity the business takes.

5. A retailer might think that the legal entity of the business would be an issue that would best be left to their attorney and accountant, but the complexity of the business entity, the fifth consideration, is something the owner must really figure out himself. Sometimes, because of the size, or anticipated size of the business, one or more categories of entity can be ruled out.

6. The tax consequences of a business operating in one state can be substantially different from an identical business operating in the adjoining state.

Non-Tax IssuesAfter examining the tax issues affecting the decision of the entity of the business, the owner must then examine the non-tax issues affecting the business.

1. As the business grows, sells more merchandise and provides services, there comes a growing exposure to liability from lawsuits by customers because of their using a product that has been sold or serviced by the retailer. In many cases, if the retailer still operating in the sole proprietary mode were to lose a lawsuit as a defendant, the person who has won the lawsuit could possibly have rights to claim the personal assets of the retailer. Depend-ing on state laws, all or many of the personal assets of the retailer could be taken by the winning plaintiff as a result of that lawsuit.

2. Know your capital structure, or how the money used to start the business is provided. The money could be in


the form of a loan provided by the owner to the business or could be shares that are sold by the business to the owner or owners. There is the possibility of an owner-ship structure in which the owners are not partners of an equal dollar amount. Agreement between the stockhold-ers of the company, any agreements of buying each other out or giving a partner the first right of refusal to buy the stock when one is ready to leave the business are other considerations to be taken in as the business entity is determined. And as with the state tax laws being a consideration for the entity of the business, there may be other state laws that would cause one business entity to be more favorable than another.

9.

The Financial Management Plan

23Retail Operations

Developing your effective Business Plan also requires that you have a strong understanding of, and ability to make deci-sions from, several financial documents. They are the Profit and Loss Statement, also known as Income Statement, the Balance Sheet, a formal budget, a projected cash-flow chart, and an inventory-control system.

As you create your Business Plan, two of these, the Income Statement and the inventory-control system, are not likely to appear within the plan. However, demonstrating how they are a part of your plan will make a compelling argument for support of your Business Plan. Showing the Balance Sheet in your Business Plan demonstrates where and how the money is being utilized, and explains how the equity in the business is established.

If you are borrowing money from an investor or lending institution, as a part of the documentation, they will probably require that you have other personal assets, such as a home or property, which you are using as collateral for the loan. However, the lender is likely to be pleased to see that the loan monies are being utilized to purchase assets that can also be converted to cash if or when necessary. What works here is that if the lender tries to minimize their loss, they will want their chances to recover their money to be as high as possible.

The budget is the first part of your projected cash-flow chart and is an absolute necessity for a Business Plan. It is what tells you and any potential investors or lending institutions how your plan is going to succeed. The budget is much the same as an Income Statement with one major difference: The Income Statement is a historical document. The budget is used for projection.

To develop the budget, you create an Income Statement in an identical row by row sequence. If you are an established art materials retailer, you are looking at the Income State-ments from your business over the past several years. You must look for patterns with regard to the sales, gross margin, and expenses. You should do so monthly.

If you are a startup business, you will also create a monthly budget. Without past years’ data, you will want to do exten-sive research into the numbers you include in the budget. As an example, if you are planning to rent 1,500 square feet for the art materials store, you may want to visit several other retail businesses that occupy 1,500 square feet to ask about their expenses, such as the utilities and maintenance. If you are planning to put your business in a shopping center, you should visit stores that are in shopping centers. NAMTA, too, may be able to help connect you with non-competing art material retailers who would be willing to share some data.

Same with insurances. Talk with other art materials in your state to determine how much they are paying as well as on what part of their business the premium is calculated.

With each of the rows of expense on the budget, you should do as much research as possible. While time-consuming, you’ll learn about the various expenses and how other busi-nesses are controlling them. You will develop this information monthly for 12 months, but as you expand your Business Plan into the second or third year, and further, you will likely change from creating this budget annually, rather than monthly.

Once you have created your budget, the important factor is to make the right calculations to find out if there will be the necessary cash on hand to make all your plans work. Even if your budget shows a profit for each of the first 12 months (and each of the subsequent years) the row that represents the net profit on the budget does not mean that the neces-sary money will be sitting in your checking account to pay all the bills as they are due.


To answer these budgetary questions, create the projected cash flow chart. The cash flow chart takes into consideration these factors.

