Presenting this to your bank? My recommendation as a business (bike shop) owner is don't borrow any money to start the business, and be sure you have a substantial surplus of cash for the first year(s) when the business bleeds money. It is critical that you maintain absolute minimal debt on the balance sheet- not to attract creditors, but to maintain a powerful cash position. It is the difference between Microsoft and Walmart, who both have substantial cash reserves, and K-Mart or a software company that can't make payroll. Horde your cash. Avoid loans and credit. Even though the industry actually presents obstacles to cash customers the true financial health of your business is founded on one thing: Money. You need lots of it. Don't borrow it.

Tom Demerly's three rules for wealth building and maintenance:

1. Never borrow money (or use credit).
2. Never lend money.
3. Never spend YOUR money to make money (spend your customer's money).

Simple. Good luck.

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Tom Demerly
The Tri Shop.com

There is a bike shop in my town that doesn't sell bikes. Soft goods and repairs only. I've known the owner when he sold bikes years ago. He claims that his profit margain is actually higher and his take home hasn't suffered. he is much less grumpy as well. Just a thought.
I know how you feel with everybody bringing bikes over. I have 4 in my house right now. 4 bikes @ 6 packper bike = a case of beer. my kind of income!

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Brian Stover USAT LII
Accelerate3 Coaching
Insta

Tom,

Thanks for the prompt reply (Ditto Desert Dude) I plan on borrowing as little as possible if any. My wife and I went through the brand new start up with a video and tanning salon with very little debt, which was our equity in the house, and paid it back in 3 years.

OK, cash only, my dinero, any rough guesstimates on start up costs for the initial inventory, who to go through, etc. I also assume that manufacturers are going to require a certain amount of product be purchased for display and sale as well.

I appreciate the info, the start of the new business is an exciting adventure but the trail is smoother when you step where others have tread.

Steve

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Trisporter

"Do what needs to be done now. What you want to do later!"

Steve,

I wish you the very best of luck but I recommend that you think long and hard before opening the shop. They take a lot of work and it is hard for an Owner to eke out a living wage. I read in a recent BRAIN that 250 shops went out of business in the first 6 months of this year.

That said, your best bet is to go with vendors that don't require substantial pre-orders. Generally that is the smaller vendors like Fuji, KHS, Jamis, etc. Cervelo is also pretty good about this, but keep in mind that they are always behind in delivery. Brands to avoid would be Cannondale, Trek, Litespeed/QR, etc. Not only do the big guys require substantial pre-orders, their bikes also cost you a lot more which will tie up your cash.

Assuming you want to run a conventional shop, keep in mind that most of your profits will come from service, repairs, and selling lots of $300 mountain bikes. I wouldn't recommend a triathlon-only shop as that market is pretty much saturated right now.

And most of all, listen to Mr. Demerly. I'm always impressed by the guys who have "made it". It is a very tough business. Good luck!

Many will argue that for a business model to function as efficiently as possible, a level of gearing (debt) is desirable.

Microsoft did not start with billions of dollars of cash. I'll guarantee you that if you go and have a look at their early balance sheets you'll see some ST and LT loans. It's only from utilising the gearing offered (by banks, friends, suppliers etc) that they built up such a huge cash pile and paid down their debt. This is looking at things at a very simple level. When analysts look at companyies, a lack of debt suggests inefficiencies and may raise questions regarding the management team.

Go speak to your bank, they probably know more about running a business than you do. And if they don't, you won't have lost anything and may be able to steal some of their ideas.

Tom's approach could be right for you but you'd need to ask him how well his rules for wealth creation and preservation are working out in a few years time.

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"Language most shows a man: Speak, that I may see thee. It springs out of the most retired and inmost parts of us, and is the image of the parents of it, the mind. No glass so mirrors a man's form or likeness so true as his speech." - Ben Jonson, Timber, or Discoveries made upon Men and Matter.

Here's one thing to consider. I was talking to one of the co-owners at the LBS who is trying to sell his half. I asked him why and he responded that since he's been in the business he just doesn't get the time to ride as much as he used to.

I'v seen the same phenomena with scuba diving. I've known fanatical scuba divers that have decided to become instructors, start a dive boat charter business or openned up a dive shop. All of a sudden they're not diving as much anymore because they're too busy instructing students or looking after customers.

Not saying not to do it, but do realize that once anything becomes a full time job, most people seem to enjoy it less.

1. Write a business plan. Identify your risk factors. Do demographic research. Be honest. This information will be invaluable in determining the potential revenue of your business, thereby giving you an idea of whether or not your business model will provide the income you need to cover costs and provide you and your employees with a reasonable salary. If you're uncomfortable with writing a business plan, look for help from a start-up consultant (don't think that using a $60 software program that contains boilerplate plans will help you). It's far easier and cheaper to fix problems on paper, before they present themselves in your store. In case you couldn't guess, I write business plans for start-ups for a living.
2. Read. Check out Built to Last, Good to Great, and Leadership and Self-Deception - The three best business books related to start-ups that I've read.
3. Remember that cashflow is king.

TriSporter,

I'm in the process of opening up a run/walk/swim/tri shop in Brooklyn. (As soon as I have an opening date, I'll announce it here.) Since you've already started your video store and tanning salon, you already know that the sheer number of details that you have to deal with is immense. You've probably figured out that a cycling shop is a lot more capital intensive than a tanning salon or video store -- my shop is going to require several hundred thousand dollars in startup and operating capital, and my inventory cost is probably lower than yours.

