It might seem like a simple question, but if you have tried figuring out the answer on your own, you must well know how challenging it can be to determine business startup costs.
The reason finding the cost of opening a retail store proves to be a rather daunting task for many people is obvious: there’s no clear-cut answer to how much money you need for setting up a retail business.
The cost of opening a retail store depends on several factors such as the niche you are targeting, the store you want to start (merely brick and mortar or with online facilities), the size of the store, and the location, to name just a few.
If you are planning to open your own retail store, it’s essential to understand how each of these factors affects the total startup cost. Having sufficient knowledge of what it takes to get started on a new venture adventure will help you make the most of your available budget, and will ensure that you stay successful in your endeavors.
In this guide to business startup costs, we discuss the answers to two of the most commonly asked questions:
- How much does it cost to open a retail store?
- What do I need to have to open my retail store?
We also provide tips for ensuring long-lasting success for your business as we dig deeper into the subject of establishing a brand new retail empire.
How Much Does It Cost to Open a Retail Store?
It is possible to start a retail business with as little as a few thousand dollars. But the costs can quickly escalate to hundreds of thousands of dollars, or perhaps even higher, depending on your target market, location, inventory costs, and so on.
According to the Small Business Administration (SBA), you can get off the ground with just $3,000 or even lesser if you are considering a micro-business, such as a street-side food stall or a shoe repair shop.
However, the costs will be significantly higher if you consider a more well-established business, i.e., one with proper floor space, a decent warehouse, and a sufficiently large area to cater to your potential customers.
The following are some critical aspects you need to keep in mind when calculating the cost of opening a retail store:
1. Rent and Operating Costs
Rent is one of the most critical components of your startup expenditure–and also one that can easily eat away at a considerable proportion of your profits.
On average, you can expect to pay $1.75 to $3 per square foot of floor space in rent. In addition, you should set aside a minimum of $500 for utilities. This includes operating costs, or to be more specific, utility bills for electricity, gas, water, and sewerage. You will need a few hundred dollars more for internet and phone usage.
2. Administrative Fees
The costs involved in getting the permits and licenses, coupled with other administrative fees, such as property insurance, typically amount to over $3,000.
3. Inventory Costs
Surely you wouldn’t your customers breaking out into a frenzy like people did when McDonald’s ran out of the coveted Schezwan Sauce.
Not having a well-stocked inventory can not only slow down sales but also affect your brand image as it binds poor management to drive away customers.
Your inventory needs to be fully stocked on the day of the store opening. Plus, it would be best if you have enough supplies for the next three months in advance. This proves beneficial for store owners as bulk buying allows you to bargain for discounts from your vendor.
4. Equipment Costs
A retail store requires specific equipment such as a quality point of sale (POS) system, mobile payment technology, computers, and the likes. If you wish to install LED screens for in-store advertisement, expect to pay approximately $500 for each set.
If you are on a tight budget, it is wise to limit your expenditure on IT and technology. Go for essentials such as card payment platforms and leave high-end digital solutions for later on. You can upgrade the place once your business goes into full swing, helping you rake in profits.
Installing a security camera for business should be on the top of your list if you want to protect yourself and your business from theft and similar losses.
How many employees you need to hire to keep your business running smoothly majorly depends on the size of the store. However, you also need to consider the amount of money it will require you to pay them in salaries.
According to data collected at sites like Glassdoor and PayScale, the average salary of a retail worker is about $26,000 per year. The amount is almost double that for a retail store manager. So, even if you hire a team of only five workers and a manager to supervise the store operations, you are adding a monthly expenditure of over $15,000!
6. Advertising and Signage
Seeking help from professional marketers or hiring an ad agency can add at least $1,000 to your retail startup costs.
Thanks to modern technology, you can easily avoid this expenditure by leveraging the power of social media sites and online marketing.
As far as signage is concerned, spend a few hundred dollars on the interior and exterior branding.
7. Interior Decoration
Whether you plan to revamp the place or just make the basic changes to turn it into a retail store, interior decoration can form a major chunk of the total cost of your startup.
From installing the counters and fixing the shelves, to painting, lighting, flooring, and whatnot, you need to pay attention to the cost of store fixtures before you make payments for any other purposes.
What Do You Need to Have To Open Your Retail Store?
If you think figuring out the cost of opening a retail store is the most complex part of the venture, think again!
Setting up a business involves a lot of paperwork. You need to get various permits and licenses before you can open the doors for your customers.
Some of the most important paperwork that you need to get sorted well beforehand includes:
- Business Name Registration
- Employer Identification Number
- Business Permit
- Resale Permit (if you are selling products sourced from a third party)
- Certificate of Occupancy
- Other licenses related to your niche, if any
The licensing and permitting fees can range between $200 and $2,000 depending on the rules and regulations of the state in which you plan to conduct your business activities.
How much does it cost to open a retail store?
The answer lies in testing individual expenses, including property rent, store fixtures, advertisement costs, worker’s compensation, licensing fees, and so on.
As a safety measure, you should add about 10% more to your estimated total cost to cover any unexpected losses and deal with problems that might arise during the inauguration and initial run.
Regardless of the scale of the operation, opening a retail business requires a significant investment. So, create a detailed business plan and line up your finances accordingly to ensure long-term success and sustainable growth.