Pet food retailer, worth becoming VAT registered?

[Pet pals]

Hi!

Would it be beneficial to become VAT registered as a pet food & accessories retailer? The products will be bought from wholesalers, who of course charge VAT.
Within all of the sales brochures I have recieved the RRP includes VAT. Which suggests that most pet food retailers register for VAT?

Sorry if this question seems basic to some.

Thanks in advance for any replies to this post

 

[DontAsk]

Can you increase your prices to cover the loss of margin, without losing sales?

How soon will you exceed the mandatory registration threshold? It might be better to bite the bullet now.

 

[Mark T Jones]

As a minimum I'd run some costings/projections being registered - as a stck-based business the threshold will come around pretty quickly

 

[Pet pals]

Thanks for the replies. I should have been more clear in my question.

I have not started my business yet, I am currently completing my business plan.

I am wanting to open up a small pet food retail store.

As I will be purchasing my stock from wholsesalers, would it be recommended to register for VAT or not? For a rough example, stock purchased for £600 inc vat is sold at £746 (I know this is a small example).

Do small retailers manage to make enough profit without becoming VAT registered?

Thanks

 

[DontAsk]

As I will be purchasing my stock from wholsesalers, would it be recommended to register for VAT or not?

Only you can do the sums for your business.

For a rough example, stock purchased for £600 inc vat is sold at £746 (I know this is a small example).

Making £146 profit.

If you register for VAT then you pay £746/6 = £124.33 (output VAT) to HMRC. You can offset £600/6 = £100 (input VAT).

You lose £24.33, unless you increase your selling price.

Do small retailers manage to make enough profit without becoming VAT registered?

Only if they keep turnover below £85,000, which caps their profits. Being VAT registered reduces profit (see above).

Not being registered allows you to make more profit (at a given selling price) or charge lower prices for the same profit, but only if you limit your ambitions.

When you hit the threshold you will take a hit which can only be mitigated by increasing prices or by growing rapidly enough to get well past the threshold and increase the overall profitability of the business.

 

[ecommerce84]

The general rule is that if you are selling direct to the consumer and the majority of your products are standard (20%) rated then you will almost certainly be ‘worse off’ registering for VAT as per @DontAsk example above.

If you are primarily business to business or selling zero rated items then you may well benefit from being VAT registered even if your turnover is below the VAT threshold - which went up on 1st April to £90,000 over a 12 month period.

 

[WaveJumper]

I feel before you dive further into this venture you really need to run the numbers, check what the competition are selling for. How would your retail prices match theirs, with, without VAT etc. Are you going to be competitive, are you going getting your product at the best possible price to compete.

Have you found a location already, have you factored in all the costs, not wanting to teach you to suck eggs, rent, possible business rates, utility costs, shop fit costs, insurance, staffing, don’t underestimate the latter especially if you are running solo you will possibly need time out to get stock

Don’t forget legal costs as you will not want to sign anything without proper advice (there are enough threads on the forum from those wish they had) welcome to the forum and wish you all the best with this new venture

 

[japancool]

Thanks for the replies. I should have been more clear in my question.

I have not started my business yet, I am currently completing my business plan.

I am wanting to open up a small pet food retail store.

As I will be purchasing my stock from wholsesalers, would it be recommended to register for VAT or not? For a rough example, stock purchased for £600 inc vat is sold at £746 (I know this is a small example).

Do small retailers manage to make enough profit without becoming VAT registered?

Thanks

Simple question - how much do you project your total costs, including your salary/wages to be per month?

 

[MikeJ]

Thanks for the replies. I should have been more clear in my question.

I have not started my business yet, I am currently completing my business plan.

I am wanting to open up a small pet food retail store.

As I will be purchasing my stock from wholsesalers, would it be recommended to register for VAT or not? For a rough example, stock purchased for £600 inc vat is sold at £746 (I know this is a small example).

Do small retailers manage to make enough profit without becoming VAT registered?

Thanks

Based on that you're making just under 20% margin. If you don't want to have to register for VAT, you need to keep your turnover below £85k, so your gross profit is going to be a maximum of £17k, before you write down other costs. Unless this is a part time job, that's not enough to live on.

