By Ed Benjamin

Questions to consider before buying or starting a bicycle store…

By answering these, you will create a list of concerns, information, and goals that you can use to start your business plan.

Goals and Lifestyle:

1. What are your personal, long, and short term goals? Describe them in both lifestyle and dollar terms.

2. How long will the contemplated business serve these goals?

3. What is unique about you or your situation that will enable you to be successful in this business?

4. How much money do you have to invest?

5. What would be the consequences of losing that money?

6. What about this business would make it attractive to other investors?

7. What return do you expect?

8. What return do you think your investors (if any) will expect?

9. Where is your expertise?

10. What do you like to do the most?

11. What do you like to do the least?

12. In what areas do you need other’s expertise?

13. Are you willing to work longer, harder hours?

14. Are you willing to work on weekends?

15. Are you wining to forgo vacations, or time off, perhaps for years?

16. How will longer harder hours, and few holidays affect your family or other relationships?

17. Who will help you?

18. How will you feel if your business is not successful?

19. What will you do, if your business is not successful?

Research:

1. What is the population within a 15-minute drive?

2. What is the income, and age demographics of that population?

3. What sort of bicycle facilities such as bicycle paths, BMX tracks, etc. exist?

4. What is the economic base of the community?

5. How many bike shops exist in the area?

6. How well are they doing?

7. How big is the local bicycle club?

8. Is there racing in the area?

9. Is there a local triathlon(s) every year?

10. How rapidly is the community growing (or not)?

11. What bicycle brands are represented by local shops already?

12. What brands are not represented?

13. Have you compiled an analysis of each bike shop? (including years in business, size of the store, number of employees, the volume of sales)

14. Have you talked to the local reps for any of the bike lines?

15. Have you considered franchising?

16. Have you considered buying an existing store?

17. Have you talked to the staff of existing stores?

18. Have you considered hiring any of them?

19. Check the yellow pages, add to these information clippings of newspaper ads, Google search ads, and notes about any other advertising the other bike shops are doing. What conclusions have you come to about advertising in this market?

20. Have you subscribed to the bicycle trade magazines?

21. What trade shows have you attended?

22. Have you acquired the NBDA studies on the bike business?

23. Have you investigated banks, do you have a potential line of credit arranged?

24. Do you qualify for any Federal or State assistance programs?

25. Have you investigated SBA loans?

26. Have you talked to merchants in similar businesses, in the local community, about their business experiences?

27. Do you have a mentor(s) that can help you with the bike business?

28. Do you have a CPA and a lawyer that you are comfortable with, and who have successfully worked with other small merchants for many years?

29. Do you have an insurance agent and advertising agency (or consultant) that you are comfortable with, and have successfully worked with other small merchants for many years?

30. What market share do you think existing shops have?

31. Have you made a list of every place that sells bikes in the area? (include grocery stores, sporting goods, bike shops, hardware stores, used bicycle outlets, everything)

32. What complaints do local cyclists have about existing stores?

33. Is any local store participating in the Catalyst Super Sale?

34. Is any local store participating in the Catalyst Cycling Guide?

35. Are any local stores parts of Bike Line or Performance??

Planning:

1. Have you defined your business in 50 words or less?

2. What will you name your business?

3. Are you convinced that business planning is an absolute necessity?

4. Have you made a financial plan that defines the capital you will need, projects your sales, and projects your profits?

5. Do you have a computer? Are you competent with spreadsheets?

6. What business structure do you plan to use?

7. Have you prepared your current financial statements?

8. What is your current personal credit rating?

9. Do you have substantial personal assets to collateralize loans to the business?

10. What is your marketing plan?

11. What is your mission statement?

12. What trends in this business are forecast for the nation?

13. What plans do you have to acquire additional training for yourself?

14. How will you train your staff?

15. What vulnerabilities do you think you will have? What are your plans to deal with them?

16. Are there plans by local or state governments that will affect your business? (example: widening a road in front of the site)

17. What is happening with the increase or decrease in supp1iers to the bike business?

18. How do you expect to exit this business? (sell it, liquidate it, die, etc.)

19. Have you investigated possible alternative locations?

20. Describe the basic lease terms offered or purchase price?

21. Have you talked to merchants who rent from this landlord, or are in the same immediate area about their experiences?

22. What marketing position do you expect to occupy?

Now take the information that you have accumulated by answering these questions and:

1. Describe the present situation of yourself and the market you want to enter.

2. Describe your objectives in starting this business, and how you will know if you reach them.

3. Describe the management team and organization you will create.

4. Describe the products you will offer, both merchandise and service.

5. Describe what equipment and facilities you will need

6. Analyze and describe the market.

7. Describe your marketing strategy.

8. Using a spreadsheet, create cash flow projections for five years.

9. Review all of the above, and write an executive summary.

WARNING

There are a lot of people, including myself, who would tell you that the bike business has been good to them. The vendors, the dealers, and the customers are better than an average bunch. They love what they do, they are healthy and pleasant. A well-run bike shop can make money, and while no one ever got rich, a lot of dealers have been very comfortable.

