Gift & Novelties Shop Daily revenue >$600?

[luoxy]

A friend of mine interested to takeover a 250sq ft gift & novelties shop at town office building area (not much human traffic in the evening). The current shop owner claimed it makes >$600 revenue sale per day. Possible? appreciate your views

[ausinsg]

Ask to see the tapes from the cash register. Check the times and amounts of the sales. You would expect that sales would be bunched up around tea breaks or lunch times.

One you have the most popular times for business from the tapes, have someone stand outside the shop and see how many people actually go in during those times of day.

It is not totally accurate but gives you a better idea of how the business is doing.

[JR8]

Er can't you just get a copy of the last statutory accounts that they filed?

[luoxy]

Ask to see the tapes from the cash register. Check the times and amounts of the sales. You would expect that sales would be bunched up around tea breaks or lunch times.

One you have the most popular times for business from the tapes, have someone stand outside the shop and see how many people actually go in during those times of day.

It is not totally accurate but gives you a better idea of how the business is doing.

That is what i thought we are going to do

[luoxy]

Er can't you just get a copy of the last statutory accounts that they filed?

I understand sole-Proprietor does not required to file their revenue to ACRA nor IRAS...

[JR8]

So there is no proof, so you have to assume it is a 'gross exaggeration' (i.e. a lie).

The obvious due diligence is needed.

[luoxy]

So there is no proof, so you have to assume it is a 'gross exaggeration' (i.e. a lie).

The obvious due diligence is needed.

I can not agree with you more!!!!!!!!! thanks for replying and advising!

[beppi]

I am not from the retail field, so my comment may be off, but I have my doubts of the viability of a shop with such low turnover:

Assuming an average markup of 1/3 (I'd be surprised if the actual is really that high) you'd make S$200/day or S$6000/month. Deducting S$3000 rent and other expenses and S$1500 to employ a shop assistant, you're left with only S$1500 for yourself.
I'd want at least S$1000 turnover per day to make it worthwhile. But then I don't run a shop and probably never will.

[Strong Eagle]

I am not from the retail field, so my comment may be off, but I have my doubts of the viability of a shop with such low turnover:

Assuming an average markup of 1/3 (I'd be surprised if the actual is really that high) you'd make S$200/day or S$6000/month. Deducting S$3000 rent and other expenses and S$1500 to employ a shop assistant, you're left with only S$1500 for yourself.
I'd want at least S$1000 turnover per day to make it worthwhile. But then I don't run a shop and probably never will.

Let's talk about what it takes to generate $600 in sales. At $20 per sale, you'd need 30 sales per day, at $10 per sale, 60 sales per day. Most of this will be generated between 11 AM and 2 PM, a 3 hour window. You can easily verify how accurate his numbers are by checking prices of items in the shop and the number of people who go purchase.

beppi, I get what you are trying to say but it's not expressed correctly. First, since is an office building with "not much traffic in the evening", it is probably also true that there won't be much traffic on the weekends, either. So, you should probably count on only 20 to 22 days per month that you can generate revenue.

Thus, even if the current shop owner is correct, the most you turnover expect in a month would be somewhere between $12,000 and $13,000. But let's say you do get some evening and weekend traffic, and say your turnover could reach $15,000 per month.

Now, you need to expect to have a markup of 100 percent on your goods, that is, you buy something wholesale for $10 and you sell it for $20, giving you a 50 percent gross margin. At 50 percent gross margin, you will have a gross profit, before expenses, of somewhere between $6,000 and $7,500.

If your markup were only 50 percent, your gross margin would only be 25 percent and your gross profit would only be between $3,000 and $3,750. So, it is important that you know what your cost of merchandise is, and your gross margins or markups.

You will also have other costs of sales including shipping and handling, which will come out of your gross profit.

Next, as beppi pointed out, you have fixed expenses. Does your rent cover utilities? Cleaning? Are there extra fees? Take out all the fixed expenses (including a sales person if you want one), to get your net profit, before taxes. See, it is the net profit that matters.

The bottom line is: What difference does is make if the place has a million dollars of turnover per month if your net profit is only $1,000 per month? You really need to see the books, preferably the sum he reports on his IRAS form as net takings, otherwise you don't know what you are getting yourself into.

[luoxy]

My friend has made up his mind to give the shop a miss for just too many uncertainties and unknowns.

I personally think it would be better off buying public companies rather than private ones. S&P500 up up up, STI go go go!

Thanks, Strong Eagle, beppi and everyone has replied and your views are greatly appreciated.

[Strong Eagle]

I personally think it would be better off buying public companies rather than private ones. S&P500 up up up, STI go go go!

Actually, that's one more way of judging what to do with your money. If you look at the dividends and capital appreciation of several companies, you get an idea of how much you can earn in the stock market (a rate of return on monies invested). If you were going to run your own, you would expect a much higher return on money invested because you are working for the money and you have much higher risk.