Editor's note: David DeKeyser and his wife Rebecca Cleveland owned and operated The Bike Hub in De Pere, Wisconsin, for nearly 18 years. Last year, they sold the business and real estate to another retailer based in a nearby community. BRAIN will be publishing a series of articles written by DeKeyser in the coming weeks. The first two articles will focus on successful retail exit plans.
If you own a bike shop, congratulations! As a recently retired shop owner who is still very interested in what’s going on in bicycle retail, I know there are as many ways to get a shop going as there are ways to operate. I also learned that financially we all have to work with the same 100 pennies in every dollar. There is no black magic when it comes to financial matters.
There are many ways to enter this business, but, with some minor variations, there’s a fairly finite list of ways you’ll get out. And that’s what my first columns for BRAIN will focus on.
Logically, there are three likely financial scenarios when it comes exit time:
- You leave on your own terms and feel great about it.
- You somehow manage to get out without owing anyone money, but you really don’t make a nickel, either.
- You go down in financial flames.
The third scenario is of course the worst. You may have spent a considerable amount or all of your life’s savings, and an equal amount of your life’s energy, on something you loved. And you end up financially ruined. The retail landscape is littered with horror stories and destroyed finances.
My project here with these BRAIN columns is chronologically backward, you might say: In my first column after this introduction, I’m going to walk you through some exit scenarios and tips. Then in future columns we’ll discuss profitability and how to achieve it.
That is something like telling you how to win a Tour de France stage by first talking about the moves you need to make in the final kilometer. While we all know you can’t get to the final k with a prayer of winning without some serious hard work.
So let’s consider our initial discussion of an exit plan something to inspire you, to get your blood pumping as you think about coasting over that finish line with your arms in the air. Some might say rehearsing a victory salute is idle day dreaming — others call it visualization.
So first, my job today is to assure you that, yes, victory is possible. Despite some gloom and doom out there, bicycle retailing has provided many with a great income and a fulfilling career.
My wife and I just sold our bike shop and real estate, which we owned and operated for the past 18 years. The business was always profitable and for most of those years, was “highly profitable,” according to the definition in the National Bicycle Dealers Association’s Cost of Doing Business studies.
Ultimately, we decided to sell and we were able to do so because the business was profitable. Without profitability, you will likely never sell. Profits are the litmus test that determines your business’s health. We got into the business, ran it successfully and got out financially in a great place.
Not all shops are so profitable, of course. In fact, I feel like the bicycle industry celebrates some shops whose profit and loss statements are the worst. I know shops that have been held up to us as gold standards that later went bankrupt and ruined the owners financially. Other shops are visually very impressive yet financially on tenuous ground.
This is not just my hunch. I’ve examined the financial details of many shops that have been for sale that I considered buying. The details of these shops’ finances often were at odds with my preconceptions. I have always wondered what the shop of the future would look like if we examined everyone's tax returns instead of the size of its race team, most recent remodel, or the number of Instagram followers it has.
So — back to pumping you up — how much money are we talking about? I have read that the average bike shop owner is making about 4% of gross sales. A million dollars in sales equals $40,000 in income. That’s pathetic in my mind. Anyone risking what it takes to make a shop successful should be clearing at least 10-15% of the gross in my humble opinion. Yes, I’m saying you should be making $100-150k on the “average” bike shop! High-profit store owners can make in excess of 25% of gross! If you are not making that kind of money, you may think those numbers are unattainable. But I assure you they are, and for all the risks that store owners are exposed to, they should be.
Reaching those levels of profit is impossible if you make financial mistakes and don’t benchmark your expenses. Occupancy and payroll are big expenses. However, debt, credit card fees, interest payments and freight can and will eat you alive. Discounting, poor inventory management and a lack of basic financial knowledge are a recipe for failure. Not utilizing a powerful POS system to its fullest is another huge mistake if you want to harvest as many of those precious pennies as you can.
You have to get things right. The margins in this industry have been shrinking and it is no longer feasible in my opinion to be discounting at all, except to clear aged inventory. The days of the “spring sale” are no longer viable in my opinion.
I plan to dive into at least some of these topics in detail in future columns and to answer your specific questions about them.
But next, as I said at the outset, in my second column, we’ll discuss a game plan for your exit from bicycle retail: the inevitable day when you feel that the risk is no longer worth it, and financially, it will not produce the income you desire. Or you have enjoyed the profits and the value is now there to allow you to sell.
Even if you are decades away from that decision, your business is probably already the biggest asset you have. If you begin running it with the intent that someday you will exit, you will begin to make different decisions every day.
Dekeyer's second column will be published on BRAIN Aug.14. If you have questions on retail management for DeKeyser, send them to bikezest@gmail.com.
