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HOW TO START A SMALL LIQUOR STORE.
  Term Paper ID:18424
Essay Subject:
Uses hypothetical situation to illustrate steps involved in proper planning of small business. Includes financial planning, location, analysis, floor plan, merchandising & personnel. Charts.... More...
9 Pages / 2025 Words
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Paper Abstract:
Uses hypothetical situation to illustrate steps involved in proper planning of small business. Includes financial planning, location, analysis, floor plan, merchandising & personnel. Charts.

Paper Introduction:
This paper discusses the steps involved in the proper planning of a small business. Although the topic is small business in general, the primary focus is on starting a small liquor store. Discussion includes analysis, location, financial planning, merchandising, and personnel. Analysis Liquor stores provide an attractive opportunity for independent business ownership and management. Although certain aspects of the business are complex, with some training and experience, an individual has adequate opportunities to achieve business success. A new store owner or manager can secure help in buying and in resolving managerial problems through franchise operation, membership in a cooperative, or affiliation with a voluntary wholesale organization (Greene, 1983).

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Small Business Reporter. Statistics for nationalmarket analysis. Store CharacteristicsCharacteristics Mean RangeGross area of building (sq.ft.) 2,4 2, to 4, Investment (excluding inventory) $5 , $5 , to $12 , Inventory (number of items) 2,5 1,5 to 3, Employees 2.5 2 to 7Hours open per day (7 days/week) 15 12 to 4Parking spaces available 11 5 to 15Sales per customer $1.25Average customer shopping time 4 mins. The following table indicates that the liquor store is a small scaleoperation, requiring only minimal investment. Strict productivity orientation is typical (Welsh & White,1983). Anexisting supermarket need not be a problem, but care should be taken tomake sure there is no significant competition from convenient stores orchain drugstores selling beer, cigarettes, and those food items which theliquor store sells (Silvester, 1984). In sum, the entrepreneur should investigate the various franchising,cooperative, and voluntary wholesale organizations s/he might join. Once demographics and competition have been considered, additionalaspects must be considered such as retail compatibility, Merchants'Associations, landlords, zoning and planning, as well as leasingagreements. Therefore, nationallyadvertised brand name items predominates Because the store is small andcaters to convenience, the operator must adhere to a policy of stockingonly the most frequently demanded items, with the constraint that the itemshave a speedy turnover and a high unit margin. Liquor stores can often be found onsingle-store sites, on street corners, or in small convenience-typeshopping centers in company with a barbershop and a drycleaning outlet. Business plan for smallservice firms. Supervision by the corporation is exercised byintensive training of the manager, a target of profitability after oneyear, and a long-range goal of $25 , sales per year. A new store owner ormanager can secure help in buying and in resolving managerial problemsthrough franchise operation, membership in a cooperative, or affiliationwith a voluntary wholesale organization (Greene, 1983). The average manager has between threeand six employees. Almost any neighborhood of 1 , to 15, people not having aliquor store could be a potentially good location, because liquors storesare highly neighborhood-oriented. Therange of margins on products in large stores like supermarkets is 5.5percent to 34.8 percent, the range in liquor stores is 23.8 percent to 42percent. One typical chain is corporation-owned withstores of fairly large size (up to 6, square feet) which are open sevendays per week for 16 hours per day. In addition, the ground rules should be setin the hiring process by establishing a personnel manual to avoidsubsequent conflict and misunderstanding (Greene, 1983). The higher prices,margins, and income available to the liquor store are, therefore, afunction of the trade-off between time and money (SBA, Statistics, 1985). If the newowner/manager decides to become a franchisee of one of the larger nationalchains, the initial investment would be raised by about $1 , . Because ofreduced risk and higher profitability, the trend is towards franchise andaway from corporate ownership; almost all the large chains are turningtoward the franchising method. The enormous gap in average customershopping time between the supermarket (22 minutes) and the liquor store (4minutes) is the key to the success of the liquor store. Starting and managing asmall building business. Silvester, J.L. (1985). U.S. A major franchising operation features store sizes of 5 feet by 5 feet with 12 parking spaces. Another franchising operation operates on a similar basis. The entrepreneur's masterplanning guide. This material, along with a detailedanalysis for the proposed site, should be