How NOT to Run a Business

My wonderful Wife and I have had this discussion a time or two. We both have hobbies which have grown into "cottage industries" (think Beanie Babies and all the stores that opened up just to sell them awhile back). For me it's Airsoft and for Her it's Scrapbooking. Scrapbooks, for those that don't know, aren't what they used to be. It used to be you got a photo album and put clippings, pictures, etc in it so you could look back on it. Now a days they are more involved. You make pages with buttons, badges, bits and bobs, etc....oh and a picture too. In simple terms they are "fancy" photo albums. In the hands of creative folks like my Wife, they are works of art. Airsoft, for those that don't know, are 1:1 scale replicas of real steel firearms that shoot plastic 6mm BBs. We dress in military BDU(battle dress uniform, think basic Base fatigues) and run around wearing eye protection basically playing "Army" (like we did when we were young). Both hobbies have spawned numerous online and brick and mortar stores where folks are hoping to cash in on the trend. In the case of Airsoft, I have seen the demise of a number of brick and mortar stores. One in particular "GunKulture" in Millbrae California. When this store was run by the original owner Joe, it was a great store. You could go in, pick up and handle all models of guns and see what you liked. Joe was a great guy who was honest and helpful. He decided to get a "real" job after he realized that where his store was, he wasn't getting alot of business (he was also competing with Airsoft Extreme in San Jose which had a bigger customer base, and was in the area of the World where the games were usually played.) so he sold the store to his custom gun designer, Elias. This man could make some of the most awesome custom guns ever; but he couldn't run a store. When he was supposed to open the store at 11 am, he wouldn't get there until 1 pm. He didn't restock the shelves enough, etc etc..... He's out of business and has been for awhile. How NOT to run a business. Scrapbooking has the same problems. This one store in Hermitage, TN has just announced it was going out of business. If you have been to the store you aren't surprised by this news. The store was never packed, and they have a big store front. The stuff on the shelves was ancient and out of date, but they never had a clearance sale to get rid of it. If anything new came in, it was very few items and not a huge selection. No wonder you are out of business!!!!! People who go into these "cottage industry" businesses don't know the first thing about inventory control. First in, First out. In other words, your oldest inventory should be gone before your newest. Things depreciate. Why do you think Car Lots have "year end clearance" sales??? The '06's are depreciated now. The longer they have sat on the lot, the less they are worth. Therefore, discount the heck out of them and give them away. Look at Target and Joann's and other stores like that. If it doesn't sell at Target in 6 months....it's in the Clearance aisle. The scrapbook industry is like that. New items come out; make a splash, then fade away. If these are on the shelves of your store and they aren't selling immediately, then they need to be clearanced so you can at least break even on the items. The longer old inventory sits unsold on a shelf, the more it depreciates. It cost you 5 bucks to buy it. You sell it for say 10. Most items depreciate .50 to a dollar every month. In six months those items aren't worth the 5 bucks you paid for them any more. GAAP (generally accepted accounting principles, the governing body for Accountants everywhere) has lists of recommended depreciations schedules for most industries. It's funny how people don't know this. Take a simple accounting class and learn about Assests and Liabilities. Inventory is an Asset and a Liability. It's an asset in the fact that it generates potential revenue (ie Cash). It becomes a liability when it just sits and you don't recognize the revenue from the sale of it. Most retail establishments are modeled on the premise that the store buys goods from a manufacturer at a certain price, marks them up and resells them at a profit. Simple. Not really. Take a business class and an accounting class, or read some books before you get into business. You will run a better business if you do.