I am in the process of putting together the business plan for a small boutique I plan to open. (Very small, inside an established gallery). My inventory will be moderate/better fashion accessories, gift items, and a few contemporary furniture pieces, such as corner shelves, cabinets, etc. The furniture pieces will be my display units, and will also be for sale. The only aspect of my business plan that I am struggling with is projecting the start-up cost. I know for sure what all my expenses will be, except inventory. I have 20 years experience buying women's apparel and accessories, but I have not been active in it for a few years. Is there a formula, rule of thumb, etc. that I can use to project what my inventory expense would be for start-up? The first year?

I would appreciate any suggestions!!

Technically, the inventory expense is whatever you want it to be. It's a new business without a history so it's all a guess. You should be able to estimate the cost of the furniture you'll have on display. Beyond that, it's just a matter of how much you want to start off with.

There are rules of thumb for different industries. When I was in the automotive industry the rule of thumb there was your inventory should turn 3 times a year. So if your annual sales were $600k, your inventory level should be around $200k. This would vary based on how close you were to the distribution center. If you were an hour away, you could get by with less inventory on hand than if your were 100 miles away and picked up once a week. You want to have enough inventory on hand that you're not losing sales because you don't have it in stock, but you don't want to be inventory poor either.

If you target your inventory levels at 3-turns a year you probably won't get hurt...you can adjust it quarterly based on sales.
I hope this helps..
Denny

Denny