• The amount of money that is in the checking account on the first day of the month

• How much is taken in through the register

• How much is paid out for expenses

• How much is paid out for inventory

• The change in receivables from the end of the previous month to the end of the current month

• The change in payables from the end of the previous month to the end of the current month

• The purchase or sale of fixtures and equipment

• The amount of principal paid on loans for the building, vehicles, or reduction of debt.

The resulting number after these calculations is the antici-pated cash on hand at the end of the month, which is the same as the anticipated cash on hand for the beginning of the next month. At that point, the calculations repeat.

By stringing together this calculation for 12 months, you will accurately project the activity in your business for the next year. The creation of the projected cash flow chart allows you to take advantage of opportunities when you see that the necessary cash will be on hand at the appropriate time. It will also alert you to any cash shortfalls that may be in your future.

The last item is the Inventory Control System. Every item sold by art materials retailer is seasonal—even the soda machine and rack of candy bars near the checkout counter. When you track sales over a year, you will find months in which sales are up and those in which sales are down. Tracking these same sales for several years, you will probably find a pattern of which months sell the most and which the least.

Managing InventoryWhile the retailer will not include the Inventory Control Sys-tem in the Business Plan, explaining how the inventory will be managed is another message to potential investors and lenders that the person owning the art materials shop does know what they are doing.

As any item moves towards its peak season, skilled art materials retailers will be increasing their inventory levels on hand so that they have the best selection and plenty of stock on hand to maximize sales. Likewise, as the selling season for that item begins to wind down, art materials retailers will want to have the stock diminish for several reasons. The first is that they will need the shelf space for another product.

Another reason is that by selling the inventory, retailers gather cash to pay for other products that will be arriving. Selling down on the inventory decreases the need for a clear-ance sale at the end of the season. Having to offer inventory at end of season, marked-down prices only diminishes the maintained gross margin of the business.

The last reason for our retailer making sure that inventory is diminished is the possibility that for the next season there is something different you want to offer in that same category or product line. Finishing this season with too much inventory of an item, and having a new product available for the next sea-son is a quick sign that the retailer will be having a clearance sale to start the season, with diminished gross margin.


Presenting Your Case n the supporting documents section of the Business Plan, you can provide the calculations that back up your statements.

Depending on the number of years that you have chosen to project in your Business Plan, your supporting documents will vary in size. If you have projected five years in the previous sections, your supporting documents should reflect the same time frame.

10.

Supporting Documents

Personal Financial StatementWith a new business, a Personal Financial Statement is likely to be required. Much like a business’s Balance Sheet, this document lists all that you have, valued at what it could be sold for in the current market, and all that you owe. It is im-portant that this document be accurate. Lenders tend to look even more closely at a Business Plan when they find that the applicant has either overstated their assets, left off or under-stated a liability, or both. (Pages 26 & 27)


Personal Financial Statement of: (your name)_____________________________________________

ASSETSCash – checking accounts $

Cash – savings accounts

Certificates of deposit

Securities stocks/bonds/mutual funds

Notes and contracts receivable

Life insurance (cash surrender value)

Personal property

Retirement Funds

Real estate

Other assets (specify)

Other assets (specify)

TOTAL ASSETS $

27Retail Operations

Personal Financial Statement of: (your name)_____________________________________________

LIABILITIESCurrent debt (credit cards, accounts) $

Notes payable (describe)

Taxes payable

Real estate mortgages (describe)

Other liabilities

TOTAL LIABILITIES $

NET WORTH $


Start-Up Cost Expenses (Table 1: page 29)

A second supporting document that many Business Plans include is the startup-cost expense. In this document, you detail all the one-time and initial expenses that are required to start a new business. You also detail the total of capital that is available to start the business.

There should be a positive balance left as you subtract the one-time and initial expenses from the total capital. With this document, you should be able to explain how the balance of capital will sustain the business for a period of time in case of several possible occurrences: delays for the opening of the business, sales not meeting projected goals, or expenses exceeding expectations.

Profit and Loss Projection (Table 2: page 30)

The next document is a multi-year Profit and Loss Projec-tion Statement. Because the Profit and Loss Statement, also known as an Income Statement, is a projection, it also serves as a budget. The example in this book is for three years which is likely to be the minimum that a lending institution will ask for.