But, this is a flat out warning. Going into business is dangerous to your lifestyle, your net worth, your relationships with family and friends, and to your peace of mind.

If I seem to overstate this, it is because I believe that I am doing you a favor by giving you simple honest advice that being an Independent Bicycle Dealer is not for everyone. And it may not be for you.

Before entering into a business, you should contemplate the following:

You are probably in a pretty good situation right now. You probably have adequate income, and you probably enjoy your life and the relationships you have around you. By starting a business, you may alter the fabric of your life so much that you will lose all the friends you have, and be taken over by the interests of your business to such a degree that you (and others) will find your life monotonous or stressful to an unpleasant degree. You may make money, but you may also lose everything you have, and wind up bankrupt or with crushing debts.

You do not have to start a business, it is a choice. If you choose not to start a business, that may be the better of the two decisions.

You must believe this to the point where if the plan does not shape out to meet your goals, you will drop the business idea, and smile while you do so.

People who find problems in the planning stages and go ahead anyway are usually doomed to failure. By telling yourself it is OK to not start the business, you make your chances of a successful business much more likely.

Once upon a tune, a friend came to me and said, “Ed! I need your help.” When asked what was the matter, he replied: “I bought this bike shop, and now I have to start work long before starting time, and I have to stay long after quitting time, and I have to work weekends, and now my wife has to help me!”

“So?” I inquired.

“And I’m not making any money,” he complained.

“Welcome to being self-employed,” I replied.

Want more?

Get some one-on-one time with a successful shop owner! Our P2 Consult program is perfect for people just getting started. We’ve partnered with David DeKeyser, author of the Positive Spin series on Bicycle Retailer and Industry News, to provide you with personalized business coaching that is relevant and specific to the bicycle retail industry.

The post Business Planning appeared first on National Bicycle Dealers Association.

1. Know Your Market

When considering how to start a bike shop, having a solid understanding of your marketplace and its potential and limitations will go a long way towards success. You want to play in your area’s strengths. Having great Rail-to-Trails or world-class mountain biking, for example, will go a long way towards getting things right in your inventory selections, store model, and what will work in your area. Ideally, you will have some type of riding that is good near you, as bike paths, mountain bike trails, or scenic low traffic roads all will be of help – all three? You’re in luck!

2. Securing Funding & Writing a Business Plan

Obtaining a primary source of funding is a critical part of how to start a bike shop successfully and get your bike store off the ground. If you have personal resources, good for you, but you will still need a good plan and you will want to put a limit on what you’re willing to inject.

If you need to obtain a bank loan, you will need to write a detailed business plan with at least three years of projections amongst a host of other information you can find on the SBA’s website.

Do not become complacent if you do not need a loan; consider going through the process to make sure your plan is sound first. You will need enough cash to secure an initial inventory buy, lease payments, store buildout, insurance, workshop buildout, and a variety of other expenses that will add up quickly.

Going through the process of getting a loan and securing a line of credit will do two important things.

• First, you will be vetted by a financial institution and have some very seasoned eyes looking at your projections. This effort will help you understand more about what is required from a business knowledge standpoint and get you accustomed to reading financials.
• Second, having some funding is always helpful, and having a line of credit can go a long way towards smoothing out bumps in the road. It is also imperative to develop a relationship with your bank. In times of crisis such as the COVID-19 pandemic, retailers with easy access to their bankers and associations already built seemed to fare better navigating the stimulus-money waters. It is never a bad thing to have a banker in your corner should you need one. One of the primary sources of credit bike shops use daily is through their vendors. Most bicycle brands will establish a line of credit for you to buy a product and pay for it later. You have to be very careful with this line of credit as it is easy to get in over your head quickly, especially with long-term dating that can sometimes be ten or more months down the road. Buying large quantities of inventory on credit terms that you initially feel you will have no problem selling can be a big surprise come Spring. Being in “credit jail” and unable to buy due to poor planning is a widespread scenario in the bike business.

