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Questions Regarding buying out a Game Store UPDATE PAGE 6
Ziac45
Registered User regular
Registered User regular
Well, I have some questions and just want opinions on how terrible of an idea this might be. My friend owns a gamestore (RPGs, Tabletop, Magic the Gathering) in a small city (20,000) but in a decent sized area 74,000 people. The store has been profitable every year since he has opened with with his take home pay being $17,400. He is moving out of the area now to go with his significant other to a different state and has offered to let me purchase the store for the cost of his inventory. Now I have looked at the figures and they all add up but I also know just how difficult running a game store is supposed to be and how likely they are to fail.
But I believe the business has room to expand, he has done no advertising so all of his sales are coming directly from word of mouth. Furthermore his hours have been less then ideal (Wed-friday 6:30-10pm and Saturday 3-10pm). I would be leaving a part time job making $12,000 a year to take this over. As it is a quick thing I would not have much in the way of cash reserves but I would also not need to invest in inventory.
So I have a few questions regarding this that I just want to get some opinions on
1. Is this the worst idea ever likely to leave me homeless in a gutter?
2. For those who have run game stores what type of increase has advertising brought in?
3. What does everyone hate to see in a gamestore? I want to avoid the usual pitfalls.
I have been doing some reading on these things and soliciting opinions from my friends, but I figure if I am going to make a large decision I would need input from people I wouldn't think to ask leading me to post this.
But I believe the business has room to expand, he has done no advertising so all of his sales are coming directly from word of mouth. Furthermore his hours have been less then ideal (Wed-friday 6:30-10pm and Saturday 3-10pm). I would be leaving a part time job making $12,000 a year to take this over. As it is a quick thing I would not have much in the way of cash reserves but I would also not need to invest in inventory.
So I have a few questions regarding this that I just want to get some opinions on
1. Is this the worst idea ever likely to leave me homeless in a gutter?
2. For those who have run game stores what type of increase has advertising brought in?
3. What does everyone hate to see in a gamestore? I want to avoid the usual pitfalls.
I have been doing some reading on these things and soliciting opinions from my friends, but I figure if I am going to make a large decision I would need input from people I wouldn't think to ask leading me to post this.
Ziac45 on
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A traditional calculation I have heard is that a typical brick and mortar business is worth its annual profit times five.
But for a business like this which carries a little more risk and has a pretty small clientele I would go so far as to say profit x3
Also you need to demand to see tax records for his business to prove it's making what he says it's making
Is that $17400 figure count his payroll taxes? They don't obliterate the difference but they reduce it some.
You're buying the stock at wholesale, right? Even then that makes me a little nervous because you are buying a bunch of shit that didn't, and won't, move.
Take the price you're paying, divide that 17,400 by it. That's the return on the capital of the investment. Now go look at what the stock market does that doesn't also involve a more than full time job.
In general, it looks like a giant shitty deal because a full time job should really pay more than 17,400...in fact that's slightly more than minimum wage. Add in those extra hours and it's probably less.
Then you have the downside risk of being incredibly in debt....
I am meeting with him on Thanksgiving to go over the tax records just to verify. I do believe what he is saying as I have known him for a very long time and trust him.
They do not count payroll taxes, which is something I am going to look at when I go over his taxes. I do have to say that his profits this year grew 2.5k just from the addition of one event. The stock I am buying at Wholesale at a cost of 12k. I can pay this back to him over time he said as he has all the stock paid off and owes no debt on it. He said as long as I pay a bit on it monthly that is fine. Obviously I would want to pay this off as quickly as I can.
I don't know magic as well as I should that is something I am working on. My girlfriend who currently works at a game store in a different area knows a lot more about magic and would help me on card prices and the like. I know more of the other aspects of the store such as Board Games, Warhammer and RPGs. But I do know magic is a large driver of the profits and therefore am gong to learn more about it.
Multiple things went into his decision to sell the business. He works a full time job on top of running it, which is the reason his hours are pretty terrible, his SO is moving on very short notice due to their job. He has also suffered with some crippling depression due to his loneliness and I don't believe he wants to lose his SO. Furthermore he doesn't want to sell the store to anyone he loves the business and wants to make sure it goes into good hands so he has only offered it to very close friends, I approached him about buying it not the other way around.
