Q and A - Ask the Resale Queen

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the Resale Queen!

This page was created to mentor resale shop owners, somewhat like a resale "Dear Abby." The Resale Queen will give a personal answer to questions received, and will display a selected number of the questions and her answers on this page.

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"Ask the Resale Queen"

Q: Dear Resale Queen,
An agent from my counties Appraisal District came into my store and told me I had to give him a list of names and addresses of all my consignors and the amounts they were paid last year. The Appraisal District will send them a tax bill! This will cost me a great deal of time in giving them the information and could drive my consignors away from doing business with me. Help! What should I do?

A: I can only shake my head at this story that I have heard over and over for the past 20 years I was in business. I have filed complaints with the heads of the Galveston County, Harris County, and Fort Bend County Appraisal districts about STARS members being harassed by their agents about this issue. It is really hard for me to believe that the agents are that stupid and clueless.

I’ve had my own fun with the agents visiting my store. I let them go on and on about what I have to do, then I double over with laughter and with tears in my eyes say, “You have got to be kidding! You want me to give you the names and addresses of hundreds of my consignors and the amounts they made so you can send hundreds of little tiny tax bills to all of them? All that time and expense of postage for that small return?” I love to see the embarrassment on their faces as they realize the truth of how stupid that would be.

Some of the agents, however, will still insist that you have to do it or suffer penalties. They have even said “there is a new law.” To those guys and gals, I get serious and say, “I will get my accountant right on it and will send it in as soon as possible.” Then I hope I can get them out of the door before I crack up. I never do the list and I’ve never been called back about it.

Some of the agents have been really nasty to our STARS. When a shop owner refused to give him the list the agent looked around her store and said, “I estimate that the taxes your consignors would have to pay total $400 and if you don’t give me their names you have to pay it.” He demanded a check for $400 and she paid him. I really hit the roof over that. Long story short: the appraisal district returned the money.

Here is the legal answer for any agent that asks you for your consignor list: Your consignors are bringing in THEIR personal used items (not items purchased for resale) and will get a return of FAR LESS than they paid for the goods. Most importantly, they are NOT IN THE BUSINESS OF SELLING GOODS. Period.

Q: I am going to open a small resale shop for infants to children and the question I have is about doing trade, seems that if you do trade for clothing instead of any cash that your shop wont make very much money. Every kids shop I have been in seems to do the trade, but I don't understand how they can make it.
A: --- Darla, The idea with trade is it is better for cash flow to not pay out cash for merchandise coming into your shop. By the way, some stores only pay out cash; some only offer trade; and some offer both with the option that if the customer takes the trade option they will receive a larger amount.

Everyone agrees that accepting consignments is a big pain in the neck in terms of limited profit, and a whole lot of time and expense. The fact is, you can make the most money by owning the merchandise and marking it up 6-10 times what you pay for it. Be advised that most stores still do most of their business through consignment with some buyouts in trade and cash.

Yes, your suppliers can take your best items and pay with their credit and some days you may have more credit sales than other days which puts little cash in the register. But I would think overall, you will have most sales in a day made with cash and the cash flow will not be a problem.

It also helps to know that most of your retail customers will not be suppliers as a general rule.

The Resale Queen

Q: I would like to know how to start my own kids shop. Mainly clothes but other things as well. I seen a shop today and asked her how to get started, she gave me TGTBT.com website. If you could help or give me some helpful tips on how to get started. Thanks so much for your time.
Tina
A: --- Tina, I can tell you the best way to accomplish your dream, but first of all there are important questions for you to answer, like, How much money can you invest in the business? You need initial startup money and back up capital. And can you afford to lose it if the business doesn't take off? Can you run the business with no income to you for a year? If the amount you can put into the business is less that $15,000, do not even think of owning a shop. And that is a low figure. If you can swing the money and can risk the loss of it, then:
1. Buy Kate Holmes, The Complete Operations Manual for Resale & Consignment Shops available on her website, http://www.tgtbt.com
2. Read it from cover to cover, especially the part asking questions on whether or not owning a resale shop is a good choice for you in terms of commitment, and personality--do you really like people?
3. Visit lots of resale shops for ideas of how to do your shop. Better yet, get a job in a children's shop. There is no better way to find out what important issues are involved in running a similar shop, and whether or not you want to commit to the time and work involved.

Tina, a lot of previous resale shop owners thought that because they loved resale all they had to do was get a store, get some stuff from friends, relatives, etc and they were in business and then they could figure out the rest, like how to do marketing, while making money. They would spend a lot of money on fixtures, a store sign and then run out of money to pay the rent and would get shut down.

It takes a lot of time and research, as well as a cash cow to open a shop. Check out a small business free counseling site, http://www.scorehouston.org . Get your education as to how to develop a business plan and many more important questions.

The Resale Queen thanks you for writing!

Q: I'm not sure if you can help me, but I'm considering purchasing a relatively new resale shop and am not sure how to figure out the value of the business and what I should be looking at. The shop has been in business since October 2005, so they don' t yet have a year's worth of sales figures.

A: --- This is real easy: the value of the business is the business assets--the rounders, office equipment, store inventory, etc. Period. If you want to pay a little extra for "good will" that is your call. If you consult a lawyer (as I have on this matter) this is what he will say.

The more important questions are: Is the store in a good location, does it have a good lease and will the landlord let you have a lease in your name. They will require a credit report and ask you to have your husband or someone guarantee the lease note. You will have to pay first and last months rent. Another important question: do you have back up capital of 3 months rent, a line of credit or the ability to get a loan if needed? Also, you should not expect the store to support you and if that is necessary, walk now.

The number one reason a new business owner goes out of business is because of a bad lease (pays too much rent) or has no resource for back-up money and is forced out. Last piece of advice: give very careful thought to buying the business. The owner is probably selling because she has figured out she can't make the kind of money she expected to. How much do YOU need the store to make for you? Is that expectation realistic? Consult an accountant.

Most important of all, if you decide to go forward with the purchase, do not do so unless you have purchased "the Complete Operations Manual for Consignment Shops" by Kate Holmes. Visit her website http://www.tgtbt.com to order it. It is about $70 but absolutely worth it. You can also check out other benefits the site offers including their famous message board. See what other shop owners say about business. Go to "site Map" and click on "sharing excerpts" and scroll down to an article about why one business went out of business. A real eye opener. Good luck--owning a store is so satisfying if you know your product and enjoy interacting with people and have the money to back it up in case of slow times.
The Resale Queen