assembled and discussed withlocal banks or development organizations specializing in providingfinancial and technical assistance. The price differentials vary but, if prices differ, they arealmost always greater in liquor stores (SBA, Statistics, 1985). A new entrepreneur may find that, for $13, to $2 , inbasic franchise fees, s/he can enter in partnership with a successfulretailing operation. If this is not possible, personal references provide suitablecandidates. Sales per manhour are seldom more than $4;sales per square foot average between $1 and $2; sales per transactionaverage about $ .9 to $1.25 (SBA, Statistics, 1985).Personnel Entrepreneurs should hire someone with whom they have worried with inthe past. It should be recognized by the new entrepreneur that successfulstores usually require six to 12 months to break even and about two yearsfor profitable operations. Experience in retailing is a valuable ingredient in the profitableliquor store. (1984). An elaborate statisticalsurvey is not absolutely necessary, but inspection of the proposedneighborhood should be made to learn (a) the number of people within ashort walking distance of the proposed location, (b) the amount ofcompetition, and (c) the quality of competition (Greene, 1983). Newequipment costs usually range from $2 , to $3 , . Acareful study should be made of the advantages of each, the specialservices each provides, and the cost. In addition, the law requires every business with one or moreemployees to withhold federal income and Social Security taxes from wagespaid. Government Printing Office. Bank of AmericaPublication. Retail compatibility refers to stores that generate trafficfor neighboring stores, as opposed to businesses that clash. Potential applicantscan demonstrate their qualifications by the care and thoroughness withwhich they prepare their preliminary studies and estimates and by theamount of their own funds they are willing to invest in the proposedventure (Welsh & White, 1983). U.S. (1983). Small Business Administration. (1985). How to start, finance and operate your ownbusiness. On the average, 5 percent of the customers live within half a mileof the store and pass it three or four times per day on other trips. 2 to 12 mins.Customer trips per week 4 to 5 2 to 6% customers living w/in 1/2 mile 5 % 3 to 75%% customers living > 1 mile 2 % to 4 %% customers who drive to store 85%Weekly sales $3, $1,7 to $5, Gross margin 25% 2 to 3 %Income before tax 3.5% 2 to 6% (SBA, Statistics, 1985). If an unknown must be hired, then the Process should besystematic. The franchising costs after theinitial investment are: (a) one percent of gross sales for royalties; (b)two percent of gross sales for services (legal, accounting, supervision,business training and assistance); and (c) one percent of gross sales foradvertising (including a grand opening) (Silvester, 1984). Many of these organizations can helpdirect qualified applicants to sources of financing. (1983). NewYork: Mentor. Employees are usually recruited from the neighborhood servedby the store. Most liquor stores operate for long hours--usually 14 to16 hours--and some stores operate 24 hours per day. The typical store requires at least 25 hours per week to operate. (1985). Liquor stores are oriented towards convenience, located to serve aneighborhood, occupying 1, to 3, square feet, and with space to parkfive to 15 cars. The stores carry an inventory of nationallyadvertised items. The first step for an employer is to obtain an employer'sidentification number, required on employment tax returns, by filing FormSS-4 with the employer's regional Internal Revenue Service Center. The associatesshould participate in the search and write their opinions before discussionwith the selection committee. For instance, write down the job description, the personalcharacteristics appropriate for holding the job, and the minimumrequirements of experience and education. By restricting the Placement and size of signs, byforegoing or ignoring needed maintenance and repairs, by renting adjacentretail space to incompatible or competing businesses, landlords may cripplea merchant's attempts to increase business. The cost of average inventory for a liquor store rangesfrom $12, to $15, . (1985). References Bank of America. Inventory constitutes a large proportion of total investment (1.5percent to 2 percent), and the choice of items is, therefore, veryimportant both in terms of getting the best investment for one's dollar andin terms of the future operating ratios of the store--in particular itsprofitability (SBA, Starting and managing, 1985). At the time of application, thebusiness owner should request a copy of Circular E, "Employer's Tax Guide"(IRS 'Publication 15), which provides tax information Pertinent to allemployers (Small Business Reporter, 1984).Getting Started Entrepreneurs have the option of owning or franchising. If the building isalready built and equipment can be leased, building and plant costs can bemarkedly reduced. Locating your business.U.S. A commonfinancing plan for the new independent liquor store uses about $5 , ofowner's equity investment to secure a bank loan of from $6 , to $1 , of long-term debt (SBA, Starting and managing a small building business,1985). Although certain aspects of thebusiness are complex, with some training and experience, an individual hasadequate opportunities to achieve business success. Directly related to the appearance ofa retail location is the responsiveness of the landlord to the individualmerchant's needs. However,in this case, the typical franchise investment is $23,4 , which is brokendown as follows: Inventory $2 , Deposit 2, Cash register 2 Supplies 7 License 5 Total $23,4 In this case the company does not supply the equipment, which must beprovided by the franchisee (Silvester, 1984). Directly related to zoning isthe lease agreement. This may be attributed to the charging of higher prices inexchange for the convenience factor offered by the long business hours andthe elimination of waiting time (Small Business Administration (SBA),Statistics for national market analysis, 1985). Liquor stores stockfrequently demanded items, low cost items, as well as premium items,depending on the neighborhood in which the store is located (SBA,Statistics, 1985).Location The individual attempting to start a new store operation shouldattempt to find an appropriate location first. Englewood Cliffs: Prentice-Hall.----------------------- 11 In general, labor productivity is low because of thelong business hours involved. A selection committee should becomposed of the entrepreneur plus two or three associates. Small Business Administration. Before deciding whether or not to affiliate with an organization, theentrepreneur should determine detailed financing requirements, particularlyfor franchise fees, equipment, and inventory. How to start and manage your own business. Operating licenses cost about $5 , and cashneeds may be $2,5 at the commencement of business. Although the topic is small business in general, theprimary focus is on starting a small liquor store. Discussion includesanalysis, location, financial planning, merchandising, and personnel.Analysis Liquor stores provide an attractive opportunity for independentbusiness ownership and management. (1984). Greene, G.G. Secaucus, NJ: Lyle Stuart. While operating withsophisticated sales and stock techniques, the store is based on a rathersimple concept and can be adequately controlled by one person with sometraining. U.S. Before entering into lease agreements, theentrepreneur must acknowledge future zoning plans (SBA, Locating yourbusiness, 1985).Financial Planning The total investment required for a liquor store will depend heavilyon the cost of the facilities, if an established business, or of the landand building, if a new venture (SBA, Business plan for small service firms,1985). Thisidentification number is not the same as the Social Security numberrequired on individual income tax returns. Welsh, J.A., & White, J.F. Small Business Administration. Small Business Administration. The zoning commission canprovide the latest planning of the retail location and surrounding area tobetter ascertain restrictions, construction, and changes in trafficpatterns that will affect the entrepreneur. Aboveall, the store is convenient, however customers may go out of the way toobtain special or premium stock. Land may cost $5 , or more in an urbanized location, and thebuilding investment will probably be between $45, and $5 , . Measures of productivity are less important in small scaleoperations. Weekly sales are compared to the smallest supermarkets, butgross margins and income are higher (income as much as two to three timeshigher). Monthly goals arealso set. It is strongly recommended, however, that theprospective entrepreneur obtain actual store management experience beforeentering into a franchise agreement or acquiring a store (Welsh & White,1983). The strengthof the neighborhood merchants, Association is important because theMerchants' Association can be effective in promoting and maintaining thebusinesses in a given area, thereby saving the merchants money throughgroup advertising programs, group insurance plans, collective securitymeasures, and municipal assistance. Government Printing Office. The choice of inventory isa critical one, which requires much skill and judgment, both in terms ofthe item's contribution to net profit and as it relates to the tastes andvalues of the neighborhood customers (Welsh & White, 1983).Merchandising Liquor stores operate on generous margins, largely because they cancharge higher prices for the convenience component of their sales. These stores are open 16 hours per day and return anaverage profit of 3-1/2 percent (net before taxes). Totalfranchisee investment is about $35, (only one-quarter of this has to bein the form of a cash down-payment). Government Printing Office. If a Lease guarantee isrequired this should be noted too. The firm reports thata typical franchisee makes $27, per year from this operation. Enough financing is needed for the new store sothat initial operating losses can be adequately covered without impairingservice (SBA, Business planning, 1985). Government Printing Office. This paper discusses the steps involved in the proper planning of asmall business.

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