I have spoken to scores of individuals who are either thinking about starting a new store, buying and existing store, rethinking their trading policies, or just computerizing an existing store. We have started a successful trading bookstore from scratch, and I am sharing the experience with you in this topic.
I am not saying that I know all of the answers. In my past job experiences I was unfortunate enough to act as a nation-wide troubleshooter for a major computer company. This experience has shown me many ways of doing things INCORRECTLY. I try to learn from past experiences (mostly others') and apply these lessons to current circumstances. Hopefully you can glean out something from this information to make your life a bit easier and hour store more profitable. Please read this with an open mind. These Ideas may well be in opposition to some of your closely held beliefs. Please give me some feedback. I look forward to your comments.
Your used stock.
An important and most basic rule. You must have books which customer want to read in order to meet your monthly financial obligations.
A guideline that I have people go by when opening a store. You need at least 6,000 books. This is for a store with a floor space of approximately 1,000 sq. ft. You need an additional 4,000 books for each additional 1,000 feet.
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You can stock approximately 10 mass market paperbacks per linear foot. Build as many book cases as you can fit into your store without overcrowding. People love well lit stores with a little room to move around. Stock your best paperbacks face out to fill the unused space. If you have done your homework, tons of used books will be shortly rolling in to fill the sparse shelves.
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Unless you are true book wizard, All of your initial inventory of books won't be great. Some are just for fill, but your business is scheduled for an early failure if you open with a sparse supply of books. You need to think about where you are going to get these books. Your best bet is to frequent yard sales, and generally buy all of the mass market paperbacks that you see, so long as you can buy them for LESS than .50 each, (the true wholesale of a paperback is .30) everything that you can find...using these guidelines:
If you are paying cash for books, they must be in great shape.
Buy only the very latest (pub. date) of Serial Romance and Historic Romance. The ones over a year or two old just don't sell very well.
Always try to keep duplicate copies to under 4. Exceptions could be Nora Roberts, Grisham, etc, but when you stock up on titles, you will need a workable bulk storage and restocking system.
Stock a variety of books. You really don't know what the profile of you customer base will be. You can bet that many of these will be middle aged women who buy romance and general fiction books, but you business will really take off once you attract other types of customers.
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Hint: When buying books at a yard sale: Look over all the books offered for sale. If they look good, your best bet is to say "How much for ALL your books?" You could be blown away at the low price that folks will take for their cache of books. If you see the husband milling around, ask him. No doubt, he is the one who carried all of the books outside, and he really doesn't want to deal with the books again. If the price is too much, pick over the books that you must have and pay the per book price. Return at closing time and make them an offer.
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I still frequent yard sales. There's gold in them hill!. Try the yuppy side of town. Lots of great deals there. If you live in a college town cruise the dorm areas at the end of semesters. When vacating their residences, they have to move the books, or sell the books. Many of the students are using dad's cash to buy books, so selling them for far less than they are worth is no big deal. This gives them "walking 'round cash".
Ongoing Inventory
You can't sell from an empty cart. A bookstore needs lots of books. The more books that you have, the more you will sell. This is not proportionate. You will generally sell more that twice as many books with twice the inventory. That is because it is impossible to predict your sales trends, and who will walk into the store.
Although this is rare, one of our BookAccents customers has a store in a resort area. Although there is a small resident population, Spring and Summer is very busy with tourists. The problem is that the tourists have bought all of their sellable used book inventory. Since they leave town after a week, they are not returning the books. Funny, they don't think this is a good problem. I guess we're going to see just how resourceful they guys are.
Your Book Trading Rules
You must receive cash on each and every transaction. You cannot start a new bookselling business if you allow your customer to pay for all of their books using 100% credit. Each and every new business who has tried this has either changed or has failed.
Your customers are smart enough to know that they can go to Good Will and buy a bag of books for a few cents each. If you allow them to trade them and use all of the credits to buy your best books, they will rape you inventory in a day or two. All you will be left with is junk that you can sell for a few cents each.
Ah, you say.... "I'll only take the best books in trade, that way I will get two great books for one." Well established store can get away with this. There are many problems associated with this thinking:
Do
you or your employees have the experience to recognize books that will
sell or trade well? How
are you going to train new employees about trading books if mistakes on
their parts can have a very negative affect on your bottom line?
No mater how hard you try.... your banker won't take your books in trade for any notes owed to him.
Here's a plan that works. Pay in the form of
credits only at 25% of the retail
price of a paperback. Price
your used paperbacks and 50% of the retail price. Allow
you customer to use 1/2 cash and 1/2 credit to purchase books. For
hardbacks, pay 15%, mark them at 25%. This
works. If you can get more for your hardbacks, by all means do so. For
generally, hardbacks are very difficult to sell, and I am happy to get
this for them. I
know one trader who had his hardbacks priced too high. All
he ended up with was a warehouse full of un-sellable hardbacks.
