Totally Confused

[Trainman]

My business has now been running around two years.

I invested heavily into it myself as I was made unfit for work by Royal Mail, I had a pay off, cashed in a pension and sold my car to raise around £60k, I also took on a colleague who invested about £1k in write off asssets, and about £2k in cash.

In the first year we made a loss of £16k, which was on the books as asset purchases and initial stock purchases, during Yr2 I had to support the business occasionaly, from additional savings to the tune of £5k, however by January this year we hade made a balance sheet profit of around £22k.

We hold about £22k in stock, and our outstanding invoices total around £3k.

What I can't work out is; if the business is making this much profit

1. why am I unable to take a wage off it
2. Why are we struggling to pay invoices
3. Why is our bank balance verging on zero at the end of every month

We pay £672 a month in rent, qualify for 100% SBRR, and our utilities cost about £70 a quarter.

Margins vary from 25% to 35% depending on products.

A lot of our supppliers have minimum orders of around £150 some are as high as £350, ( not that I see that as relevant, but I'm exploring every avenue! )

I am currently trying to live off housing and council tax benefit, plus £53 week in working tax credits.

Any help advice would be welcome

 

[Mr D]

Are your margins too low?
What area of business is it?

You know what your costs are. Are you pricing appropriate to the costs?

 

[Trainman]

It's a model (hobby) shop, we sell at RRP, any more and the business would die, simply because it is a very competitive market, especially with the internet, we tend to stock what the modeller wants now, and hope they also buy the more expensive items as a result, we are the only shop for about a 15 mile radius in the genre

 

[Mr D]

.

Those are low margins to me - you buying from a warehouse? from the model suppliers direct?
Been a couple of years since I looked at models but even the few I looked at were 50% margin as a minimum.

Do you sell online at all?

 

[Trainman]

.

Those are low margins to me - you buying from a warehouse? from the model suppliers direct?
Been a couple of years since I looked at models but even the few I looked at were 50% margin as a minimum.

Do you sell online at all?

To sell online would mean cutting margins even more, as low as 13%.

Hornby and Bachmann give you a 28% margin if you pay your invoices within 7 days, if not it drops to 26%, very rarely can we pay in 7 days.

50% margins are a thing of the past, our top selling lines ( games workshop, Warlord) are 40% on monthly invoice.

If we go to wholesalers they sell at maufacturers trade, so no benefit there, and most want proforma sales anyway.

We've tried Ebay with mixed success, their costs have risen, it now eats up 15% of the final sale price, and you have to sell lower (much lower) than RRP to get a sale, if you are lucky you could make £2 profit on a train with an RRP of £175 !

We have an online shop, which sells at RRP but offers a 10% discount on purchases over £100, and we offer free postage.
Our database content has been hacked and deleted twice in six months, we have enventually found out that it is a competitor doing it, and we have proof of that that would stand up in court, our solicitor has written to them stating the fact and presenting the evidence to them.

 

[Mr D]

Then sounds like you need to shift to different products.

I'd call those margins very bad.

There's a ton of trade fairs over the next 6 months around the country. Look at what else you can do.
If you must do models then look at what else you could sell - on ebay or elsewhere online - to help you get an income from the business.
Talk to other suppliers of stock that will fit your shop. Off top of my head and without looking through old catalogues - Bladez. Could they fit in your shop?

 

[Trainman]

I'll take a look at Bladez.
We want to try andd remain in the Model/Wargaming market as much as possible

 

[14Steve14]

Trainman. You have picked a very competitive market. Many model shops around the country are closing and even big names are struggling. I know that many suppliers and manufacturers have reduced their margins over the recent years making things even harder as I am in a similar area to you. I seem to have found my niches, but things are still tight. I don't sell a lot mainstream products because suppliers wont sell to online only store, which is their choice, but there are alternative products available. May be look around for something that is different and that not a lot of others stock. You will never compete with the large box shifters, so you have to try something different.

If your site is being hacked, get the holes fixed and change all passwords. You cannot let this happen after GDPR comes into full force as the fines are huge and a bad reputation will kill you instantly.

 

[John Servis]

Diversify the products they offer and increase margins little by little, so as not to scare away your usual customers.

 

[Trainman]

Trainman. You have picked a very competitive market. Many model shops around the country are closing and even big names are struggling. I know that many suppliers and manufacturers have reduced their margins over the recent years making things even harder as I am in a similar area to you. I seem to have found my niches, but things are still tight. I don't sell a lot mainstream products because suppliers wont sell to online only store, which is their choice, but there are alternative products available. May be look around for something that is different and that not a lot of others stock. You will never compete with the large box shifters, so you have to try something different.

