I want to throw my 2 pennies in here, I'm in the UK and run an online SEO / Web design business - because having an office or shop is just too
I blame a large part of this on 2 things:
1) the real estate price boom, which encouraged "investors" to borrow lots of money to buy lots of commercial property at inflated prices, and they
need to cover their loan payments, which equals insanely high rents;
2) The local authorities who see businesses as a cow that is there to be milked with excessive taxes and charges;
So, about 6 years or so ago we decided to look into opening a shop selling clothing.
It was going to be in a relatively small town where the shopping center is fairly quiet, the center has 3 rungs - the top rung is busiest, the middle
rung is quieter, the 3rd rung is deathly quiet - most people only venture there because the toilets are situated there.
The rent being asked for a VERY small shop unit was £3500 per month, this was in a contract signed to a 5 year lease with a break point after 3
In other words you are signing up to take the shop unit for 5 years at £3500 per month (£210,000) - if the business goes bust - tough - give us the
money. It doesn't inspire anyone to even want to take the risk.
At the break point you can TRY to negotiate new/better terms - good luck there, a bakers that had a unit for well over 25 years at contract renewal
were hit with the bombshell that if they wanted to stay there the rent was DOUBLE.
Anyway, just do some simple maths:
To make the £3500 rent per month, at a gross margin of 50% (i.e. doubling the cost price of the product, or the margin = 50%) then to make £3500
profit would require £7000 of sales.
If you also want to pay yourself, say an average wage of £2500 per month, that's another £5000 of sales needed.
If you want some time off and need to employ a part time worker on say £1000 per month, that's another £2000 of sales required.
Then you have taxes, charges, costs, and other incidentals - lets say another £1000 (conservative) requiring yet another £2000 of sales.
That means that to run the business and earn a salary you could get in a regular job, you need to have a turnover per month of at least £16,000, plus
you're signing yourself up to 5 years of worry, and you've got to lay out money in stock etc, and you have all of the headaches, accounting, etc, etc,
etc to contend with.
In a small town there is no chance.
I actually went along the row and asked other shop owners what the footfall was like and whether they would recommend opening a shop and they all said
"NO - don't do it", so I took their advice and didn't.
The costs are way too high compared to the returns.
That's why the town in question now has a massive number of empty and/or boarded up shops.
edit on 15-11-2014 by Power_Semi because:
clarification & spelling