This is a tested and proven trading method. The benefits are to this plan are:
You
always get some cash for your books.
Since you are getting cash, people are less likely to use all of their
credits, and this helps your cash flow and inventory. They
are giving you books and you are deferring giving them anything in return.
When the
can use 100%, they will more likely get as many of your books as they
can for free on each visit. Why
shouldn't they, they are stealing them form you at 100%? If
they do buy them when you get 50% in cash..., you have had a good day.
Consider an example: a
customer brings in two books with a retail value of $8.00 each. For
this you will issue him a credit of $4.00 (25%
of $16.00). He
buys two books with a retail value of $8.00 each. You
have them marked at 50% or $4.00 each. The
total come to $8.00. The
customer uses $4.00 of his credit and gives you four dollars in cash..
So he paid
$4.00 for two books with a retail value of $16.00.
You are happy because you sold two books with a total combined wholesale
value of $.60 for $4.00. You
also got two more books with a value of $.60. Your
net profit is $4.00.
The customer is happy because he bought $16.00 worth of books for $4.00.
STOP and think about this for a while. If
you were allowing a customer to trade two books for one... in a round-about
way, you have accomplished this. He
got one of the books free (using his credits completely) and
he paid 1/2 of the retail price of the second book. You
must understand this point so that you can sell your trading policy to
the customer. If
you cannot explain this to one of your customers, you don't want him as
a customer. He
is an unreasonable person, and does not understand that you are not doing
this as a hobby, let him go elsewhere and waste their time.
Using the example when you do 100% a customer brings you two books,
he takes one, you have no cash. How
many time a month can you do this and stay in business? I'll
help you with the answer... not many.
You do not have to be
very picky about the books you are taking in trade. Who
cares!? Now
remember this... folks are trading in their books. For
all practical purposes, they are giving you them for free. (I
still put a $.30 value on them for inventory and tax purposes.)
You have the book marked at $4.00. Yes,
you will sell some of then to people who do not have trading credits.
Great !!
That's a huge profit.
The worse case is that you will sell that book to someone who has credits
for $2.00 and get a book to replace it. A
profit of
$2.00 ($2.00
-.30 +.30 = $2.00). So
it is a great thing for people to have lots of credits. If
you were allowing trading at 100%, that is not so good.
Unless someone is trying to really take advantage of us, we take everything
they can carry into the store for trade. We
fill a large garbage container every week with the junk that nobody wants.
But we
have lots of people coming in and leaving some cash in return for used
books.
Keeping track of credits. My personal opinion is that you should not keep track of your outstanding credits in any type of ledger system. There is absolutely no tax advantage to doing so. There is a downside to keeping the ledger.
Your banker or prospect (when selling the business) will want to write down your gross assets by the amount of your outstanding credits. Since you cannot do this with your tax liability, this is indeed very narrow minded thinking on their part. Customers having lots of credits is a good thing, not a bad thing. Thinking about credits as a future liability is nuts. Consider them as money in the bank. Someone has to give you cash for books that someone has given you for free, even when they use 50% credit!..
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As inventory is only a deductible cost at the time of a sale, so are your credits. That $4.00 book that you sold... you don't have to pay taxes on the $4.00 (in value), you received. You may apply the $2..00 credit. This seems to be stating the obvious, I know.
Don't try to write down your inventory or total assets by the amount of your outstanding credits. That will make your IRS representative very unhappy. The airlines have argued this ruling with Frequent Flyer Miles, and have failed.
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BookAccents computes and prints a customer's
unused credits on each receipt issued. We
tell the customer to keep track of the credit slip as we have no record
of it on our computer. For
the most part, that works, but here are a few scenarios that you will
need to handle:
"I forgot my receipt, it is at home somewhere." We tell the customer "No problem, when you find it, just return, and we will adjust your invoice". This works most of the time. But if the customer is going to put all of the books back... "Tell you what. I'll discount the invoice just as though you had your slip. Please remind me on your next trip, and we'll handle it then."
"I don't have a receipt, you didn't tell me that I needed to keep it." Well this is a little harder. This is a judgement call. If I recognize the customer, I'll at lease give them enough credit to cover today's purchase. sometimes I'll issue them full credit for what they claim to have had. But since we do a 50/50 trade, I am not really giving them any cash. Generally, these folks will only buy books if they can use their credits.
Most of the ideas in this topic are explain in far more detail elsewhere on this web site. I am leaving it up to you to peruse our site to glean out the meat. If you are starting a new business or expanding a an existing one, good luck. I sincerely hope you are successful.. If you proceed wisely, you will have a business that is fun to own, as well as very profitable. I would be happy to hear from you, regardless of your desires to use BookAccents software.
Tony Troskoski
