Do you want to start art gallery?
Are you thinking about starting your own art gallery? Well, if you have a passion for art and a desire to live surrounded by masterpieces of various artists around the world then you can surely jump in this field. The biggest benefit of starting this business is that you are free to invest as much capital as you want without any limitation or restriction.
For example, if you have an immense amount of capital to invest in your art gallery then you can buy the art masterpieces scattered around the world and can display them in your gallery. On the other hand, if you are starting with a low initial investment then you can display the artwork of national and international artists without buying them.
However, in both cases, you can make millions of dollars every year provided that you plan and market your business successfully. So before you move on to starting this venture, you will have to prepare a comprehensive business plan which will establish the basis of your company’s future operations and decisions. If you are wondering how to write an effective business plan then here we are providing you the business plan for an art gallery startup named ‘Art House’.
2.1 The Business
Art House will be a bonded, insured and licensed art gallery located in Elmwood Avenue, Buffalo, New York in Delaware Park. Art House will be owned and managed by Zac Hurtmin, a renowned American artist, entrepreneur, and art collector. Zac has numerous ancient and precious artworks in his possession, making him one of the richest artists of the United States. The art gallery will be located in an old museum which has been closed for a long time and will display Zac’s own paintings, his collection and the artworks of other artists. Having an experience spanning over three decades in this industry, Zac knows exactly how to start an art business.
Opening an art gallery is much easier as compared to its management in the subsequent stages. Zac will manage the overall operations of the company while he will hire a small staff for operating and maintaining the facility, initially. The success of a startup heavily depends on its staff and management. It plays an important role in making any venture successful, so make sure to plan your management before you think about how to start your own art gallery.
Our target market is the community living nearby at the 30 minutes’ drive from our gallery and the corporate sector located in the Central Business District of the city. The community consists of all types of people from varying backgrounds. As per the financial position, nearly half of the community has a monthly income ranging from $30k to $40k while nearly 13% people have incomes even around $90,000. Likewise, the corporate sector is highly established and can contribute to a major chunk of our revenue every month. We will provide auction services for selling artworks, exhibition services of painting with an entrance ticket, the sale of cultural handicrafts, and an art shop allowing visitors to buy various art-related products either for themselves or for their artist friends and family members.
Our biggest competitive edge over other art galleries and museums will be our cultural handicrafts imported from India, China, France, Turkey, and Egypt. Our second competitive edge will be 10% discount on the royalty on purchases of artworks of other artists. Zac’s priceless collection of prestigious artworks will also play a crucial role in attracting art-lovers toward us. Finally, our unparalleled customer service, being the best in town, will also be our competitive advantage. We will treat every customer with utmost respect and make sure that they leave our gallery with big smiles on their faces.
2.4 Target of the Company
The target of the company is to become the best art gallery in the city within next five years of our startup. This target can only be achieved by growing the sales at the forecasted rate. We also aim to balance the initial cost of the startup with earned profits by the end of the first year, to achieve the net profit margin of $100k per month by the end of the first year, to achieve the net profit margin of $150k per month by the end of the second year, and to achieve the net profit margin of $250k per month by the end of the third year.
3.1 Company Owner
Art House will be owned by Zac Hurtmin, a renowned American artist, entrepreneur, and art collector. Zac has numerous ancient and precious artworks in his possession, making him one of the richest artists of the United States. Zac has produced abstract and photorealistic paintings as well as glass pieces and photographs. He has also created “spot paintings”, which are rows of randomly colored circles created by his assistants and “spin paintings,” which are created on a spinning circular surface. His art follows the examples of Picasso and Jean Arp in undermining the concept of the artist’s obligation to maintain a single cohesive style.
3.2 Why the Business is being started
Zac had been painting entire his life. He left his studies after completing high-school to pursue his passion for art. Within next 20 years, he had made himself a name in art but he came to limelight in 2004, when his famous painting ‘The Weeping Laugh’ was sold for $13 Million. Since then Zac is counted among one of the best artists of the modern day world. Other than painting himself, Zac also owns a collection of extremely precious artworks, some dating back even to the 1700s. Zac is staring this venture to invest the immense amount of wealth earned from his artworks as well as putting his extensive collection of priceless masterpieces to a better use in the form of an open gallery for all art loving people.