Balance Sheet Projection (Table 3)

The next document is a projection of your Balance Sheet. The Balance Sheet reflects a business’s health. It details the total value of the assets and liabilities of the business. The difference between the assets and liabilities is stated as the net worth, equity or stockholders’ equity in the business.

The supporting document should cover the same time frame as the Projected Profit and Loss Statement that you have just created. It would be a Balance Sheet reflecting the start of the first year and the end of the last year. The multi-year projection of your Balance Sheet helps to identify any pattern that is developing with regard to the amount of assets and liabilities that the business has, as well as the change in the amount and percentage of the owner’s position.

It is important to know the Profit and Loss Statement and the Balance Sheet are intricately related. As an example, if your Profit and Loss Statement shows a loss for each of the first three years without an infusion of additional cash to the business, the Balance Sheet would show three years of decreasing net worth.


Startup Expenses of: (your store name)___________________________________________________

SOURCES OF CAPITAL CAPITAL IMPROVEMENTS

Furniture $

OWNERS’ INVESTMENTS Equipment $

Owner #1 $ Fixtures $

Owner #2 $ Machinery $

Owner #3 $ Other #1 $

Owner #4 $ Other #2 $

TOTAL INITIAL INVESTMENT $ TOTAL CAPITAL IMPROVEMENTS $

PERSONAL LOANS OCCUPANCY COSTS

Source #1 $ Rent Deposit $

Source #2 $ Utility Deposits $

Source #3 $ Initial Legal Fees $

TOTAL PERSONAL LOANS $ Initial Accounting Fees $

BANK LOANS Prepaid Insurance $

Source #1 $ Pre-opening Payroll $

Source #2 $ Other #1 $

Source #3 $ Other #2 $

TOTAL BANK LOANS $ TOTAL OCCUPANCY COSTS $

TOTAL CAPITAL $

START UP EXPENSES

REAL ESTATE/BUILDING OPENING INVENTORY

Purchase Down Payment $ Area #1 $

Construction $ Area #2 $

Remodeling $ Area #3 $

Other $ Area #4

TOTAL REAL ESTATE/BUILDING $ TOTAL OPENING INVENTORY $

LEASEHOLD IMPROVEMENTS INITIAL ADVERTISING & PROMOTION

Item #1 $ Advertising $

Item #2 $ Signage $

Item #3 $ Printing of forms $

Item #4 $ Initial travel $

Item #5 $ Other advertising/Promotion $

TOTAL LEASEHOLD IMPROVEMENTS $ TOTAL ADVERTISING EXPENSES $

TOTAL EXPENSES $ BALANCE OF CAPITAL $

(Table 1)


Profit and Loss Projection of: (your store name)____________________________________________ (Table 2)

YEAR ONE YEAR TWO YEAR THREE

Sales $ % $ % $ %

Gross margin $ % $ % $ %

Cost of goods sold $ % $ % $ %

Gross profits $ % $ % $ %

Operating expenses $ % $ % $ %

Payroll management $ % $ % $ %

Payroll staff $ % $ % $ %

Payroll taxes $ % $ % $ %

Rent $ % $ % $ %

Property taxes $ % $ % $ %

Electric $ % $ % $ %

Telephone $ % $ % $ %

Gas $ % $ % $ %

Advertising $ % $ % $ %

Vehicles $ % $ % $ %

Insurance $ % $ % $ %

Interest $ % $ % $ %

Depreciation $ % $ % $ %

Outside services $ % $ % $ %

Other expense $ % $ % $ %



Total operating expenses $ % $ % $ %

Net profit before taxes $ % $ % $ %

Income taxes $ % $ % $ %

Net profit after taxes $ % $ % $ %


Projected Balance Sheet of: (your store name)____________________________________________ (Table 3)

BEGNNING AS OF: (DATES) END AS OF: (DATE) END AS OF: (DATE)

