Thinking of opening a guitar business?
So are these guys. See if their thinking aligns with yours –
I just got off the phone. Had a very interesting conversation with a couple of fellows who intend to open a retail guitar sales and service store several miles north of me. They had questions and wanted advice.
Great! Glad to help.
The next thing out of their mouths was that they intended to borrow thirty-thousand dollars from the bank to open a brick-and-mortar retail store.
I asked if they were going to do sales of new or used guitars and if they were going to offer service.
“Yes. Sales and service.” “And parts too” chimed one, then quickly asked me where I get my parts and whether they could buy parts from me.
Some background – there had been a retail music store that specialized in guitar sales and service and also offered lessons, in this town. They went out of business about a year ago.
These guys couldn’t seem to explain how they intended to run a profitable business while the previous business died after a few years.
Hint: A strong competitor just north of there and another just south, could be the reason!
I asked how they came up with the thirty-thousand dollar figure and how they intended to spend it. It seems they hadn’t given much thought to that but that they were headed to the bank in the morning.
I explained that it would be a good idea to have a business plan in hand when they visited their banker and that they may not have time to come up with a good plan so late in the afternoon, if they hadn’t given it any thought.
Then I told them that cash flow is a new business’s biggest issue and that having such large debt before establishing any income was a huge risk.
I recommended starting out of one of their houses or renting an airconditioned warehouse shop, which would be much cheaper than a retail location.
“Oh no! Location, location, location!” replied the loudest fellow.
While that mantra is generally true for competitive businesses, it doesn’t apply to specialized services that are hard to find.
There is no guitar shop, service or parts within fifteen minutes of that town. I work out of my home, and I have competitors within minutes of my house. I have two huge competitors – Sam Ash and Guitar Center just twenty minutes away. Yet, I have all the business I can handle without any advertising. Why? Because people can’t get the level of expertise they want for their guitar service anywhere else.
Nor can they buy used guitars that are expertly setup and carefully checked out and warrantied anywhere else.
So what happens if I open a retail store? My expenses will sky rocket –
- Rent: $2000+/mo
- Phone & Internet: $150/mo
- Electricity: $200/mo
- Water, sewer, trash: $200/mo
- Insurance: $100/mo
Total: $2650/mo
Let’s say I work twenty-six days a month. The first hundred dollars of each day goes to overhead.
I haven’t touched startup costs yet –
- Deposits: $2000+
- Sign: $1500+
- Counter tops & display cases: $3000
- Furniture: $3000
- Workshop fixtures: $1500
- Licenses: $500
Total: $11,500
Those startup costs are on top of the costs I’m going to have if I run the business from my home –
- Tools: ???
- Supplies: ???
- Advertising: ???
- Website: ???
- Etc.
Once you rent a brick and mortar location, the clock is running. It’s actually more like an hour glass but filled with dollars instead of sand. Those dollars are dropping out of your bank day by day as rent, utilities, and other monthly expenses mount.
It’s easy to get excited with the idea of starting your own business. And it can be a really great lifestyle – being your own boss and helping customers your way.
But dollars don’t start pouring in just because you’ve opened your new business. In fact, they start pouring out!
Running a business from home, those expenses are a mere trickle. Running it from a warehouse type location will incur a moderate stream of expenses. But running from a retail location will have those dollars pouring out fast!
True, a good retail location may bring some business just from passing traffic, but probably not more than a cheap ad on Craigslist. I sell a couple guitars each month and get plenty of service work just from my website. My Facebook page brings in work also.
So what would I advise?
Income: Don’t quit your day job just yet!
Location: Start from home. Convert a bedroom (preferably the master bedroom) into your shop.
Time: Use this time to build your reputation and your clientele. Use it to build your tool and parts inventory. Use it to build your experience and expertise.
When you just can’t keep up with job and business any longer, yet the business is bringing enough to prevent starvation and eviction, THEN quit your job and never look back.
Never borrow money for your new business. Business can be fickle. You’ll have good months and you’ll have bad months. Miss just one payment on a bad month and you’ve dinged your credit rating.
Sometimes good deals come up that may be tempting. Maybe an estate sale with instruments you could buy for thirty thousand dollars and resell for eighty thou.
Those instruments may take many months to sell, but those payments will be due every single month!
Guitars are a business that provides positive cash flow, so be patient. There will be more good deals when you have the cash to digest them without endangering your business.
As for the fellows who called me, it soon became evident that they were ingesting something other than coffee! When they abruptly and gruffly turned the topic to politics, I wished them well and hung up.
I’ll keep an eye on things, though. There’ll likely be a new business going belly-up in half a year or so, and there might be some good guitar deals to be had!
Recent Comments