3.3 How the Business will be started
The art gallery will be started in an old museum at Elmwood Avenue, Buffalo, New York in Delaware Park. The museum closed a decade ago and since then the place is not being used for any purpose. That’s why a lot of changes and interior designing woodwork are required and a contractor has been hired for this purpose. The art gallery will display Zac’s own paintings, his collection and the artworks of other artists. Having an experience spanning over three decades in this industry, Zac knows exactly how to start an art business. He has planned everything about his business including the required personnel and inventory and has hired experts from various fields to help him craft a detailed map about it. The financial experts have forecasted following costs for expenses, assets, investment, and loans for the Start-up.
The detailed start-up requirements, start-up funding, start-up expenses, total assets, total funding required, total liabilities, total planned investment, total capital and liabilities as forecasted by experts, is given below:
|Research and Development||$4,270,050|
|TOTAL START-UP EXPENSES||$24,735,150|
|Other Current Assets||$22,200,500|
|Start-up Expenses to Fund||$12,100,875|
|Start-up Assets to Fund||$19,500,000|
|TOTAL FUNDING REQUIRED||$0|
|Non-cash Assets from Start-up||$11,800,750|
|Cash Requirements from Start-up||$0|
|Additional Cash Raised||$11,800,750|
|Cash Balance on Starting Date||$12,100,875|
|Liabilities and Capital||$0|
|Accounts Payable (Outstanding Bills)||$0|
|Other Current Liabilities (interest-free)||$0|
|Additional Investment Requirement||$0|
|TOTAL PLANNED INVESTMENT||$69,500,000|
|Loss at Start-up (Start-up Expenses)||$31,310,025|
|TOTAL CAPITAL AND LIABILITIES||$22,180,075|
Services for customers
Art House will be an open art gallery where artists can put their artworks on display and tourists or visitors can view them. We will provide following services to our esteemed customers:
Auction Services: We will primarily auction or sell the artworks of Zac and other artists as well as the Zac’s prestigious collection which is expected to drive the most of our revenue. Any artist from all over the world can put his/her artwork for display at our art gallery on the condition that a fixed royalty (service fee) will be deducted from the amount of purchase of that artwork by anyone through the auction at our art gallery. The auction will take place on the first Saturday of every month whereby the art gallery will be closed for all other services.
Exhibition Services: We will provide an artwork exhibition or display service to the tourists and art lovers. Anyone can enter the gallery and can enjoy the mesmerizing pieces of arts by purchasing an entry ticket throughout the weekend except the first Saturday of every month.
Cultural Handicrafts: This service will be purely provided for the promotion of various cultural products in this modern day computerized world. Art House does not aim to generate any revenue from it except for the revenue needed for its self-sustainability. The prices of these crafts will be set to as minimal as possible so as to promote them. Initially, these handicrafts will be imported India, China, France, Turkey, and Egypt but within next ten years, handicrafts will be imported from various countries around the world.
Art Shop: Finally, the visitors can also buy various art-related products either for themselves or for their artist friends and family members.
Marketing Analysis of art gallery business
The most important component of an effective art studio business plan is its accurate marketing analysis that’s why Zac acquired the services of marketing experts to help him through this phase. It is only after this stage that a good business plan for artists could have been developed. After identifying the local market trends in New York, the marketing experts and analysts also helped him to select the best site for procuring the building for the art gallery.
The success or failure of a business plan for artists totally depends upon its marketing strategy which can only be developed on the basis of accurate marketing analysis. There are four main steps to carry out an accurate marketing analysis which are to identify the current market trends, identify your target audience and potential customers, set out the business targets to achieve, and finally set the prices of your products and services. Marketing analysis is a must-do thing before you even think about how to start your own art business because the planning of many subsequent components depends on it. Therefore, it must be considered before you move on to opening art gallery.
5.1 Market Trends
The arts & culture market, in general, is a very diverse market. It is estimated that each year about 1.94 billion U.S. dollars are spent by consumers on arts and culture-related goods in the United States as of 2013. Among these contributors are the government (federal, state and local), foundations, other non-profit organizations, corporations and private philanthropists. The exhibitions organized by the government as well as private art galleries attract more than 30 million visitors per year in the United States. The number of art galleries has been increasing at a significantly lower rate as compared to other businesses. The main reason is that opening an art gallery requires a large initial capital as well as a lot of background knowledge, both of which Zac has in abundance. He knows exactly how to start an art gallery.
5.2 Marketing Segmentation
Our target market is the community living nearby at the 30 minutes’ drive from our gallery and the corporate sector located in the Central Business District of the city. The community consists of all types of people from varying backgrounds. As per the financial position, nearly half of the community has a monthly income ranging from $30k to $40k while nearly 13% people have incomes even around $90,000.
