Writing a Business Plan
By Ed Welch
No business, antique or otherwise, is likely to succeed without a business plan. The business plan must be written down on paper in such a manner that it can be changed and adjusted as often as necessary. A business plan is a living thing. It must be designed so that it can grow as the owner gains experience.
Purpose or vision: All businesses must have a purpose, a reason for being. Why do you want to run an antiques business? Is your purpose to make and save money to send your children to college? Is your purpose to accumulate money for your retirement? Do you want to make a living buying and selling antiques? Do you want to make enough money each year to pay for an expensive vacation? Is it your hope to use the antique trade to generate money that can be used to purchase items you would like to collect?
Any business without a clearly defined purpose is like a ship with no wheel. Such a ship cannot be steered and wanderers aimlessly, blown this way and that, by the wind of today. Purpose provides direction.
Business goals and rules: A clearly defined business purpose is little more than a daydream without a set of goals and a set of rules to guide it. Goals are clearly defined business objectives; targets that, when achieved, fulfill the purpose of the business.
Once you have set goals, you must now create clearly defined rules and regulations that will govern your business. Business rules and regulations can be called a strategy. Strategy identifies and clarifies resources and options. How many days each month will you devote to your business? How many hours will you work? What type of antique or collectible will you buy and sell? Will you sell at antique shows? Will you sell at group shops? Will you buy at auctions? Will you buy from yard sales?
I prefer to write each of my business rules and regulations on the top of a blank sheet of paper. This allows me to modify or change each rule or regulation as time goes by. I can also review each item to see how my thoughts about that particular rule or regulation change as I gain experience.
Start-up money: The amount of money needed to fund an antiques business depends on the value of the items that will be bought and sold. It costs more money to fund a business that trades in early American furniture compared to a business that specializes in flea market items. A dealer in furniture can start a business with a total inventory of 20 items plus a few decorative accessories. A dealer who trades in small size collectibles will need 100 or more items on opening day. The furniture dealer may have more money invested in one piece of furniture than the collectible dealer has in his or her entire inventory.
Regardless of the type of item carried by a dealer, that dealer must have enough working capital to be able to replace sold items quickly.
Mark-up prices: If you pay $100 to buy an item, how much must you mark-up that item in order to maintain a profitable business? Suppose that you mark-up the item by 50 percent of the purchase price to $150. The item sells one week later. You recoup your purchase price and generate a gross income of $50. How much of this $50 can you keep?
The expense of running an antiques business varies between 17 and 23 percent of the purchase price. Overhead expenses reduce in-pocket profits on this item to between $27 and $33.
Most antique dealers are in the 18 to 23 percent income tax bracket. This reduces in-pocket profits to between $18 to $21.50. If you live in a state that has an income tax, subtract another 6 to 8 percent. If you mark-up only 50 percent of the purchase price, you will be working for less than minimum wage. Add one or two buying mistakes and you will work for nothing.
Cash flow ratio: Accountants, bookkeepers, and banks look at cash flow ratio to determine the financial health of a business. Generally, a cash flow ratio of one to three is considered healthy. In plain English, for every $1 you spend on merchandise must produce an income of $3.
Accurate accounting, especially the tracking of buying and selling expenses, will alert a dealer as to which items to buy and which items to avoid. Accurate accounting will also make obvious business practices and procedures that can easily be modified to reduce expenses resulting in greater profits.
Buying options: Antique dealers make all of their money in the buying process. If you buy cheap, you can always sell for less and still make money. It costs money to sell. If you want to make money as an antiques dealer, pay less for the items you buy. For buying purposes, antiques can be divided into two categories: the very best and all the rest. Pay top dollar for the very best. There are buyers in the marketplace willing to pay more. The hard reality is that there is no top limit. No price is too high for the very best examples of antiques and collectibles.