My original ROI would be pretty low if I take the entirety of the debt out of my first years earnings. One of the main reasons I am considering this is what I believe is the room for growth in the business. Advertising alone should start to bring in more of a crowd as it is more effective than word of mouth. I know the Stock Market would probably bring me a higher return but I don't have 12k right up front. It would be paid back over time and give me a chance to get some experience running my own business as well as getting out of a job I currently hate.
Well the Market is a bit larger than what I put in my original post. It draws people from all over the county (thats the 174,000 figure) but also due to it's location from cities and smaller areas in neighboring states which I did not include. It's all within about a thirty minute drive of the store as it is a narrow part of the state. It also has no competition within an hour and a half drive.
I entirely agree on that, but I do think that there's tons of room for growth. As I am only making 12K now, albeit part time, the money isn't a huge worry.
And if the business were to tank tomorrow, how long could you sustain it? You will have to invest in inventory as well, as most likely his slow moving/dead inventory will be the bulk of what is left.
Owning your own business can be a great and wonderful thing. The hard part is keeping it profitable and being stuck with it when it isn't.
I could sustain it about 2-3 months with 0 income from the store. Friday Night Magic has a pretty huge population there so I doubt that it would not bring in enough to cover rent. I also have 100% access to his books which I will be going over Thanksgiving. I don't believe he is misrepresenting the business at all but I will verify on his tax records.
I plan on clearing out the dead inventory through clearance sales/ebaying it if necessary just to get some income that can be immediately reinvested.
The lease is month to month and incredibly cheap 600$ a month including all Utilities. My living situation is up in the air right now. After we move to the area we could either be staying at the Old Owners house or rent a place, also very cheap rent around 450$ before being split between my girlfriend and I. I could survive pretty easily for awhile as she will be working a full time job and I could draw some landscaping work. I don't foresee the business not turning a salary for me for 6 months. It makes money every single month and seems unlikely to change in an instance.
You could do almost literally anything else and make a more profitable living and have more spare time.
But some people are called to run game stores, despite all the miserable drawbacks, and if you're one of them you might be able to swing this from the sound of it. You'll give up the ability to go out pretty much ever. You'll give up the ability to afford things you want that aren't gaming stuff pretty much. But if it's what you want, it sounds like the investment isn't immense.
My biggest concern reading all this is whether you are sufficiently prepared to contractually set this up in a way that represents the expectations you have. With all of this being word of mouth and unofficial "pay me when you can" stuff, it sounds almost guaranteed to end up with you in court for some reason or another with either the owner or tax authorities. Make sure you understand both the contractual implications of the deal you're making and the tax rules governing what you're doing.
Does the store currently have a website? If you are literally the only place in town then people that are interested will already know about it if you can find it on google with something like "game store + <your city name>." I wouldn't bank on huge amounts of expansion. Monopoly advertising tends to work best when people don't know that they want something, or can easily be convinced that they want it.Game stores are not something that someone who's not already into the hobby see and think "I need to get me some of that." Even if it did, you shouldn't buy a business with the reliance on its expansion unless either a) you are in an extraordinarily good financial situation, or b) you have a good track record/knowledge base on the specific industry you're going into and have a solid business plan detailing the expansion routes.
As everyone has said, your hours are going to go way up being a game store owner from what you're doing now. Is the (possible) extra scratch and (possible) enjoyment of your job above what you do now worth the huge decrease in leisure time? It doesn't sound like you have a huge background in business in general or the game store business in particular, so for this decision, you basically need to think: "If I had no power to change how the business operates, would I switch into my friend's job from mine?" Take into account the hours/work/money, etc. Unless the answer is an overwhelming yes, you shouldn't do it, because along with that there's the risk that comes along with being an owner and not just an employee.
He and I will be going over how it is all handled on Taxes before anything is official. I do understand that this is going to be a job and not a place to hang out, I fully expect to have days where I just don't want to go into the store. That Being said in terms of building experience I can't think of something that would look better, and I can't see it being more miserable than my current job.
So googling the store is not something I thought about at all when it comes down to my expansion plan. With googling "Game Store (town)" There are no results for it until halfway down the second page. I know I am not likely to go onto the second page to find it so I think it may be safe to say that it may not have been found by everyone that is interested.
- Make sure you calculate your "time to cliff," or how many days/months you will actually be able to keep the store in operation, assuming at least a 20% drop in sales. Their recommendation is that you want to have at least 6 months, ideally a year for small businesses, or your chances of success will be lower.