The best way to get a handle on all those details -- especially how much capital you'll need -- is to write a long, well thought out business plan. That will help you decide if you can do it, and if it's really worth it. It'll also give you immense credibility with vendors who get calls all the time from people who want to sell bikes -- it will show that you've really thought out the details and are confident that you can make it work.

Start with documenting exactly who is your target market. Geographically, who can you attract and where is the best location for you to attract them? Demographically, what ages, cultures, sexes, and income levels are you trying to appeal to? You should be able to list the expected customer breakdown demographically, and tie a number to each demographic based on how many in that demo you can attract and how much you think they'll spend. Are those numbers going to be accurate? No. But it'll force you to think through exactly who you're appealing to and exactly how much revenue you can realistically expect. Realistically, how many triathletes are there in your area who will buy $4000 tri bikes? Or Cat 4+ racers who will spend $1000 or more on a road bike? How many teenagers are there who will buy a $300-$600 sport-utility bike? Where do they all shop now and why would they buy from you?

Once you know all that, you should be able to figure out what your ideal product mix is. Are you going to end up selling a lot of $500 bikes or even $200 bikes, or should you focus on the $2000 and above market? Probably a mix of both, right? Your demographic list will tell you what that mix is. That will lead you to a list of suppliers you need to work with, and some guesses about the quantity of product you'd sell each week/month/year from each.

Besides bikes, what else are you going to have in the store? Services? Gear? Any Tri stuff? Any kids stuff? Mtn bikes? You need an office, a back room, space for inventory, shipping/receiving, etc. I used a copy of Visio to lay out exactly where everything would be and exactly how much space I'd need to achieve my model. You can do the same to get an estimate of how much sq footage you need, and your construction costs. A real estate agent will help you guesstimate your rent and closing fees.

OK, so now you have some idea where, some idea how much space, some idea of your demographic, and some idea of your product mix. Start to put together a startup budget: what do you need to spend to get open? Realtor fees, rent security, legal, insurance, construction, permits, computers & software, phone system, etc, etc, etc. Lay it all out and come up with a number. Then put together an operating budget. Call the vendors and find out what you should expect for gross margins on the bikes once you're up and running. See if the vendors can help you estimate volume of sales. (They won't volunteer any numbers, but bounce some ideas off them and see if they think you're nuts.) Multiply volume by GM to get operating profit. Subtract payroll, rent, insurance, utilities, advertising, etc etc etc and see if the number at the bottom is greater than zero.

If you do realistic monthly projections for 2 years, including the variations in business between winter & summer, you'll be able to decide: does this make any money? Does this make back the money I invest in starting it? How much capital cushion do I need to make sure I stay in business? If you want to get really detailed, do balance sheet projections and cashflow projections. I think you'll see that for a reasonable sized shop you're going to need upwards of $250k, and you won't make it back for at least 2 years.

Once you've done all that work, and you're still convinced that you want to make a go of it, make sure you put it into a well organized document that shows your vendors, bank, investors, whomever, that you've really thought this out. I've been able to get approval from all the vendors I'm trying to sign up just on the strength of the business plan -- because I've convinced them that I've got a handle on the details, so I'm more likely to succeed than some schmoe who wants to sell shoes.

In terms of financing, I both agree and disagree with Tom. I'm borrowing using a home equity loan. At 4.25% before taxes and 3.something% after taxes, it makes a lot more sense to borrow than it does to spend my own money. However, I'm keeping a fairly substantial chunk of my own cash around in case interest rates skyrocket and the interest cost starts affecting me dramatically. I think that ideally the asset:debt ratio should be at least 2:1. But to Tom's point, you're paying someone to use their money. If you have your own money, you should have a very good reason why you'd want to pay for someone else's. Same thing goes for rent, by the way -- you're paying the landlord for the use of their capital in the form of a building/space. Better if you can own, especially with today's interest rates, but you have to come up with the down payment which can be a considerable chunk of your operating capital.

Good luck!

This is what I would do. (Well, I guess this is what I did do...I own a health food store) I would get a job at a bike shop first. I'll bet you could work at one for 6 months and not only see if you like it or not, but you could learn more valuable lessons from someone who has already made some of the mistakes you will make.

Good luck

Jeff

After pondering more this morning on this topice for some reason and looking at my life now that I co-own a small business I realized a few things.
1. It is not as fun as it was 3 years ago when I bought in. Its still fun and enjoyable. At 10pm after working out and work there are times I'd rather go to bed then whats required for the business to go.
2. We have delegated certain things. I do x, y, z and my partner does a, b, c. I couldn't do it alone especially since this is a side business and I have a real job.
3. For a business that seems(ed) to run itself it, I still spend about 20-5 hrs/week on it.
4. After 3 years I just started to draw a bit of salary from the business. We had certain financial goals and until met, we worked for free.
5. Deadlines and things that need to be done will always occur at the worst possible times. Like the day before vacation. On the other hand, I found I can live for a day or two on 4-5 hours of sleep.
Finally, I'd do it again.

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Brian Stover USAT LII
Accelerate3 Coaching
Insta

Check out the nbda site at:

http://nbda.com/site/page.cfm?PageID=70

This page give a good overview of the industry and has a brief breakdown of expenses.

Unfortunately 70% of bike shops fail within 3 years and average profit is below 5%. If you enjoy it and think you can buck the trend then best of luck!