Start from what you know
Before we bought the bookstore, we had sales figures and expenses for the last couple of years, some monthly sales figures from 2008 from the previous proprietor, and an inventory of all the books on the shelves.
From that we knew that the store lost a small amount of money most months, and did best in the summer. We knew that sales had been pretty consistent in the past couple of years, but were about three times higher ten years ago. We also knew how much the store spent and on what. And we had a good idea of what books were in stock.
From that we knew that overall retail spending was pretty buoyant and Auckland had been adding retail outlets in recent years. The number of shops in Ponsonby is growing slowly (and employment there is growing more quickly: a sign of growth for existing shops), and the number of book and magazine retailers has fallen by nearly half since 2000.
A simple business model
The fundamentals of the business model in this second-hand bookstore are pretty straightforward.
On the revenue side:
Visitors: People come in store in person or online
Customers: Some proportion of visitors buy a certain number of
Books: and each book has a
Price: which together give us
An average day in 2014 and 2015 had 17 visitors, 10 customers and revenue of $215 (including GST). Weekends are the best. Tuesdays are the worst. Revenue is also peaky, i.e., a small number of transactions account for a large proportion of the total.
On the costs side, the main costs are rent, staff, and book buying, with all the other stuff (including Internet, electricity, accounting, insurance) adding up to only 12 per cent of the total.
Typically we pay 25 per cent of the retail price (including GST) to buy a book. We get a lot of good books in from donations, and we have been getting in more than we have been selling in recent times.
What to do
To restore the bookstore to financial sustainability means increasing revenues.
To figure out how much, I made three scenarios for how our operating costs might look and then solved back to how much we would have to grow revenues to cover those costs.
The owner before us worked here six days a week. We couldn't do that, so we would have to spend more on staff. I committed to spend 4 or 5 days a week here for the first few months, working the rest of my life around it. We also knew that our rent was going up. We thought we could save some money on some things (I live right nearby so we don't need a carpark), but overall we would be spending more on other overheads too.
We also knew that we would need to spend some money on the books and other assets, but also on capital projects, like transforming the garden, replacing the signs, and (soon!) changing out the front window.
Overall not a great picture on the costs side of things. We decided to stop buying books for cash for a while to try to husband our resources.
The scenarios look like this.
|Scenario||Description||Annual cashflow||Revenue increase for breakeven|
|Now||Status quo||-$1k||2 per cent|
|Baseline||Higher rent, four days staff, higher overheads||-$11k||25 per cent|
|Steady state||Higher rent, seven days staff, higher overheads, some book purchasing||-$33k||50 per cent|
The main difference between the scenarios is how many days a staff member is here. So one way to think about what we are doing first is growing revenues in order to pay staff. If we can boost revenues 50 per cent, we can fund one staff member for seven days a week as well as do other things we want to do, which would be a huge success.
If we can do better than 50 per cent, we will start generating a return on the money we have invested. We aim in the long run to generate positive cashflow of $10,000 a year, so no one is going to get rich from this project. But a return on capital will make it sustainable in the long-term, which is our ultimate goal.
How are we going
Four months in, here are some lessons and progress:
Revenue has overall been in line with history (but it is very volatile from week to week). There is no sign of an uplift yet, but that isn't especially surprising because
it has taken longer than expected to make major changes. We took over on 1 August, but it took until late November to get into position to do some marketing with the new name, brand, signs and website all in place.
Costs have been a bit higher than expected too. It has been hard for me to carve out enough time from the other parts of my life to devote to this delightful but rather needy side project. This has meant we have spent more money on staff (which is good for them of course but not so good for our forecasts :-).
We have so far spent a bit over half of the 15k in working capital that we initially tipped in (mostly on paying for the costs of projects, but also on paying for the ongoing operations).
One other thought by way of postscript.
Ordering the shelves doesn't seem likely on its own to get more people in the door so one does not want to get too stuck in the delights of doing that. But still, late in the afternoon when the sun is shining in just so, what could be better for the soul than writing prices in pencil on the inside of some slightly worn tome, wondering who will be the next person to take it home. At moments like that, it is fair to say that the business case for this bookstore dream isn't exactly top of mind.