Assets

Current Assets

Cash on Hand $ $ $

Cash in Bank $ $ $

Deposits $ $ $

Accounts Receivable $ $ $

Inventory $ $ $

Pre-Paid Expenses $ $ $

Other Current Assets $ $ $

TOTAL CURRENT ASSETS $ $ $

Long Term Assets $ $ $

Building and Land $ $ $

Furniture and Fixtures $ $ $

Machinery and Equipment $ $ $

Other Long Term Assets $ $ $

Less Depreciation $ $ $

TOTAL LONG TERM ASSETS $ $ $

TOTAL ASSETS $ $ $

Liabilities $ $ $

Current Liabilities $ $ $

Accounts Payable $ $ $

Interest Payable $ $ $

Taxes Payable $ $ $

Notes Payable $ $ $

Other Current Liabilities $ $ $

TOTAL CURRENT LIABILITIES $ $ $

Long-Term Liabilities $ $ $

Bank Loans Payable $ $ $

Notes Payable to Stockholders $ $ $

Other Long-Term Liabilities $ $ $

TOTAL LIABILITIES $ $ $

Stockholders’ Equity $ $ $

Contributed Capital $ $ $

Current Income $ $ $

Retained Earnings $ $ $

Total Stockholder’s Equity $ $ $

TOTAL LIABILITY & STOCKHOLDER’S EQUITY $ $ $


Projected Cash Flow Chart (page 33)

The next document is a Projected Cash Flow Chart. In this document the year-end Profit and Loss Statement, also known as Income Statement, is generated for several years into the future. As with the Balance Sheet and the Profit and Loss Statement depicted here, the time frame for each docu-ment should be the same.

The Projected Cash Flow Chart is the same as the Profit and Loss Statement you have already created with two key additions. The first is that the statement reflects each of the months during the year instead of just being year-end. The second addition is the lower rows of information where you show how the business will have the necessary cash on hand to make this Profit and Loss Statement work.

The reason for this document is that you need to be able to demonstrate that the business will have the necessary cash on hand for each of the months of the projection.

Because of space restrictions, the form on the next page in-cludes only the first six months of this document sample. For each year of the Projected Cash Flow Chart you are creating, there will be 12 columns of information.


Projected Cash Flow Chart for: (your store name)__________________________________________

MONTH 1 MONTH 2 MONTH 3 MONTH 4 MONTH 5 MONTH 6

Sales $ $ $ $ $ $

Gross margin % % % % % %

Cost of goods sold $ $ $ $ $ $

Gross profits $ $ $ $ $ $

Operating expenses $ $ $ $ $ $

Payroll management $ $ $ $ $ $

Payroll staff $ $ $ $ $ $

Payroll taxes $ $ $ $ $ $

Rent $ $ $ $ $ $

Property taxes $ $ $ $ $ $

Electric $ $ $ $ $ $

Telephone $ $ $ $ $ $

Gas $ $ $ $ $ $

Advertising $ $ $ $ $ $

Vehicles $ $ $ $ $ $

Insurance $ $ $ $ $ $

Interest $ $ $ $ $ $

Depreciation $ $ $ $ $ $

Outside services $ $ $ $ $ $

Other expense $ $ $ $ $ $



Total operating expenses $ $ $ $ $ $

Net profit before taxes $ $ $ $ $ $

Income taxes $ $ $ $ $ $

Net profit after taxes $ $ $ $ $ $

Cash Balance, beginning of month

Net income (loss)

Add: Cost of goods sold

Less: Inventory payments

Principal payments on loans

Cash balnace beginning of month


Break-Even Analysis (this page)

The Break Even Analysis document places the expenses of a business into four categories:

1. Those that are a fixed amount each month and uncontrollable (meaning the expense must occur).

2. Those that are a fixed amount each month and are controllable (meaning the expense is optional)

3. Those that are a variable amount each month and uncontrollable.

4. Those that are a variable amount each month and controllable.

Some expenses are clearly in one category. As an example, rent would be a fixed amount that is uncontrollable. Others could be categorized in more than one category. The tele-phone bill, while variable, could be considered as control-lable or uncontrollable.

In the Break-Even Analysis is a calculation, you first total all of the fixed uncontrollable expenses. The second step is total-ing all the variable uncontrollable expenses. The third step is to add together all the uncontrollable expenses.

The next series of steps involve the controllable expenses. The controllable variable expenses are first totaled followed by the controllable fixed expenses. The next step is to add both if these amounts together and divide by 12 to arrive at an average monthly controllable expense.

As you add this number to the total of the uncontrollable expenses, the resulting number gives you a good idea of what you should expect to spend each month for expenses. The last series of steps is to multiply your anticipated sales for each month by the gross margin. The resulting number is your anticipated gross profit.

