Used-Book Case Study

Dwight Payne and Gary Heap reside in Santa Barbara, CA, where they attend college and pursue their mutual hobby of science-fiction book collecting. They pooled their book collection of over 4,000 volumes, and sci-fi magazines going back over twenty-five years. All neatly catalogued and indexed, they estimate it would cost $20,000 to assemble the collection today.

Payne and Heap decided that, at the end of this school year, they will dedicate the summer to getting a used-book store started in Santa Barbara as a means of supplementing their income year-round. Heap's uncle owns a storefront near the University, and agreed to rebuild it as a used-book store. He also co-signed an inventory loan for $4,000 for some start-up working capital. In exchange he gets 25 percent of store sales for two years.

In addition, they bought a collection of over 10,000 paperbacks, magazines, and comics for $3,500, and some used shelving for $1,500. These purchases required borrowing the money from some fraternity brothers.

ADVISE DWIGHT AND GARY (There is no one right answer)

Decide on days of the week and hours the store will be open. Estimate staffing required and hourly salary costs. Do Dwight and Gary really work for free? What is a reasonable expectation of customers per day? Average purchase per customer? What are pessimistic and optimistic values of these estimates? How much will they have to spend on advertising and promotion to meet these estimates?

What will they pay, on average, for each book? How much can they get, on average, for each book?

Put together a projected (often referred to as pro forma) income statement. Relate the estimates developed above to monthly sales (pessimistic, expected, and optimistic), cost of goods, and expense amounts for wages and promotion. We should add 25% to wages paid for the payroll estimate, to account for taxes, sick days, etc. Debt service payments may be assumed to total $400 per month. Estimate rent and utilities and any other expenses that you feel might be incurred.

Conclusions: Find a break-even sales estimate, that is, the value for sales that produces a Gross Margin just equal to Total Expense. When gross margin generated equals expenses, profit/loss is equal to zero; this sales level is called the break-even point.

Would you do it if you were they? Why or why not? What kind of a test is this where you can't look up the answer? It's an entrepreneurship test; learn to be comfortable with your best estimate.

(After many requests, I have decided to make available the spreadsheet that represents my approach to this problem (go to jbv.com/mb/UsedBook.xls), while reiterating that there really is no "right answer.")

John B. Vinturella, Ph.D. has almost 40 years experience as a management and strategic consultant, entrepreneur, author, and college professor. For 20 of those years, Dr. Vinturella was owner/president of a distribution company that he founded. He is a principal in business opportunity sites jbv.com and muddledconcept.com, and maintains business and political blogs.

---

Strategies for Overcoming Obstacles to Discovering Your Gifts

What are the unique gifts that differentiate you from other... Read More

Build Your Own Board Of Experts

The most successful entrepreneurs rely on their advisory boards to... Read More

Message to Prospective Franchisees for Franchisors

Many franchise companies fail to send the proper message to... Read More

The Myth of Undercapitalization - Six Ways Entrepreneurs Achieve Success in Spite of Start-Up Money

This year more than 17 million people will become entrepreneurs,... Read More

Cross Polination of Innovations in the Cleaning Industry

According to the latest edition of Pool and Spa news;... Read More

The Heroic Entrepreneur: Profiting from Your Brilliance

If you look up the definition of hero in Webster's,... Read More

Securing Second and Third-round Venture Capital Financing

Widget sales are booming ? the competition is scrambling, demand... Read More

Its Good to Know Your Banker

Recently my bank opened a new branch that is a... Read More

Secret Revealed In The Business Code

? Beginners often rush into business without any planning.? Unless... Read More

Be Where the Pucks Going To Be

The "Great One" said it bestHockey legend Wayne Gretzky, when... Read More

The Boss is DEAD!

Some of us are born into families with "it", some... Read More

Traits and Skills of Successful Internet Entrepreneurs

There are certain traits and skills that many successful online... Read More

7 Small Business and Self Employed Law of Attraction Principles For Success

It is widely held that one of the most important... Read More

Entrepreneurship: What does it REALLY mean?

Introduction:In a world where ideas drive economies, it is no... Read More

Entrepreneurship: Insight and Closer Look At The Entrepreneur

Life as an entrepreneur is the American Dream. To be... Read More

Solving the Million Dollar Mystery: 4 Steps To Create A Turn-Key Business

You're a smart, hardworking entrepreneur, and you're moving fast. You... Read More

PR That Entrepreneurs Often Overlook

If that sounds like you, here's what you may be... Read More

The Entrepreneurs Dilemma

In business, you plan to protect your inventory, your unique... Read More

Achievements Outweigh Education and Experience

Q: When it comes to succeeding in business, which do... Read More

Six Steps to Guarantee Your Business Success

Many of us slave away for years for one uninspiring... Read More

Methods of Generating New Ideas for Entrepreneurs

Summary: Even with a wide variety of sources available, coming... Read More

10 Ways Entrepreneurs Shoot Themselves In The Foot

Entrepreneurs and their businesses have a tendency to ambush themselves... Read More

Entrepreneurs, Are You Hauling Buckets?

Once upon a time, there was a village on the... Read More

Differentiation Strategies for Franchise Companies

With the growing number of franchise offerings recently it is... Read More

Leadership Attributes for Business Success

Business success is essentially the result of successful leadership. Contrary... Read More

Learn how to Compress Time

In the popular 1980's movie "Dune," man learned that by... Read More

Franchises-Exit Strategy

At an International Franchising Symposium in London, Peter Holt made... Read More

Needs Versus Wants For Entrepreneurs

How often do the words "I need" come out of... Read More

An Entrepreneurs Biggest Cost

When launching a new product or company, an entrepreneur must... Read More

Find Out If You WILL Be Successful As a Franchisee?

Will I be successful as a franchisee?One of the soundest... Read More

The Cockroach Test

Let me ask you a question? Imagine I would offer... Read More

5 Habits Of Successful Entrepreneurs

Habits get a bum rap. When you think about your... Read More

Business Startup Checklist

Use this comprehensive checklist to plan each step of your... Read More