Starting a Thrift Store – Guest Post

Starting a Thrift Store

by Gary Foreman

I would like to open a thrift store either in NY or GA. How does this work and in your opinion, is this a good business? Also, are thrift stores considered not-for-profit??? And why do some thrift stores give write off for donated items and others do not?

Arlene

A tough economy has triggered an interest in thrift stores. Right now everyone loves a bargain! So Arlene asks a good question. Is this a good business to enter?

We’ll begin by getting a better understanding of thrift stores.

Arlene points us to the first important distinction. Some are non-profit while others are not. What’s the difference? The non-profit stores exist to raise money for a non-profit charitable organization (think Salvation Army or Goodwill). Typically the stores are owned and run by the charitable organization. Employees can be paid for their work, but many volunteer because they believe in the charity.

Because the store is a charitable operation people can donate goods and take a tax deduction for the value of their donation. So most (if not all) of the product that the non-profit thrift stores sell doesn’t cost them anything. Consequently, after paying rent and utilities, much of their sales dollars benefits the charity.

The other type of store (and presumably the kind that Arlene is contemplating) is a for profit store. In this case no charity is involved. The store is run like any other business. Profits belong to the owner and they’ll pay taxes on them.

But that also means that people won’t get a deduction for donated goods. So for profit stores have to buy much (all?) of their inventory. It also means that they labor is more expensive.

So should Arlene open a thrift store? We can’t answer that for her, but we can tell her how to answer it for herself.

Begin by setting up a business budget. Estimate what your first year expenses will be. Start with the store itself. How much will it cost to rent? How much will you spend setting up displays and outside signs. Is anything required to bring the store up to building codes? Don’t forget utilities and deposits. Insurance? Any permits or local business licenses?

Add in the labor costs. Even if Arlene is the only employee, she’ll want to pay herself (after all that is the idea here!). And, when she does, she’ll be responsible for Social Security taxes. Depending on her state she might also be on the hook for worker’s comp, other insurance or state/local taxes.

At this point Arlene will have an idea of her expenses. Next she’ll estimate how high her sales will need to be to break even. For illustration we’ll make some assumptions. Let’s say that what she buys for $1 she can sell for $4 (this is an important estimate so give it proper thought). If her expenses and salary total $40,000, she’d need to sell $53,333 worth of merchandise ($40,000 divided by the profit margin of .75 or 3 divided by 4).

Bottom line, that’s a lot of product for Arlene to sell. And, it might explain why there are so few thrift stores that are not affiliated with a charity.

But, all is not lost! There are ways for Arlene to get into the resale business with much less financial exposure.

The one most similar to opening a thrift store would be to rent space in a flea market. Instead of being responsible for a whole building, you only rent a small space within the building. That dramatically reduces expenses and increases Arlene’s chances for profitability.

A second alternative would be to hold regular garage sales. That way she has no overhead. Any mark-up on products sold goes into her pocket. One caution. Some towns have laws limiting the number of sales you can have in a year. You’ll also want to consider your neighbors.

A final alternative is to set up an online store, perhaps on eBay.com. It costs almost nothing to get started. And, it has one advantage over a ‘real’ store. The internet attracts buyers from all over. So you can specialize if you want. Many online sellers only do old books, records, vintage clothing or collectibles. Generally these items draw higher prices than most thrift store merchandise.

So what should Arlene do? Walking through the steps needed to estimate the expenses and income should give her fairly clear idea. Fortunately, it’s not an all-or-nothing proposition. She has can select the best way to get started.

Keep on Stretching those Dollars!
Gary

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Gary Foreman is the editor of The Dollar Stretcher.com website</a>  and various e-newsletters including Financial Independence. Financial Independence is designed to walk step-by-step with you as you take control of your finances and achieve financial freedom!

Tagged with: Budgeting tips • personal budget planning • personal budgeting • Web Page Finance

Filed under: Small Business Tips

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