If your site is being hacked, get the holes fixed and change all passwords. You cannot let this happen after GDPR comes into full force as the fines are huge and a bad reputation will kill you instantly.

Diversify the products they offer and increase margins little by little, so as not to scare away your usual customers.

We knew it was a competitive market from the off, what we didn't realise is that Railway Modellers EXPECT a discount, because of the box shifters, we do sell high end products, (loco's etc), but what we concentrate more on is the accessory side, scenery and adhesives that the modeller wants now, rather than waiting two or three days for it.

We have diversified in to plastic kits and wargaming where there is no other competition in the immediate area, and sales are good, they represent about 60% ( ££'s) of our total sales. We plan to expend more on this side of the business.

On the subject of the website, we have moved away from self hosting now, to an EKMS site, so security is down to them, we have a https link for our payment page, so we should comply with future legislation.

This is all good advice but does not answer why according the accounts we showing a £22k profit, but the business is actually skint !

 

[kulture]

The profit is tied in your stock. Many businesses die due to poor cash flow. This is a market that is dying, you have to train your customers to either pay RRP or loose the shop.

Also consider Magic the Gathering. You may be able to build up a following and get new customers.

 

[Trainman]

The profit is tied in your stock. Many businesses die due to poor cash flow. This is a market that is dying, you have to train your customers to either pay RRP or loose the shop.

Also consider Magic the Gathering. You may be able to build up a following and get new customers.

This is exactly what I thought, and thanks for confirming it, we are looking at 'Magic the gathering' along with more in that genre of games, so hopefully we will survive into our third year.

 

[MikeJ]

You've not said what your turnover is? You need to be selling around £2.5k per month to cover the rent and utilities, assuming 30% gross margin.

 

[Bronco78th]

I know nothing in any sense of the word regarding your industry.

But it seems to me there is potentially going to be abit of revival regarding models. Specifically board games, Maybe thats another area you could look at. Ive been monitoring Kickstarter for example for my own project but have noticed alot of board games with 3d models as well as custom terrain etc. might be worth a look at the more successful people there?

Its this 3d printing stuff which is just about to snow ball so opportunities will be there I think to make deals to sell resulting models/projects.

 

[Mr D]

3d printing also has some serious modellers making their own. Reducing the need to buy in shops.

 

[Chris Ashdown]

Can you investigate the digital side of railway modelling, there is plenty of scope for utilising Raspberry Pie 3 to automate all railway scenery etc with far higher profits for complete items like say traffic lights or level crossings with led's etc

 

[Trainman]

Can you investigate the digital side of railway modelling, there is plenty of scope for utilising Raspberry Pie 3 to automate all railway scenery etc with far higher profits for complete items like say traffic lights or level crossings with led's etc

We already sell a lot of digital equipment mainly from DCC Concepts, they are not the fastest selling lines, a lot of our clientele are in the over 70 bracket and DCC is seen by a lot of them as witchcraft

 

[Chris Ashdown]

Yes I understand that, but my brother does more layout type lighting that uses very cheap basic mini digital cards and has lighting for things like traffic lights, tv in houses, Welding flashes for garages and similar, he does not do it commercially but you should find someone to do it for you

 

[Chris Ashdown]

Just looked at your sit and if you go to the home link all the menu's don't work, and the site looks very basic so not presenting confidence to buyers

 

[Trainman]

Yes I understand that, but my brother does more layout type lighting that uses very cheap basic mini digital cards and has lighting for things like traffic lights, tv in houses, Welding flashes for garages and similar, he does not do it commercially but you should find someone to do it for you

Just looked at your sit and if you go to the home link all the menu's don't work, and the site looks very basic so not presenting confidence to buyers

Ah sorry misunderstood what you meant, we get all that in from a small company called Block signalling.
As for the website, we have had some malicious attacks where the whole database has been deleted, so we have decided to go for a commercial solution with EKMS, which is needed especially with new legislation on the horizon.

The new website can be viewed at .co.uk not .com

 

[Noah]

The profit is tied in your stock. Many businesses die due to poor cash flow.

Repeated for emphasis. This answers your question.

 

[Mr D]

Repeated for emphasis. This answers your question.

