how much cash should I have to open a gun shop

[Porterhouse]

Originally Posted by GoingQuiet

Don't forget that every gun dealer will never have 100% of what customers want 100% of the time. It is REMARKABLY difficult to keep cash flow in a good position and a variety of inventory. I keep a deep bench on many guns and I STILL run out of popular items regularly. I'm rotating all of my inventory on a dollar for dollar basis every 30 days, but I'm an exception rather than a rule.

50+ inventory turns a year is outstanding.

[brazosarms]

If you have $20,000 of inventory and you are able to sell all of it each month then that would be 12 turns per year. Typically you will have A items that are your bread and butter and your margin is low but they fly off the shelf. Then you have your B items which may sit on the shelf longer but you do sell them. Then C items which sit the longest and hence need more markup becacause they do not turn much but your customers expect you to have them. Then D items are those that have not moved in a year and you start writing them off on your taxes. The mix of items is critical to good inventory management.

[AJAX22]

Originally Posted by brazosarms

If you have $20,000 of inventory and you are able to sell all of it each month then that would be 12 turns per year. Typically you will have A items that are your bread and butter and your margin is low but they fly off the shelf. Then you have your B items which may sit on the shelf longer but you do sell them. Then C items which sit the longest and hence need more markup becacause they do not turn much but your customers expect you to have them. Then D items are those that have not moved in a year and you start writing them off on your taxes. The mix of items is critical to good inventory management.

20,000 in inventory with 12 turns per year is only good if you have low overhead and high margins...

Lets say you have an across the board markup of 20% (unrealistic but why not)

that means you'll clear 4,000 per month.

or 48k per year...

Or you would be... if you were only taking cash for purchases... if you take credit cards for 1/2 of the sales you make that will eat around 3% or so lets take $600 per month off for fees.

so, figure you're going to hand over $7,200 per year of your profits to the credit card processing company (once again... highly optimistic)

which will leave you with $40,800

Except that even if you're renting a total **** hole you're going to be spending 400 per month on rent, and 100 on phone/utilities (and thats optimistic)

so lets deduct a highly optimistic 6K from that...

leaving you with34.8K per year.

out of that 34.8K per year you have to cover advertisement (a website/hosting/radio ads etc) misc operating costs, legal fees, licencing, insurance, gas and entry fees for gunshows, and any other stuff you run across..

so lets be unrealistically optomistic and say that we only spend $800 per year on all of that.

So we squeek in under 34K per year, and are able to qualify for the 15% federal income tax bracket...

That's $5,100 you have to kick down to the feds...

leaving you with 28.9K

California is going to want $864 of that... which we can round up to $900 for ease...

So... 28K...

But guess what! you forgot that as a sole proprietor you're subject to social security and medicare tax as well 10.4% for Social Security and 2.9% WOOHOO

Thats another 3.7 K they are going to take out of your pocket with the promise of you getting it back 'someday'

So 24K or so per year

Now lets make the unrealistic assumption that you only work 5 days a week at your business and you only work 8 hours per day ()

that will leave you with 2,080 hours that you work each year to earn that 2,080

Which breaks down to a take home of approximately $11.54 per hour

To put it all in perspective... The amount they pay hobo trainees in LA to work at goodwill is $11.82 per hour

http://www.etp.ca.gov/packet/Goodwill%20130.pdf

Further, realize that any expansion to your business you do will come out of your earnings, decreasing the amount of available cash you have to play with.

So, IMHO even with monthly inventory turnover $20K in inventory is asking for a slow and painful burnout unless you have a night job and you're doing it because you love the business.

Can you do it on the cheap?

Sure, and lots of people do.

But it will be tough for a couple of years, you will be extremely veunerable to economic shifts and supply interruptions, and there is a better than 80% chance you will go under.

If you can't put your hands on 200K in investment capital, you probably shouldn't look to this as a career/source of income... and to be comfortable you should double that.