The analysis takes place as you compare the anticipated gross profit to the total of the expenses section of this calculation. A positive number gives an indication that you have anticipated sales to be sufficient to cover the monthly expenses while a negative number gives an indication of insufficient sales to cover the monthly expenses.

Break-Even Analysis for: (your store name)___________________________

FIXED VARIABLE

UNCONTROLLABLE EXPENSES

Management payroll $ $

Staff payroll $ $

Payroll taxes $ $

Electric $ $

Telephone $ $

Gas $ $

Property taxes $ $

Rent $ $

Insurance $ $

Loan payments $ $

Total uncontrollable fixed expenses $

Total uncontrollable variable expenses $

Total uncontrollable expenses $

CONTROLLABLE EXPENSES

Accounting $ $

Legal $ $

Supplies $ $

Advertising $ $

Outside services $ $

Vehicle $ $

Total controllable fixed expenses $

Total controllable variable expenses $

Average monthly controllable expenses

Total uncontrollable expenses plus average monthly controllable expense

Gross margin %

Anticipated Sales $

Gross profit $

35Retail Operations

Competitive Analysis (this page)

The Competitive Analysis Document shows to those reading your Business Plan that you have studied the area and com-petition. It is not enough to state that you want to become an art materials retailer in a certain community because you like art and have lived in the community for many years.

Instead, the reason for becoming an art materials retailer in a certain community is because there is great potential for that type of retail operation in that community, and because you are qualified to own and operate the business.

Break-Even Analysis for: (your store name)___________________________

Competitive Analysis of: (your store name)________________________________________________

MY BUSINESS: COMPETITOR A: COMPETITOR B:

STRENGTH WEAKNESS STRENGTH WEAKNESS STRENGTH WEAKNESS

Products

Service

Quality

Selection depth

Price

Product knowledge

Sales skills

Business reputation

Location

Exterior appearance

Interiro appearance

Credit policy

Advertising

Promotion

Image

The competitive analysis document should contain compari-sons for as many businesses as there are in the trade area.

Advertising PlanThe Advertising Plan document should have numbers that re-flect the same amounts of dollars as your projected cash flow chart, your start-up expenses document, the multi-year profit-and-loss statement and the break-even analysis document. (See NAMTA’s Advertising and Marketing Manual.)


In Conclusion

There are a wide array of resources on writing a business plan. This manual is designed to help get your started. Search the internet; visit your local library and neighborhood book store. Check with your local Chamber of Commerce, too.

Here are some samples – cut and paste the URLs below.

“How to Write a Business Plan”http://www.discoverbusiness.us/business-plans/ “Create Your Business Plan” (from the Small Business Administration) https://www.sba.gov/starting-business/write-your-business-plan

37Retail Operations

Managing People A must-read for retail employers. Topics include placing an ad for a job opening, the application, the Interview and the selection process of new employees, plus employee hand-books, policies and procedures reviews, incentives, and staff education. Examples of interview forms included.

Advertising and Marketing Create a marketing plan and shape your brand, determine how much you should be investing in advertising and mar-keting, set up an annual advertising and marketing calendar to maximize your return on that investment, determine strengths and weaknesses of traditional media, effectively manage digital advertising/marketing channels available - plus worksheets and tips from experienced art material retailers.

NAMTA’s website – namta.org – has an easy-to-use Resource section that contains a wide array of products designed specifically for art materials retailers. Almost all of these products are free to download for NAMTA members.

This manual is one of four that NAMTA has created over the past few years to help retail members sustain and grow their business. The other three are: RETAIL OPERATIONS MANUAL

NAMTA Resources for Art Materials Retailers

Merchandising Merchandising has traditionally been about the process used to conduct retail sales. What products do you sell, how to present them to your customers and at what price. While art materials retailers have traditionally engaged in the task of retail merchandising in a physical location, the internet has now made it possible to apply these same basic principles online in a virtual store. Merchandising – has been written specifically for art materials retailers. Whether a novice in the business or a veteran retailer looking to explore the changing dynamics of art materials sales, you’ll learn more about how this important facet of retailing can be managed in both brick-and-mortar and/or online environments. Target marketing, selecting vendors, shipping issues and costs, planograms, inventory control, managing your product mix, pricing strategies, working with sales reps and so much more are addressed in this manual.

20200 Zion Ave. Cornelius, NC 28031

www.namta.org