Have seen large businesses with millions in sales and millions in stock. Shut down because of cashflow.
Just last week both Kleeneze and Betterware, multi million pound companies trading for many decades each - quite likely cashflow was the issue with Betterware, would not surprise me if Kleeneze was similar.
Cannot pay the bills then the options are limited.

 

[The next Steve Jobs]

Models and miniatures have never been in so much demand!
BUT You have to HAVE the right set up to tap into that.
The UK has been a world leader for decades


Lacklustre shops and websites = consumer says no



PASSION AND COMMITMENT... and the right focus are key attributes in this market

It's a simple business ... but one that responds to expert polishing and pruning


KEY POINT

Each business type/class has a point of 'critical mass' ... outside this expect to fizzle or flop ... being too close to the problem to see the solutions is a common fault. Take a step back, consider your customer journeys in detail, learn to walk in their shoes.


Build it and they will come


Must add...a good u tube channel / unboxing etc works wonders in your game


I understand the market very well, 'learn to see' and you will quickly add a zero to your turnover!

 

[Craftymetal]

Have you also thought about the experience within the shop making it a destination that customers really want to go to. Maybe putting on several different events targeting each specific group coffee mornings etc not explicitly designed to sell but many may buy when they attend also if practical and not done so already having a train layout running and visible normally draws customers in.

 

[Trainman]

Have you also thought about the experience within the shop making it a destination that customers really want to go to. Maybe putting on several different events targeting each specific group coffee mornings etc not explicitly designed to sell but many may buy when they attend also if practical and not done so already having a train layout running and visible normally draws customers in.

We hold a 'Wargaming' evening on Thursdays which runs from 6:30 until midnight ( yes honestly) and have a core of about 10 people coming to that, that is probably our best sales day most weeks.

 

[GraemeL]

We hold about £22k in stock, and our outstanding invoices total around £3k.

What I can't work out is; if the business is making this much profit

1. why am I unable to take a wage off it
2. Why are we struggling to pay invoices
3. Why is our bank balance verging on zero at the end of every month

Your questions are good ones as they represent a trap that many businesses fall into, of not sufficiently understanding 'accounts' and failing to account for all 'costs'.

Gross profit is the difference between what you buy something for and what you sell it for.
Gross margin is a %. It is gross profit as a % of sales. Yours appears to be 25% to 35%. (Though I worry that mark up is regularly confused with gross margin.)
Net profit is what is left from gross profit after all costs are taken into account.

You are making a gross profit. You are not making a net profit as if you truly accounted for all costs (ie all wages) you would make a net loss.

The answer you have about stock is partially correct, but nowhere have I seen it said you are actually making a loss because you have not accounted for your own wages.

If you make up a simple P+L spreadsheet that shows your actual income and expenditure and then include your own wages at a realistic level, you will see the extent of loss and then you will know how much additional gross profit you need to generate.

 

[kulture]

If you manage to get into Magic the Gathering you can start the Friday Night Magic tournaments. These can easily get 10-20 new players coming and if you get traction you can build this number up. These players can range from 14 upwards. Wizards of the Coast are a good company to deal with. Very helpful and supportive of retailers. They do not like to sell to national chains, they provide free starter packs to give to new customers to introduce them to the game, they provide free "good" cards to give out on the Friday Night games. They provide free posters and publicity materials to promote the Friday Night Magic. With hard work and long hours (yes midnight again) you can build a substantial new market.

 

[Paul Carmen]

Having had a quick look for your business, I'd question whether enough people know you are actually there locally, as you don't rank online for many local searches, certainly not model brand & product related searches.

You business also lacks online trust signals, with lorem ipsum showing on the old site for about us! You have no business details & a gmail contact email!

As for the new site why is it live on a different domain, essentially you're competing with yourself via 2 sites! Both these sites should not be indexed by Google at the same time. You should be using the backlinks you have, your old domain & trying to improve your rankings with the new site, the main area of which isn't secured by SSL?

Taking your online presence aside, what is your business plan, what is going to drive profitability, how are you going to market/focus on the profitable lines & drive sales there, that is what you should be looking at doing ASAP.

You don't say whether you are a sole trader or a limited company, the limited company with that name shows as dormant. The limited company should be paying you a wage, even if its a very low one just below the NI threshold, otherwise you may appear to make a profit & potentially pay corporation tax, even though in reality you're making no money. You should be setting any losses against tax for future years to help your business in the profitable years.

It looks to me like you need some serious help with customer/product research, business planning & accounting, plus how to find profitable areas to focus on, then how to market to & retain customers.