[POLICESTATE]

If I had enough cash to open up a gun store in California I'd move out and open up a business (selling guns or something else) in a state that is far more friendly to small business than California. That's just my opinion though.

[Table Rock Arms]

Doesn't matter what or where your business is, you basically have two options. you can either sell what everyone else does by the truckload or you can sell something either better or unique and charge more for it. Now, the latter is a slippery slope as you will always have to come up with new and better things to sell because if there is much of a market for your great product then it wont be long before everyone else is selling virtually the the same thing and there is always someone willing to do it for less that you.

Of course it really doesn't matter what you do or how much you make. If you really wanna do it, then do it. You only live once. most people don't even do that.

[Gunsmithing]

California is the best as there is more paper work and red tap.
This cuts down competes like your self and big box stores.
The biggest cost is your rent and general liability insurance. The insurance is for slip and fall in your store. Both you will have in other states.
It is how you look at having a shop in California. This state has the good, the bad and the ugly.

There is over 34,000,000 in California most over 21.I Look at wyoming population 515,000 with 600 holding FFL of all types. I look at Fresno City CA population 500,000 less than 10 gunshops. This give a better customer base in California with the red tape.


Dave

Originally Posted by POLICESTATE

If I had enough cash to open up a gun store in California I'd move out and open up a business (selling guns or something else) in a state that is far more friendly to small business than California. That's just my opinion though.

[FortCourageArmory]

I opened my shop in 2007. I had a $250K line of credit plus about $100K in personal assets available to use to open the store. I used the LOC to make the store code-worthy, purchase product and equipment. I built my own display racks and what I couldn't build I bought from another shop going out of business. The personal assets I have been using as working capital to keep the circus running.

I made choices about what to carry and what kinds of business I would be willing to do. I immediately got into the black rifles since they are hugely popular. I accept out-of-state transfers and charge less than my competition. I do alot of these transfers. Thats' just free money. I take guns in to sell on consignment (80/20 split). That means I get a gun for nothing to show on my shelf that doesn't cost me anything and nets me 20% when it does sell. When a customer comes in with a specific need or want, I order the gun while they wait to get it to us ASAP. Also on those special orders, I collect the full amount up front so the money to pay the wholesaler is in my pocket when I order it.

To the guy that gets between 2% and 6% on his sales......how in the hell do you stay in business? Those are ridiculously low margins to live on. Rule #1 is you got to make a profit or you should file your paperwork as a non-profit organization.

Costs or rent etc. I pay about $1.89 per sq ft on 1,750 sq feet of space. My utilities for phones, internet, alarm system, and electricity add up to about $600 a month. My total insurance costs are about $1,800 a year through the NRA. They are the best to go through, BTW.

I'm not going to give out my profit margins. Those aren't anyone's business but mine, my wife's and our accountant. But, I will say that I do not usually charge full MSRP on my products. There are always exceptions but since as a consumer I hated paying MSPR, I feel my customers will appreciate not paying full MSRP either.

Anything else?

[THT]

Originally Posted by FortCourageArmory

I opened my shop in 2007. I had a $250K line of credit plus about $100K in personal assets available to use to open the store. I used the LOC to make the store code-worthy, purchase product and equipment. I built my own display racks and what I couldn't build I bought from another shop going out of business. The personal assets I have been using as working capital to keep the circus running.

I made choices about what to carry and what kinds of business I would be willing to do. I immediately got into the black rifles since they are hugely popular. I accept out-of-state transfers and charge less than my competition. I do alot of these transfers. Thats' just free money. I take guns in to sell on consignment (80/20 split). That means I get a gun for nothing to show on my shelf that doesn't cost me anything and nets me 20% when it does sell. When a customer comes in with a specific need or want, I order the gun while they wait to get it to us ASAP. Also on those special orders, I collect the full amount up front so the money to pay the wholesaler is in my pocket when I order it.

To the guy that gets between 2% and 6% on his sales......how in the hell do you stay in business? Those are ridiculously low margins to live on. Rule #1 is you got to make a profit or you should file your paperwork as a non-profit organization.