Pay only 10 cents on the dollar for all the rest. Recently, at the Madison-Bouckville Antique Show, I stumbled across a box three-quarters full of a common collectible. This collectible usually sells between $15 and $25. The box, at one time, contained a gross, 144 pieces. The dealer had tried to sell this collectible item on eBay with little success. Even when he lowered the starting bid to 99 cents, the collectible failed to attract attention. He had a sign on the box that read "$1 each, 50 cents each if you buy 25." At first, I thought that I would buy 25 of these collectibles for a cost of $12.50. The merchandise had not been well cared for and the little collectibles were dusty and dirty. I picked my way through the box and choose the cleanest 25 items. Before I paid for the items, I asked the seller, "Would you consider taking $20 for the entire box?" His reply was, "yes." The box contained 101 collectibles. I cleaned one of the collectibles in preparation for making an image to post on my website. A dealer saw the collectible setting on my desk and asked if it was for sale. I quoted a price of $35. He bought the item as a gift for his brother-in-law. My first sale paid for the entire lot and produced a profit of $15. I still have 100 of these collectibles to sell. A dealer can always make money buying low-end merchandise.
On the top of seven sheets of blank paper write the following, one item per page. Buying at shows, buying at flea markets, buying at group shops, buying from individually owned shops, buying at auctions, buying on eBay, and private sales. On your buying at shows page, list the shows that you will attend for buying purposes. Make notes for each show such as the distance from your home, entrance fees, hotel charges, gasoline and tolls. Do the same for flea markets, group shops, individually owned shops, and auctions. Do not forget to add the auction buyer's premium to the buying expense of each auction you attend. If you advertise in local papers or in trade publications, be sure to add the cost of advertising on the private sales page.
Keep track of the things you buy sorted by buying location. My records show that I do not buy well at local auctions. Many dealers who attend local auctions are willing to work for a markup of ten percent or less. However, I buy extremely well at nationally advertised auctions, especially the two large auction houses located in New York City.
There are more group shops in New England then I can possibly visit on a regular basis. However, my records show that I make substantial profits when I buy from certain group shops. One of my most profitable group shops is located in Sturbridge, Massachusetts. I never miss the opportunity to visit this shop to see what I can find. I do not buy on every visit, but when I do buy, I tend to make a substantial profit.
Selling options: Decide how you will sell. Your options are shows, flea markets, group shops, individually owned shops, eBay, private sales, and local auctions. In your notebook, devote an entire page to each selling outlet. Make notes regarding the costs associated with selling at shows, flea markets, group shops, and your own individually owned shop. Keep track of booth rent, auction consignment fees and travel expenses. I personally make more money holding private shows where attendance is by invitation only. However, it took years of selling at major shows to build a customer base and a customer want list large enough to support private selling. At one time, I sold at more than 30 major shows each year. I did shows and Maine, New Hampshire, Massachusetts, Connecticut, New York, Maryland, North Carolina, Georgia, Florida, Ohio, and Michigan.
Record keeping: Record each item you buy. Keep track of buying price, buying location, condition, any repairs, and record the selling price. Suppose that as a dealer you buy 50 items a month. Keep tract of how much money it cost you to buy these items. Keep tract of how much money you spent selling these items. Such records will provide you with information that can be useful when you make additional purchases.
Keep track of your customers: Record everything a customer buys. Record contact information and notes from your conversations with this person. Suppose you do buy 50 items a month, 600 items a year. If you do not keep customer information, then you must find 600 new customers each year. Finding 600 new customers costs money, usually in the form of show expenses and group shop booth rents. It is more economical to cultivate relationships with a few dealers and collectors who are likely to make multiple purchases.
In a nutshell: Give much thought to the reasons why you want to start an antiques business. Write down your conclusions. This becomes the purpose of your business.
Set goals and objectives that will help you fulfill the purpose of your business. Establish the rules and regulations that will govern the day-to-day operation of your business. One basic and unchanging rule in my business plan is if I cannot resell the item in 90 days for a profit, it is against the operational rules of my business to buy that item.
It does not matter how rare it is, how good it is, or how much I would like to own it. If it cannot be resold quickly for a profit, it is bad for my business. It is impossible to have a good business making purchases that are bad for business.
Review your business plan monthly, especially in the beginning. Make changes to any rule that is not working for you. Set new rules or change existing rules. A business plan is a living thing. It must be kept current. It must be fed new ideas.
I once had a $5 rule that applied to several of the collectibles that I buy. I would buy these collectibles if the price was $5 or less. Today it is my $65 rule. I will not buy one of these collectibles if its price is more than $65.
I have a six-step procedure that I follow before I raise the price that I will pay for any item. Following an established procedure prevents me from making on-the-spot snap decisions regarding purchase price. On-the-spot buying decisions regarding value tend to be emotionally based and are often wrong.
For cheap professional help and inexpensive sample business plans, search the internet for "antique dealer business plans."