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.

Entrepreneurism Has Drawbacks Too
Forbes, NY - Sep 1, 2008
Entrepreneurialism is fundamental to capitalist development, economic growth and renewal. However, some innovations created by entrepreneurial activity can ...

How to Access Your Inner Entrepreneur
Law.com (subscription), CA - Sep 5, 2008
Develop agreement among your leaders that entrepreneurialism should be encouraged. Provide necessary time, people, funding and rewards to prove this ...

Entrepreneurialism And The Dwarf House
Corsavoo.com, France - Aug 25, 2008
To become an entrepreneur is enjoyable when you have a passion for a business idea you are passionate about. However, if you have to become an entrepreneur ...

Times Online
James Dallas: 'Dubai is like Hong Kong in the 80s'
Times Online, UK - Sep 2, 2008
What’s always stood out is this almost tangible sense of energy and entrepreneurialism. Every month brings new people and projects, so there’sa constant ...

Ernst & Young recognizes Robert H. Lee as entrepreneurial maverick
Canada NewsWire (press release), Canada - Sep 4, 2008
He personifies entrepreneurialism at its finest." With the start of The Prospero Group in 1979, Robert began what would soon become a leading enterprise in ...
Ernst & Young recognizes entrepreneurial maverick in Atlantic Canada Canada NewsWire (press release)
all 2 news articles

EDITORIAL COMMENTARY
Barron's - 6 hours ago
... because they started their successful journeys so long ago: Free-enterprise capitalism, embodied in entrepreneurialism, is all about the little guy. ...

The Entire D6 Interview With Sony’s Sir Howard Stringer (3 of 4)
All Things D Blogs, CA - Sep 4, 2008
... Ericsson cell phones and takes questions from the audience about YouTube and maintaining innovation and entrepreneurialism at a huge multinational company.

City’s jewel must retain its unique lustre
Birmingham Post, UK - Sep 2, 2008
... to secure World Heritage status on the grounds that it remains a working example of the entrepreneurialism that made Birmingham a global trading power. ...
Rising rents push Jewellery Quarter traditions to brink Birmingham Post
all 5 news articles

BBC News
City company builds new global HQ
BBC News, UK - Aug 27, 2008
"The company represents the very best in Scottish entrepreneurialism - nurturing a good idea, combined with a passionate belief in what they are offering, ...

An Education on Higher Education for the Next President
Chronicle of Higher Education (subscription) - 4 hours ago
This is not to say that community-college leaders should not also work toward efficiencies and entrepreneurialism in attracting resources. ...

Wind Chimes and more...

Windchimes for great gifts!

Determine Your Niche & Be Successful