Costs or rent etc. I pay about $1.89 per sq ft on 1,750 sq feet of space. My utilities for phones, internet, alarm system, and electricity add up to about $600 a month. My total insurance costs are about $1,800 a year through the NRA. They are the best to go through, BTW.

I'm not going to give out my profit margins. Those aren't anyone's business but mine, my wife's and our accountant. But, I will say that I do not usually charge full MSRP on my products. There are always exceptions but since as a consumer I hated paying MSPR, I feel my customers will appreciate not paying full MSRP either.

Anything else?

FINALLY! Another FFL who agrees with me!

Transfers are GREAT, in my opinion. I don't have to stock the item and I get paid $15-$25 (long guns: $15, handguns: $20, NFA: $25) for about five minutes of my time and space in my safe. No overhead, no cost of inventory, just good ol' cash money.

[GoingQuiet]

Originally Posted by FortCourageArmory

I opened my shop in 2007. I had a $250K line of credit plus about $100K in personal assets available to use to open the store. I used the LOC to make the store code-worthy, purchase product and equipment. I built my own display racks and what I couldn't build I bought from another shop going out of business. The personal assets I have been using as working capital to keep the circus running.

I made choices about what to carry and what kinds of business I would be willing to do. I immediately got into the black rifles since they are hugely popular. I accept out-of-state transfers and charge less than my competition. I do alot of these transfers. Thats' just free money. I take guns in to sell on consignment (80/20 split). That means I get a gun for nothing to show on my shelf that doesn't cost me anything and nets me 20% when it does sell. When a customer comes in with a specific need or want, I order the gun while they wait to get it to us ASAP. Also on those special orders, I collect the full amount up front so the money to pay the wholesaler is in my pocket when I order it.

To the guy that gets between 2% and 6% on his sales......how in the hell do you stay in business? Those are ridiculously low margins to live on. Rule #1 is you got to make a profit or you should file your paperwork as a non-profit organization.

Costs or rent etc. I pay about $1.89 per sq ft on 1,750 sq feet of space. My utilities for phones, internet, alarm system, and electricity add up to about $600 a month. My total insurance costs are about $1,800 a year through the NRA. They are the best to go through, BTW.

I'm not going to give out my profit margins. Those aren't anyone's business but mine, my wife's and our accountant. But, I will say that I do not usually charge full MSRP on my products. There are always exceptions but since as a consumer I hated paying MSPR, I feel my customers will appreciate not paying full MSRP either.

Anything else?

I have low overhead, thats how I can do what my competition is unable to do.

Just driving back from the post office today I noticed that a new gun dealer / cell phone repair place had closed up after about 5 months in business. His overhead was just way too high for what he was doing.

[Porterhouse]

Originally Posted by GoingQuiet

I have low overhead, thats how I can do what my competition is unable to do.

Just driving back from the post office today I noticed that a new gun dealer / cell phone repair place had closed up after about 5 months in business. His overhead was just way too high for what he was doing.

Impossible. You claim to have a 4% "working margin." I ask if that's your net profit margin and you say no, it's your GROSS MARGIN. Gross and net margin have very specific meanings in cost accounting.

In a sales-only environment, your gross margin would simply be the price you sold something for minus all direct costs associated with purchasing said item. In other words the purchase price, freight and any fees for the most part.

From there that sale must absorb its share of OH -- rent, insurance, utilities, wages, interest, advertising, expected PROFIT etc. to get to the net profit margin. I know of no business that operates with a 4% OH rate as a percentage of sales.

If you are actually selling something for $520.00 that costs you $500.00 (less OH) then I am amazed you are still in business.

[AJAX22]

I believe he mention opm

[Table Rock Arms]

Originally Posted by Porterhouse

Impossible. You claim to have a 4% "working margin." I ask if that's your net profit margin and you say no, it's your GROSS MARGIN. Gross and net margin have very specific meanings in cost accounting.

