Making Plans for an Antique Business...By  Ed Welch...

Most new antique businesses fail in the first two years. In my opinion, the major reason for nearly all failures is the lack of a business plan. New dealers have the belief that it is easy to make money in the antique trade. They operate under the assumption that all they need to do is buy an item and sell that item for more money then they paid. Nothing could be further from the reality of the antique trade.

To succeed as an antique dealer, one needs a business plan before he or she spends one cent acquiring merchandise. There are close to 60 questions that must be answered, and many decisions that must be made before a person decides whether or not to start a small business.

I do not have space in this column to cover all questions and decisions that a person needs to address before he or she decides to open a small business. I will, however, list some of the most important points and spend some time discussing a few points in detail. I suggest that a person considering starting a small business buy a book on business plans, available from any of the large booksellers, or download sample business plans available on the Internet.

A few things that a person starting a small business must consider include: objective of the business, a start-up strategy, start up cash, start up time schedule, type of product, a review of competitors who carry the same products, high end and low end price, availability of the product, a second and third line of products, market analysis, market segmentation, the availability of reference and research material, your marketing strategy, your purchasing strategy, your promotion strategy, your selling strategy, selling locations. A business plan must consider the cost of buying and the cost of selling. A break-even analysis, projected profit, and projected cash flow should also be considered.

START UP CASH:
Several years ago, I was approached by a couple from New Jersey. The husband had been injured on the job and had taken early retirement. The couple had $80,000 to spend starting an antique business. When I asked as to what types of antiques they were considering, they answered American Folk Art. They then showed me many photographs saved from auction catalogs and trade papers. Their research material, as they called it, depicted some of the finest American Folk Art I had ever seen.

When I pointed out that most of the things they showed cost more than $80,000 each, they became upset, and accused me of being too negative. Their plan was scrounge rural America and attend rural auctions for undiscovered pieces of Folk Art. They hoped to buy undiscovered Folk Art for a few dollars and sell their finds for thousands of dollars. I wish that I could say that their expectations were rare and unusual. However, many people enter the antique trade thinking that they will make easy money.

Eighty thousand dollars is more than enough start up cash for a small business dealing in many types of antiques and collectibles traded in the antique marketplace. A dealer could start a business buying and selling early porcelain, decorated stoneware, early glassware, country furniture, painted country accessories, and many of today's most popular collectibles.

However, $80,000 is not enough start up cash for a business in Period American furniture, signed or decorative art, rare art pottery, designer furniture, American Folk Art, and many other high end antiques and collectibles.

PRODUCT AVAILABILITY:
Fifteen years ago, a good fountain pen cost $10. The very best fountain pens cost $50 to $100. Today, the ten-dollar fountain pen sells between $100 and $250. The best fountain pens will bring close to $1,000.

I would discourage anyone from becoming a dealer in fountain pens. More than 95 percent of sellable fountain pens have been discovered, bought, and sold several times. Fountain pens are now priced at their maximum price. Product availability on fountain pens is close to zero, with one exception.

Dealers who buy the very best, at inflated prices, can still make money on the top one percent of fountain pens. One truism in the antique trade is that no matter how much a dealer pays for the best examples, someone will pay more.

A good business plan must include a product availability analysis. A prospective dealer must attend auctions, shows and visit shops to gather first hand knowledge on product availability. He or she must keep records on the number of items found, price, condition, and estimated profit.

PRODUCT CASH FLOW POTENTIAL:
Researching a product is expensive, but necessary when starting a new antique business. Established dealers must also research new products they intend to add to the antiques they carry.

A product is of no use to a dealer if that item is in short supply or pricey. Enough of the product must be on the market to allow a dealer to replace sold items. In addition, the average cost of the product must be low enough to allow a dealer to make a profit after all expenses.

Six years ago, I decided to add pewter to the line of antiques I carry. I purchased nine books on the subject; two books were very expensive and had to be ordered from Europe. I took a trip to England to visit the Victoria and Albert Museum that has one of the best collections of pewter in the world. I bought a museum catalog of this collection. While in London, I visited two advanced pewter dealers. I also visited several shows and many antique shops that sold pewter.

Here in the United States, I visited several dealers who advertise extensively in trade papers. I budgeted $10,000 to buy my start-up stock of pewter. I did not expect to make money selling my start-up stock of pewter. I hoped to break even. Most people do not make money on their start up stock. What they gain is experience handling the product. A dealer must learn first hand what sells and which items never to buy again.