- Remember that in small businesses, estimates of sales are almost always too optimistic. Make sure you lay out your plan for if everything stays the same, but also what you will do/how you will manage if sales drop by at least 20%.
- The top 9 reasons small businesses fail are: 1) Inadequate sales, 2) Too many sales, 3) Heavy operating expenses, 4) Receivables difficulties, 5) Competitive difficulties, 6) Inventory difficulties, 7) Poor location, 8) Excessive fixed costs, 9) Management neglect. Do you have a plan in place to keep all of these from happening? For example, you talk about ways to boost sales and that you're going to purchase this guy's inventory from him. That means you're going to have a bunch of inventory sitting around. How are you going to order new stuff in? How long do you plan on having inventory sitting? What is your pay structure for getting new stuff in and getting paid (e.g., how long is it going to take to process credit card payments, are you going to do that? Etc.)?
Again, this is just a class on it, but it seems like you want to receive your money for your goods as fast as possible, have to pay for stuff as far off as possible (like if you order new games, not have to pay for them for 30 days), and not have a lot of inventory sitting around because it ties your assets up.
We had a guy come in to talk to us about a business he purchased and he stressed the importance of location too, he mentioned, for example, that making sure that your shop is with traffic at the time you expect people to come and on the side where they can make a right hand turn will immediately boost sales.
Also, if you're going to own this business, you also want to consider how your business is structured for tax purposes and liability. Remember that you may need to get some insurance for if someone slips and falls in your store. If you're not a corporation, you're legally liable for that as well as bankruptcy.
Last point, in small businesses, often the people aspect and their connections are super important to success. You mentioned that right now a lot of sales are word of mouth. Do you have any idea of how much of it is linked to your friend? If he's a super personable guy and you don't know most of his regular customers, if he leaves town, will those customers still show up or will they find someplace else to go?
Those are just some key points from the class, I don't know if that helps so I don't want to spam your thread with information you find useless
With the state brings me onto the first page of the search results so a bit higher up.
This response was incredibly helpful and I appreciate it.
If sales drop 20% I should still be able to keep the store in operation full time for multiple years. My living expenses are incredibly low and the rent/insurance/licensing is very easily made. My plan for new product is a line of credit specifically for the store. This will be used to get in staples that I know will sell out quickly such as Magic and Special orders while slowly building inventory that I expect to sit around longer, board games, Miniatures. Insurance is already on for the store and it is set up as a sole proprietorship.
My biggest concern is actually losing part of the magic crowd due to my friend leaving. I plan on making announcements as soon as I take over fixing some of the biggest issues with magic, Space due to the permanent warhammer tables (going to build caps for these so they can be converted to magic as needed, and due to my friend only using one supplier on pre=release and release days he will often run out of stock, I am going to see if it is possible to have more suppliers and a better supply of stock for important releases. I figure this on top of asking the community what they want to see for Magic, as I am will be the only place running events for the foreseeable future, should make up for any feelings of loss due to the previous owner leaving.
Have you ever run a business?
Do you deal with MTG or comics as a hobbyist right now, but know it inside and out?
Do you have capital to invest? I know you said you think it can do more business, but it really can't unless you're willing to spend money on it.
$17,000 a year is roughly minimum wage.
Keep in mind, you have no benefits on top of this. No retirement, no health coverage, no dental.
I could see $17,000 being profit, rather than income. In order to have a healthy business, you also need to advertise, and reinvest that money on stock and other things. So your take home pay is probably more along the lines of $15,000.
Oh yeah remember how I said it's minimum wage? Yeah that's 40 hours a week. You'll probably be working more like 85 hours a week. That includes research, purchasing, working the register, maintaining client relationships, running events.
So 17,000, divided by 52, divided by 85 is about $3.85 an hour, before taxes.
Aside from bitcoins, game stores are probably one of the worst investments you can make. You could buy website hosting, a domain, and sell comic books and MTG online and probably make a higher wage.
You want my honest opinion? Let him find another sucker. Maybe there is, maybe there isn't a way to make this work. It is definitely not worth the stress unless it's truely your passion to be doing this. It doesn't seem like it is. Seems like you know the dude because you buy stuff from him occasionally.
To run this store, you'll need to be an expert on everything you sell. Board games, Magic, comics, anime, card games, etc. You also need to be able to upsell to people who are experts on this stuff.