In a sales-only environment, your gross margin would simply be the price you sold something for minus all direct costs associated with purchasing said item. In other words the purchase price, freight and any fees for the most part.

From there that sale must absorb its share of OH -- rent, insurance, utilities, wages, interest, advertising, expected PROFIT etc. to get to the net profit margin. I know of no business that operates with a 4% OH rate as a percentage of sales.

If you are actually selling something for $520.00 that costs you $500.00 (less OH) then I am amazed you are still in business.

There are more than a few online gun dealers doing exactly that.

[THT]

Originally Posted by RLW

There are more than a few online gun dealers doing exactly that.

Yep, case in point: Bud's. Or there's M3 in the NFA world. It's the Walmart business model.

[Gunsmithing]

Try it at least 25% "working margin on most firearms that has been email to me.

If you are actually selling something for $520.00 that costs you $390.00
Parts for gunsmith I lucky to get 10% I have charge for shipping on all parts their is no margin. If you buy part for $50.00 and cost you $45.00 and the shipping is $5.00 you are giving the part for free. Some even have less than 10% only one that I have found has some parts over 10%.

They are most likely talke about after overhead is deducted the profit 4%.

Here one way to look at this

1. your selling 2 guns a day for $800.00 ea. you are open 5 days a week at the end of the month gross sale are $33,600.00 gross profit is $8,400.00
2. Cost in rent is $2,40.00 per month
3. insurance is $200.00
4. Labor cost is $1,680.00
5. utility's $800.00
6. Your labor cost $2,000.00
7. Licenses and other fees $100.00
=============================
Total cost of shop is $7,180.00 Per month
Total gross profit is $8,400.00
===============================
Net profit is $1,220.00 This is very cost to the 4% or $1,344.00

But on the other hand you add your labor to the net profit total is ($3,220.00)

This more to do with how you look at profit.

The best is if you and your wife is working the shop The gross take home is ($4,900.00 per month or $58,800.00 per year) Cut some of the overhead and this goes up.


FYI I do know I do not show all the small items just the big items.

Dave



QUOTE=RLW;5847029]There are more than a few online gun dealers doing exactly that.

Originally Posted by Porterhouse
Impossible. You claim to have a 4% "working margin." [/QUOTE]

[GoingQuiet]

Originally Posted by Porterhouse

Impossible. You claim to have a 4% "working margin." I ask if that's your net profit margin and you say no, it's your GROSS MARGIN. Gross and net margin have very specific meanings in cost accounting.

In a sales-only environment, your gross margin would simply be the price you sold something for minus all direct costs associated with purchasing said item. In other words the purchase price, freight and any fees for the most part.

From there that sale must absorb its share of OH -- rent, insurance, utilities, wages, interest, advertising, expected PROFIT etc. to get to the net profit margin. I know of no business that operates with a 4% OH rate as a percentage of sales.

If you are actually selling something for $520.00 that costs you $500.00 (less OH) then I am amazed you are still in business.

Ask any of my satisfied calguns customers - in many cases I'm cheaper than buds. I've been amazing plenty of people for a very long time and I make it work.

FWIW - in business and in other things I've had my fair share of people who have said that what I'm proposing is impossible and I've gone and done it. With low overhead, good terms with vendors, I'm able to work with those figures and keep the doors open just fine.

Originally Posted by THT

Yep, case in point: Bud's. Or there's M3 in the NFA world. It's the Walmart business model.

Exactly. I'm competitive with M3 on many items and I've talked with him and we both share the same world view. There is plenty of business to be had for everyone. My lower overhead lets me pass better pricing along. In 2010, I got my license in July. I hit my sales goal for the year in November. In 2011 - I did the same amount of sales from July 2010 to November 2010 from the first of this year to yesterday.

Call it what you will - but a small percentage of a big number is still a big number.

[Table Rock Arms]

Originally Posted by THT

Yep, case in point: Bud's. Or there's M3 in the NFA world. It's the Walmart business model.

Don't kid yourself, M3 is marking up a much higher % than some of the title 1 dealers online.