I spent two years researching pewter, including selling my start-up stock. I discovered that there is not enough desirable pewter on the antique marketplace today to support a new business in pewter. Established dealers probably do well. However, not one of the pewter dealers with whom I spoke would reveal his or her cash flow ratio. In my opinion, all desirable pewter is overpriced. Even the junk pewter is overpriced.

All my pewter research money was not spent in vain. Last week I bought a sleeper out of an upscale shop in Massachusetts. I will make at least $1,500 profit on this item. Buying an occasional sleeper does not make an antique business. Dealers need to buy and sell those items that are readily available at prices low enough to allow for a profit.

A professional dealer who earns his or her entire living buying and selling antiques needs a cash flow ratio between four and six to one. In other words, every dollar a dealer spends on antiques must return between $4 and $6. Hobbyist dealers, social dealers, and collector/dealers can get by on a cash flow ratio of two to one. Such dealers usually do not depend on antique trade income to pay home, car, and everyday living expenses. They can pay more for the items they buy and sell for less profit. New dealers must consider cash flow ratio in their business plans.

BUYING STRATEGY:
Will you buy at auction, shows, or shops? How many hours each week can you devote to buying? How many miles are you willing to drive to attend an auction or show? Will you run ads in local papers to buy estates or out of homes? Will you run ads in trade papers to buy collections and from other dealers? Will you buy in the UK and Europe? How much cash have you set aside to buy your start-up stock? Does your buying budget allow expenses to attend extended buying opportunities such as a three-day auction or large show? Do you have a funding source, should you have the chance to buy an entire collection or estate?

Early in my career, I had the chance to buy a Victorian house, completely furnished. I had not planned for such an event, and had no way to raise the $1,5000 asking price. A competitor bought the estate. He held an onsite auction to sell the contents. The auction raised more than he had paid for the estate. He then spent $2,000 painting and doing cosmetic work on the house that he sold for $22,000.

Because I had introduced the dealer to the homeowner, I got a small finders fee. The dealer got his entire investment back, made more than $20,000 profit and still owns a valuable nautical painting and several antique firearms that he kept for himself. The antique business is a cash intensive business. Arranging back up funding is an important part of an antique dealer's business plan.

SELLING STRATEGY:
Will you sell at auctions, shows, group shops, or from your own shop? Are you willing to travel to other states to sell at shows? Show booth rent is between $100 and $2,500. Do you know the difference between an inexpensive and a high price show?

When I was on the show circuit, my most profitable show, year after year, was the show that cost the most money. The show was in Miami. Booth rent was $1,700. Travel time was three days down and three days back. The show lasted six days. In total, I spent 12 nights in motels, ate 36 meals in restaurants, bought $300 worth of gas, paid $70 in tolls, tipped porters $50, and spent money on coffee and snacks.

I sold nearly everything I brought to the show and for very high prices, much more than I could get in Maine or New England. My second best show was in Baltimore, and my third best show was in the town of Whippany, N.J., just outside New York City. These three shows together, cost more than all the other shows I displayed at, throughout the year. However, when you consider income per dollar spent, they were my cheapest shows.

If your business plan calls for selling at shows, you must speak with as many show dealers as possible. Ask their opinions about certain shows and ask for their recommendations. You must also budget money to try selling at many different shows. Keep tract of everything that happens at a given show. Record the weather, time of the show, dress, and manor of those attending the show; show advertising, attendance, attendance by time of day, attendance on the second and third day. Generally, dealers will attend a show early on the first day. Collectors and homeowners will attend later the first day and on day two and three. Keep tract of all sales by hour, day, and type of buyer. Some shows are dealer shows while others are retail. You may be able to increase sales at a given show by tailoring the merchandise you bring to the type of client who normally attends.

Selling at auction can cost between 5 percent and 25 percent of the hammer price. The more you sell at a given auction service, and the higher the selling price of each item, the lower your sales commissions. If you can feed an auction house with expensive antiques, chances are that your sales commissions will be low. If you sell only a few things at auction, expect to pay a higher commission.

I have covered just five of the dozens of topics that anyone starting an antiques business must consider. Covering all necessary topics would require a book length article. As I recommended earlier, buy a book on basic business plans. Read, then follow the directions. Most new antiques businesses fail simply because the owner did not create a business plan before he or she spent one cent buying antiques.

Reference Links we think You'll enjoy

www.metiques.com
This is an online directory
of Maine Antique Dealers

www.maineantiques.net
This is a Search Engine database for New England and Northeast Art and Antiques Trades

www.theappraisernetwork.com
This is a do it yourself message board that users can use free of charge to ask questions about the value and identification of antiques