I don't think you have it in you, I think you're coming to us as your voice of reason. I also don't think it'd be worth it for you either. There are better uses for your money and time. Your 75,000 population figure is too high. You're probably looking at a market of 1% of that if you're lucky.
tl;dr - don't do it, walk away
It's that.
Personal trust needs to be Irrelevent. Absolutely and unequivocally irrelevant to making a business decision as serious as this if you don't want to be in debt for the rest of your life.
Based on what you've said before, I wouldn't do this.
But if you do go ahead anyway, please for the love of god don't go into this letting trust cloud a single unaccounted for penny.
That is a solid question. I am hoping to have grown the store to the point of affording it. If I haven't been able to do that I could sell the store and pursue another career. I have this planned out for about three years of my goals for the business. But I feel I can't plan past that and maintain honest realistic goals for myself or the business.
You need to think about 10-20 years from now as your "do I need to reevaluate anything I am doing?"
What happens in 4 years when your insurance runs out?
What happens if you don't like what you're doing?
What happens if your premiums and rent go up a substantial amount annually?
Are you going to be stuck paying $1000 a month trying to find a buyer before you file for bankruptcy because you've got a 2 year lease with the building manager? (Commercial leases tend to be long term)
This is a big decision man, really big. We can give you help but you have to feel it's right for you.
The most important tip is: know where to stop. Make sure you can always close the doors and get a real job within the month. So #1 tip - don't take out business loans for a failing business - only take out business loans for a booming business that needs a little more push to boom. Since this is not, and never will be, a booming business (it's a game store) - DON'T TAKE OUT ANY LOANS.
Also, I know you are pals, but don't give him 12k for his old stock. It's probably not in perfect condition, and he couldn't get 12k from a business liquidator. Offer him what you can afford, taking into account you should also have enough spare cash to pay the store's rent for a few months if you don't make any sales at all. If you don't have enough savings for that, tough luck, you can't afford the business. Don't feel bad about not giving him much money, you'll probably be doing him a favour by taking over his lease.
Inspect the stock first before you buy, make notes of what's damaged and what is not.
As Celestial said, never take out a loan. That can't be stressed enough, don't ever do it. Never. Not even to cover rent or your paycheck. Eat ramen noodles if you have to.
How much money do you have saved right now for the business, and how long could you operate the business with absolutely no revenue or source of income? This is the first question you should ask yourself, and if it's anything less than 6 months you need to pass on this offer.
You mentioned that your fixed costs are a very low $600 for the building + utilities, but this is on a month-to-month lease. How does this compare to local rents? Have you prepared for the building's owner raising your rent? Has the building owner discussed you taking over the business / rent? What will you do if the building owner decides not to renew and gives you 30 days to move? Have you considered other expenses - retaining a lawyer and accountant, insurance, subscription costs and fees, etc?
You mentioned that you can continue this arrangement indefinitely. I assume that you are counting on your girlfriend's full time income in this. Have you discussed this with her and she has clearly and enthusiastically expressed a willingness to support you and your business for a year or longer? Does she have an expectation of repayment or regular payment? Does she expect to be a partner in this business? How much of the income does she expect you to bring home to share costs vs. re-investing in the business? How long does she expect to be supporting you at home before you start bringing home your own income?
How much time have you spent in this business? Have you worked in your friend's business - run the register, stocked, met his customer base, etc? Have you ever worked in a similar business or retail? Have you ever run a business? If you haven't, would your friend let you spend a few days / week operating his business while he shadows so you can get a feel for it? Has your friend considered owning the store (and associated liability) but 'hiring' you on commission to operate it on his behalf?
When it's time to go on vacation or you're sick or you need to go to the bank, etc, who will run the store? Will you be able to afford hiring someone? What will you do to keep them from stealing?
This isn't normal retail. You need to be able to engage your customers and sell to them. You need to be friends or at least friendly, without letting yourself get taken advantage of. You also need to be tactful enough that you don't just piss them off. Are you outgoing? Would other people describe you this way, or are you just trying to 'sorta, coulda, probably' justify it? Do you have any sales experience? Do you have experience running events for 8-16-32+ people?
