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"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
½ 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
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