 

[Mark T Jones]

Based on that you're making just under 20% margin. If you don't want to have to register for VAT, you need to keep your turnover below £85k, so your gross profit is going to be a maximum of £17k, before you write down other costs. Unless this is a part time job, that's not enough to live on.

Raising to £90K.

But this is going to be a shop, so in reality they will have about £60K turnover to play with.

Incidentally that is a tiny margin for retail!

 

[Pet pals]

Thanks for all the replies so far guys. As you can probably tell I am completely fresh to this subject. How do I work out a financial forecast if I have no data to go off? Would you work out what you need to sell to cover all costs inc wages ect? How could I strengthen my business plan to see if this venture would be deemed viable?

Apologies again if these questions seem basic.

Many thanks

 

[pentel]

Thanks for all the replies so far guys. As you can probably tell I am completely fresh to this subject. How do I work out a financial forecast if I have no data to go off? Would you work out what you need to sell to cover all costs inc wages ect? How could I strengthen my business plan to see if this venture would be deemed viable?

Apologies again if these questions seem basic.

Spreadsheets are your friend for doing this.

How much will you buy for? for simplicities sake lets say a single item costs £100 + VAT
How much can you sell for? as above lets say £150 + VAT

Difference is gross profit per item, in this case £50

How much are your running costs? Rent, power, insurance, wages, advertising + everything else you think you might need to spend. Lets say £40,000 per year

To cover your running costs you need to sell 40,000 / 50 items, so 800 items. This is approx 16 items per week. This is before you make any profit or start to cover your fit out costs.

800 items would sell for £120,000 so you would need to be VAT registered.

 

[fisicx]

And you need to convince pet owners to visit your store. That’s far more difficult than it seems as they probably already have a supplier who delivers at far less cost than you could match.

 

[Pet pals]

And you need to convince pet owners to visit your store. That’s far more difficult than it seems as they probably already have a supplier who delivers at far less cost than you could match.

There seems to be alot of interest for raw and natural food in my local area. Closest places which people drive to take over 25 mins to reach. Some people don’t like to order too much raw in one go due to lack of freezer space. I personally have to travel to the raw food shop every other week to stock up and I have a decent amount of freezer space. There is a dog groomers that sells a few bags of cheap dog food and they get so many customers in asking for raw food natural treats, other brands of foods. However they cannot facilitate due to space.

 

[DontAsk]

There is a dog groomers that sells a few bags of cheap dog food and they get so many customers in asking for raw food natural treats, other brands of foods. However they cannot facilitate due to space.

An excellent opportunity for cross-selling. Do a deal with the dog groomer for discounts on food or grooming. They will, if they have any sense, want to be sure it brings in extra custom, not just end up cutting prices for the existing clientele.

 

[fisicx]

There seems to be alot of interest for raw and natural food in my local area. Closest places which people drive to take over 25 mins to reach. Some people don’t like to order too much raw in one go due to lack of freezer space. I personally have to travel to the raw food shop every other week to stock up and I have a decent amount of freezer space. There is a dog groomers that sells a few bags of cheap dog food and they get so many customers in asking for raw food natural treats, other brands of foods. However they cannot facilitate due to space.

That may be so, but would it sustain a shop?

You might be better off selling and delivering from home.

 

[Mark T Jones]

Thanks for all the replies so far guys. As you can probably tell I am completely fresh to this subject. How do I work out a financial forecast if I have no data to go off? Would you work out what you need to sell to cover all costs inc wages ect? How could I strengthen my business plan to see if this venture would be deemed viable?

Apologies again if these questions seem basic.

Many thanks

The beauty of spreadsheets is that you can continously change and amend, plus it doesn't matter where you begin.

Start by putting in things you are sure of (eg rent) - them just make up some numbers for turnover see what happens to the bottom line if you only fo half what you expect - ad infinitum

There are lots of projection templates out there I've made one that's not too scary, aimed at micro businesses which I'm happy to share.

Whatever happens, forecasting won't be a wasted exercise but a useful learing curve