3. Building a Team of Experts

• Bank – Choose your bank wisely. Make sure they are good at working with small businesses and have the experience to guide you. Get some referrals from other small businesses and ask around. The difference when you need help fast is critical.
• Accountant – Perhaps there is no other person on your team that can be of more help or hindrance than your accountant. Again, shop around and find the right fit. Many retailers look to their accountants like they would their doctors and never second guess the information. Ask lots of questions and set expectations. If you use QuickBooks, I would suggest you have a QB Pro Advisor you can utilize. They can help you with day to day accounting and bookkeeping questions to keep you on track.
• Bookkeeper – Many shops have a bookkeeper. I would suggest that the person is doing your books to be a very trusted person. The best description of that person is you! If you have your QuickBooks set up well, you can get advice and help quickly from an advisor. The average shop owner can probably do the books in as little as 10 hours a week, maybe even less. I know that sounds impossible, but the knowledge one gains by doing the bookkeeping in a timely and accurate manner cannot be overstated. No one cares as much as you, and the information is not as relevant to anyone but you. 
• Attorney – Having an attorney that you can use when needed is essential. Don’t be scared by the expense as you will hopefully be using them very little. An attorney that specializes in business and has experience in mergers and acquisitions is critical. Never sign a lease without an attorney’s review. 
• Insurance Agency – Another critical piece of the puzzle. A great insurance agent is a treasured member of your team. Having an agent who understands the exceptional circumstances and nuances of the bike industry is crucial, and the NBDA has long recommended Scott Chapin from the Marsh and McLennan agency. Scott Chapin writes, “In a nutshell, we created a bike shop insurance program 12 years ago as virtually every insurance carrier excluded many of the common exposures that retailers have. These include Shop Sponsored Ride Liability, Bike Rental Liability, Voluntary Property Departure. Our coverages continue to evolve as the bicycle industry changes, whether it is covering e-bike sales/service, mobile repair, demo days, and beer/wine/food sales.” As you can see, they have thought of things the average insurance agent may not be familiar with in your business.
• Business mentor(s) – This is an overlooked aspect of running a small business. Join the local Chamber of Commerce or some other local small business group. Get to know the owners of other bike shops, as many as you can. Join the NBDA’s Profitability Project to gain insights into what other successful owners are doing. The bottom line is building a network of folks you can bounce things off and whose opinions you can trust.

4. Finding a Location

When considering how to start a bike shop, finding a location will be one of the hardest of your initial decisions. It takes into consideration your projected sales from your business plan projections and market analysis.

• You want the store to be big enough to handle your projected sales, while not becoming a burden by overshooting those projections. Use guidelines such as how many dollars per square foot, you need to sell to have your rent or mortgage fit within the key performance indicators for occupancy expenses.
• You also want to be in a great location if you can while simultaneously being affordable. (You can see where there are a lot of moving targets in location considerations!)
• You must also be flexible with the expectations of your store’s size, particularly in areas with high rental rates. You may need to be smaller than the ideal retail location and utilize off-site storage to keep your lease rate within the parameters you identified while writing your business plan.

5. What Products Will You be Selling?

Your leading bike brand(s) will determine much about your business. Choose them very wisely.

• While some of the biggest brands have excellent visibility and consumer pull, they also have more significant requirements for inventory purchases. They may not afford the best margins should you be in a low-buying tier.
• Small to midsize brands can be a great way to get started with lower demands and higher margins.
• You also want to carefully examine the market saturation or lack of the products you choose. Some brands are cautious with distribution, and others are looser.
• You don’t want to be selling the same things as others if there’s a chance of price wars.
• Your chosen products must also fit with your market’s needs. Choosing popular high-end mountain bike brands for your store near a bike path will not work well.
• There are also regionally strong brands that you should look investigate.
• Last, for any brand you are looking at, you should contact other dealers out of the area to discuss availability issues, warranty handling, etc., so there are no unpleasant surprises.

6. Hiring Employees

Hiring employees is a tricky balance. While having reliable and skilled mechanics is critical, other staff may be more comfortable to train the way you would like. There’s an old saying about hiring for enthusiasm, and that most people are trainable. An inexperienced person with an interest in cycling and energy and a natural ability to interact may be cheaper to hire due to a lack of experience and maybe a better employee.

Payroll will be your single most significant expense, so spend those dollars wisely. When you first start, you may be putting in all the hours yourself as you build your business, so be prepared for some very long hours.

“Always treat the business you are building as an asset.”

Average Expenses for Specialty Bicycle Retailers

(From NBDA Cost of Doing Business Survey, expressed as a percentage of gross annual sales)

Payroll Expenses — 20.5%

Occupancy Expenses — 7.7%

Advertising/Promotion — 3.%

Auto and Delivery — 0.5%

Depreciation — 0.9%

Insurance — 0.8%

Licenses/Other Taxes — 0.5%

Professional Services — 0.5%

Office Supplies/Postage — 1.2%

Telephone — 0.6%

Travel/Entertainment — 0.4%

Other operating expenses— 1.3%

TOTAL OPERATING EXPENSES — 37.7%

NET INCOME BEFORE TAX — 4.2%

GROSS MARGIN ON BICYCLE SALES — 36%

GROSS MARGIN ON CLOTHING SALES — 43%

GROSS MARGIN OTHER EQUPT. — 48.1%

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