In order to develop a good business plan, it is crucial to analyze the market segmentation of the future customers of our services. A successful and efficient marketing strategy can only be developed after we completely know our potential customers. Our experts have identified the following type of target audience which can become our future consumers:
The detailed marketing segmentation of our target audience is as follows:
5.2.1 Residential Community:
The first category of our customers includes the community residing in the residential zones of the city at a 30 minutes’ drive from our gallery. The residential community is extremely diverse comprising of people belonging to various age groups and varying needs. This customer group, especially the art-loving middle-aged persons, presents many opportunities to us. They are very much likely to purchase the artworks, handicrafts and art-related products from our gallery along with visiting us for exhibitions. They will be the biggest consumer of our services and our marketing strategy will be specifically tailored to attract them.
5.2.2 Government Institutions:
The second category comprises of various government institutions including federal, state and local level institutions. These government organizations often take great interest in purchase unique artworks for displaying in their institutions, hence they will also contribute to our revenue.
5.2.3 Corporate Sector:
The second biggest consumer of our services will be the corporate sector located in the Central Business District of the city. There are hundreds of local, national and multinational businesses and companies located within 15 km radius of our office. It has been found that the corporate sector, especially the higher executives, usually have a great interest in art and paintings. Most of these businesses make millions of dollars every year and can easily spend extravagantly on our art products, handicrafts, and exhibitions.
The detailed market analysis of our potential customers is given in the following table:
|Potential Customers||Growth||YEAR 1||YEAR 2||YEAR 3||YEAR 4||YEAR 5||CAGR|
5.3 Business Target
We aim to become one of the biggest art galleries of the city within next five years of our startup. Our main business targets to be achieved as milestones over the course of next three years are as follows:
- To achieve the net profit margin of $100k per month by the end of the first year, $150k per month by the end of the second year, and $250k per month by the end of the third year
- To balance the initial cost of the startup with earned profits by the end of the first year
- To promote the use of cultural handicrafts in the modern day computerized world
5.4 Product Pricing
Product and service pricing is one of the most important factors in deciding the strategy of a startup. Selecting the price for the services is a difficult task because one has to attract customers while yielding a profit at the same time. These two things cannot be achieved at the same time and the only way out is to select a compromised trade-off or balance between the two.
After considering the market demands, we have priced our entry tickets in the similar ranges as other art galleries and museums within the city. The handicrafts are specifically set to be at relatively lower prices so as to promote them. The royalty or service fee for selling the works of other artists will be 10% less as compared to other galleries and museums so as to attract them towards us.
Like marketing analysis, sales strategy is also an important component of a steam art gallery business plan. After identifying the market trends, the market demand, and the potential customers of the startup, the next step is to develop an ingenious strategy to attract those customers toward us. Zac carried out an extensive research about various marketing and advertising strategies before he carried out his art gallery planning.
6.1 Competitive Analysis:
Art Industry is one of the biggest industries of the United States. Considering the unique and dynamic nature of this industry, one has to introduce something innovative before even thinking about how to start a art business. That’s why Zac has already made preparations for entering the competitive industry of event management. Our biggest competitive edge over other art galleries and museums will be our cultural handicrafts imported from India, China, France, Turkey, and Egypt. If marketed properly, these beautiful pieces of art can bring a radical change in the modern day culture of the United States. We believe that these unique products will be loved by all and sundry within the United States.
Our second competitive edge will be 10% discount on the royalty on purchases of artworks of other artists. We believe that the artists will surely prefer us to the other established galleries and museums as 10% discount on a single painting usually amount to a hefty value. Zac’s priceless collection of prestigious artworks will also play a crucial role in attracting art-lovers toward us. Finally, our unparalleled customer service, being the best in town, will also be our competitive advantage. We will treat every customer with utmost respect and make sure that they leave our gallery with big smiles on their faces.
6.2 Sales Strategy
After carrying out a detailed analysis, our experts came up with the following brilliant ideas to advertise and sell ourselves.
- We will carry out a large-scale social media campaign for our advertisement.
- We will offer 10% discount on the service fee on purchases of artworks of other artists.
- We will offer a 25% discounts on the entry ticket fee for the exhibition of the artworks displayed at our gallery for the first three months of our launch.
