Al Campbell, Field Editor

November 12th, 2001

Get Rich Quick - Fly Shop Owner
By Al Campbell

"I'm going to quit work, open a fly shop and fish for a living." If you plan this one right, you might make a living at it, maybe. Your chances for survival here are slightly higher than they are in the first two occupations we looked at; but 75% of the guys who open a shop this year will be closing their door within two years. Of the 25% who survive the first two years, half will be gone before they reach the five-year point. Here's a look at why they do or don't survive.

Analysts say you need to have a 30% profit margin to survive; 35% if you do business out of a mall, a mini-mall, or any other high rent location. That means that for every dollar that runs through the cash register, at least 30 or 35 cents of it must be profit after the costs of the merchandise and shipping. And, that's just what you need to make to survive. Any growth you have will be based on the profit percentage you can achieve above those base percentages.

Here's one of the tricky parts. Dating can make or break you. What is dating? Dating is how long you have to pay for the merchandise. If you can buy and sell an item before you have to pay for it, your profit is pure. The more times you can buy and sell an item before you have to pay for it, the more pure profit you make.

Let's say you have a certain fly rod that sells well. Let's say that the manufacturer gives you 60 days to pay for that fly rod. Let's also say that you make 40% on that fly rod and it retails for $100. If you buy 6 of those fly rods and sell all of them in the 60 days you have to pay for them, you will have $240 in profits (less shipping costs) after you pay your bill to the manufacturer. However, for every month you carry that fly rod past the date you have to pay for it, you must deduct the cost of any interest you pay on a loan and the costs of utilities and wages, etc. from your overall profit percentages. If you carry over $10,000 worth of merchandise past the dating for that merchandise, and if your business loan is at a 6% interest rate, you can subtract $500 per month from your profits just for the interest the carry over costs you. That's of 1% of you total carry over merchandise costs per month in interest alone.

You also need to take the percentage of that carried over merchandise and multiply it times the monthly costs of doing business (wages, rent, insurance, etc.) and deduct that total from your profit percentages. It doesn't take long for carry over merchandise to take you below that 30 or 35% profit margin you need to survive.

Here's where manufacturers kick you in the financial groin. They want you to order as much of your merchandise as possible, at least three or more months in advance. That way they can make the stuff you plan to sell, and they won't have the carry over merchandise that kills their profits. They take it in the teeth on dating, but you better be good at guessing or keep great records and have a crystal ball to boot if you want to grow. The amount of shipping dates they give you virtually guarantees a large carry over for at least a third of the year. You'll get a visit from every manufacturer's representative between September and November wanting you to place your orders for the next year. How well can you predict the market?

Another killer is the way manufacturers discontinue and start new lines of merchandise. For instance, Sage has discontinued and started at least one rod style every year for the last four years. Other rod, reel and line companies do the same on a regular basis. Any components of a discontinued line you have left the day after they announce the change will likely be sold at a loss to you just to get out of that discontinued line and purchase the new line they introduced to replace the old one they just discontinued. They made their money, but you won't if you carry very much merchandise over from month to month.

Here's another tough pill; what percentage of your merchandise value will be required for loan payments? (I'm not talking interest, but the actual loan payment.) If you want to survive, you better make enough to pay all your suppliers, all the wages, all the other costs (rent, insurance, utilities, office supplies, etc.), plus that loan payment each month just to stay ahead of the banker.

We all try new things to see if they sell. Some new things are good ideas; others bomb badly. You can only afford to experiment with new ideas if your other business projects are sound and making you money. Too many shops lose all their profits to new and improved ideas that don't sell.

For a more practical look at this, you need to assess your customers. Unless you are dealing with an established fly-fishing community, you'll probably sell 10 fly fishing outfits priced under $150 for every one you sell over that price. If your shop is located in an upscale community, those numbers will change, but you'll still sell more low to mid priced outfits than high priced outfits. Watch those percentages when you order for the next year. Know your customer and keep detailed logs to help you plan for the next year.

New customers are your best tools for growth. Every new fly-fisher needs rods, reels, clothing (vests, waders, etc.), flies and a host of accessories. A little later they will be buying better equipment, but by their third year they will be set except for occasional purchases of accessories and the occasional fly rod or reel. You desperately need an influx of people just starting the sport if you want to keep your doors open and your business growing. What are your plans to attract a steady group of beginning fly fishers? Free casting clinics and fly fishing instructional days might be one key to success.

There will be years when weather is a problem to your business. Floods, droughts, heat waves and other unpredictable events can kill your business if you don't have a financial reserve to tide you over. The minimum you should have in reserve is three months worth of operating capital; but if you really want to survive the tough times you should consider six months worth of operating funds in reserve. Failing to maintain an emergency fund has destroyed many businesses that were otherwise very successful.

I nearly forgot that you plan to fish a lot. That's a joke. While the other guys are fighting the fish, you'll be watching the store and listening to stories of all the fish they caught while you were working. Your busiest time will be when fishing is the best. Better get used to the idea of fishing in the off season if you want to fish at all. Forget the major hatches; that's when you'll be watching the shop.

If you decide to put a public coffee pot in your place, kick out all the "good ol' boys" who like to hang around that pot for hours every week. They will do you more damage than you can imagine. First of all, they will usually have a "better than you" attitude toward new customers. That little circle of friends will exclude new customers to the point that they go elsewhere to shop. Those guys will also be telling everyone in their little circle all the places where they bought something you sell for a better price than you sell it for. Since they hang around and suck up your coffee on a regular basis, they will expect a discount on everything they buy too. After all, they are "steady customers." Add to that thought the idea that they will be selling their own flies and hand-made rods in direct competition with you right in your store while telling those tall tales they tell around your coffee pot. "Hey Bubba, come out to the car and look at the new fly rod I built for you." Do you really need a public coffee pot?

How much is this going to cost up front? A well-stocked shop will cost you at least $100,000 to set up with a good selection of merchandise. Your best profit makers will be flies, beginner outfits, accessories and clothing if you choose the right stuff and sell it well. The stuff that has a strong potential to drag you down is the stuff we all love the most; rods, reels, lines and fly tying supplies. Keep that in mind when you plan your shop.

If you plan and manage your business better than 88% of the guys who try it, you'll survive more than five years. If you do it better than 95% of those who try, you will grow at a reasonable pace. Get rich quick? Not likely! Make a living? Maybe. Fish a lot? Not a chance. ~ AC

Previous Al Campell Columns
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