Before you make any decisions, you should be able to honestly and confidently answer these questions. Running a business is hard, and running a game store is an especially hard business. Since a big part of this will rely on your relationship with your girlfriend, you especially need to consider any problems the two of you might be having / have had, and the impact of this stress on your relationship. You will likely be working very long hours - 80+ for the first few months, and have little to show for it. Are you prepared to deal with people coming into your shop to look at things, then coming back a week later having bought them on the internet to save a buck or two?
One reason to be sure you have a properly formed and maintained corporate entity is so you are insulated from business failure risk. You should not do business on this stuff personally, you should be doing it through a corp or an LLC.
If you're serious about this, get a full copy of the books and take them to a professional accountant before making a decision. There are a lot of things that are easy to miss if you aren't neck-deep in this stuff all day.
This all varies widely based on the section. I can tell you that most D&D products on the shelf right now are probably not going to move. It's been over a year since new content dropped so everybody who wants it has it, the evergreen products are no longer supported so again, those things that typically move at a steady state are going to be much diminished. Pathfinder (brand X D&D) is moving but I don't know enough about the product lines to say which products are still in their prime selling time frame.
This is the kind of knowledge you need to have to do this right, and in reality probably more than what I have. Definitely on a more spread out basis than I have.
The rents for the building are pretty average for what it is. I could rent a larger/nicer store but at a bit of an increase. Moving the location is on my plan after 1 year or two years depending on me increasing the amount of business. This building has had a lot of the same commercial tenants for the past 15 years So I don't foresee that changing anytime soon, if it does it would be a struggle for me to move the shop right away.
I have spent many years at the store and I know the crowd really well. I am more in line with the miniatures group than I am with the magic group which is one of the reasons I want to try and engage them early into my ownership.
My girlfriend does not expect an income from the shop and is willing to help me out on food/bills for awhile if need be. Ideally I will make my half of our expenses (a total of 400$ a month for rent/bills) and even if the shop does not perform I can do landscaping on my days off to bring that amount in. Everyone of the stores customers that I have spoken with in regards to me taking over believes I would be able to do it and improve the shop. I have little fear that the clinetel would leave if I took over and I would not allow them to take advantage of myself or the business despite being friends with a few of them. Again my concern with the magic crowd but that is pretty overblown I think.
I have never run a business before but everyone has to start somewhere. I have worked in retail for years and I was the President of a gaming club on campus for years that frequently held events bringing in 60+ people in attendance.
Are you ready for that?
Are you closed on weekends? What does that do for your clients? If you're closed when they want to shop, you're no longer better than amazon.
You should focus on ways to make more money on the store.
Being an owner of a brick and mortar business is not just about being the middleman for your inventory, especially in the days of any pen and paper guy being able to order whatever he wants from amazon
if you do have a lot of people showing up for MTG tourneys and stuff, you need to be finding ways to squeeze a nickel out of them, or having more nights where you have an increased patronage though events, etc
The stores current hours are Wednesday through Friday 6:30-10 Saturday 3-10 My new hours would be Wednesday-Friday 2-10:30 Saturday 12-11 and Sunday 12-8 Closed Monday and Tuesday. I think this increases the stores hours while still giving me two days off and I don't foresee that hurting business as it is a large increase int he time the store is open.
As Jasc said, you want to squeeze as much money from them as you can on their tourneys and stuff. This isn't about being a dick, it's about making a dollar.
Sell chips, soda, candy and whatever during these events. Mark it up like you're a corner store.
A can of soda costs you 25 cents? Sell it for 1.25.
A bag of cheez-its costs you half a dollar? That's 1.50.
Have group discounts. Oh you guys want to have a party? Here's a discount package with a 24 pack of soda and a whole thing of assorted chips for $25. Your out of pocket would probably be $8 for that. Of course, no outside food or drink for insurance and liability purposes.
Open a website, let people place orders and pick up, or ship it to them for a small fee. Let them rent your tournament area for whatever. I'd probably also expand into video games. Buy a few consoles and TVs when you can afford it and hold a SSB tourney and have a $5 entrance fee, keep 10%, and give the rest to the winner. Or maybe organize with some companies to give out prizes. Email sony and nintendo and wizards of the coast (and all the rest) and see if they have things they can sign so you can give it away during these tournaments.
Your big dollar items are probably going to be all these side sales and other things like yu-gi-oh (is that still a thing?), and probably not MTG or Figurines. Maybe offer a figurine service. Or storage service?
Just some ideas for you to ballpark with.