Experience and knowledge of the business in mind is one of the factors to consider in setting up a retail business. Lack of such expertise may lower the success rate of the business as you would not be able to cope with the problems peculiar to that branch of retailing. Therefore, it pays to work as an employee first. The branch of retailing contemplated is another factor to be considered.
You have to bear in mind whether your financial sources are adequate and whether you know enough about the business. For example, to set up a coffee-house you may need something like $200,000 where as to set up a small eating stall you may only need $2000. On the other hand, there are some other factors to be considered as well and they are numerous in numbers such as, location of premises, adequacy of capital, sources of supply of goods, the law of comparative advantage and at last laws and regulations.
To decide on location of premises or on a particular area, for example; in the city centre or in any housing estate or even on which side of the street to set up a shop and for that you have to bear in mind factors such as:
• The “demand” for your product. For example, if you are contemplating opening a jewellery shop, it would be more profitable to have one in the town. The market is much bigger since people from the suburbs and city would converge there.
• The “competition” from shops selling similar goods. Normally, it would be wiser to keep away from areas where there is competition unless you can offer a better service at lower prices, or unless the demand is likely to expand in the near future.
Rents in the town would certainly be higher than in the suburbs. If you intend to buy the premises instead of renting it, then you would certainly need more capital. If you do not have the necessary capital, you can raise it through friends, relatives, banks or other financial institutions. Examples, finance companies.
It is the important that you are able to know which wholesalers to go to. Some may give better discounts and others may give longer credit. The law of comparative advantage is more profitable to remain in your present job earning your monthly salary plus interest from the savings you have accumulated? Remember, that if you become a retailer you have to forgo your salary and interest on your savings. So your net profit from retailing must be greater than sum forgone.
Laws and regulations is another factor to be considered in setting a retailing business. You should make a study of the commercial laws regarding the line of retailing you want to go into. Must you get a license? Can you trade in the goods specified and in the place selected by you?