6.3 Sales Forecast
Considering our competitive advantages, our lower rates, the quality of our services, and our unparalleled customer service, our sales pattern is expected to increase with years. The largest contribution to the sales will be by Zac’s collected artworks which will be purchased by high-class business executives and will amount approximately $1M per painting. The auction sales will remain consistent throughout the year, the revenue generated by exhibition will be relatively more in summers as compared to winters, and the handicrafts sale will remain consistent throughout the year. The sales from art shop will also increase in summers, as many people buy art items as a gift for their friends and family. By analyzing our market segmentation strategy, our experts have forecasted the following sales on a yearly basis which are summarized in the column charts.
The detailed information about sales forecast, total unit sales, total sales is given in the following table:
|Unit Sales||Year 1||Year 2||Year 3|
|TOTAL UNIT SALES||3,480,440||4,511,250||4,801,570|
|Unit Prices||Year 1||Year 2||Year 3|
|Direct Unit Costs||Year 1||Year 2||Year 3|
|Direct Cost of Sales|
|Subtotal Direct Cost of Sales||$294,100||$699,400||$1,104,700|
You have to plan everything before you even think about how to open art gallery. Personnel plan, like all other plans, is an important component of an effective business plan. Its importance is due to the fact that success of any business significantly depends upon its employees.
7.1 Company Staff
Zac will act as the General Manager of the Art House while he will initially hire the following people for the startup:
- 1 Accountant to maintain financial records
- 2 Sales Executives responsible for marketing and discovering new ventures
- 1 Auctioneer for auctioning of paintings
- 1 Art Store Manager
- 4 Cleaners for cleaning the facility
- 5 Assistants for operating the facility and regulating exhibitions
- 1 Inventory Manager to manage the inventory needed for events
- 1 Front Desk Officer to act as a receptionist
- 4 Security Officers
To ensure the best quality service, all employees will be selected through vigorous testing and will be trained for a month before starting their jobs.
7.2 Average Salary of Employees
The following table shows the forecasted data about employees and their salaries for next three years.
|Year 1||Year 2||Year 3|
|Art Shop Manager||$16,600||$17,300||$18,000|
|Front Desk Officer||$20,000||$23,300||$30,000|
After deciding the strategy and personnel plan of the company, the next step is to develop a financial plan for the art gallery business model providing a detailed map about the financial projections covering all aspects of the company such as cost of startup, inventory, payroll, equipment, rent, utilities and how these costs will be covered by the earned profits.
8.1 Important Assumptions
The company’s financial projections are forecasted on the basis of following assumptions. These assumptions are quite conservative and are also expected to show deviation but to a limited level such that the company’s major financial strategy will not be affected.
|Year 1||Year 2||Year 3|
|Current Interest Rate||10.00%||11.00%||12.00%|
|Long-term Interest Rate||10.00%||10.00%||10.00%|
8.2 Brake-even Analysis
The following graph shows the company’s Brake-even Analysis.
The following table shows the company’s Brake-even Analysis.
|Monthly Units Break-even||5530|
|Monthly Revenue Break-even||$159,740|
|Average Per-Unit Revenue||$260.87|
|Average Per-Unit Variable Cost||$0.89|
|Estimated Monthly Fixed Cost||$196,410|
8.3 Projected Profit and Loss
The following charts show the company’s expected Profit and Loss situation on the monthly and yearly basis.
|Pro Forma Cash Flow|
|Cash Received||Year 1||Year 2||Year 3|
|Cash from Operations|
|Cash from Receivables||$7,023||$8,610||$9,297|
|SUBTOTAL CASH FROM OPERATIONS||$47,143||$53,651||$59,359|
|Additional Cash Received|
|Sales Tax, VAT, HST/GST Received||$0||$0||$0|
|New Current Borrowing||$0||$0||$0|
|New Other Liabilities (interest-free)||$0||$0||$0|
|New Long-term Liabilities||$0||$0||$0|
|Sales of Other Current Assets||$0||$0||$0|
|Sales of Long-term Assets||$0||$0||$0|
|New Investment Received||$0||$0||$0|
|SUBTOTAL CASH RECEIVED||$47,143||$53,651||$55,359|
|Expenditures||Year 1||Year 2||Year 3|
|Expenditures from Operations|
|SUBTOTAL SPENT ON OPERATIONS||$35,296||$39,549||$43,582|
|Additional Cash Spent|
|Sales Tax, VAT, HST/GST Paid Out||$0||$0||$0|
|Principal Repayment of Current Borrowing||$0||$0||$0|
|Other Liabilities Principal Repayment||$0||$0||$0|
|Long-term Liabilities Principal Repayment||$0||$0||$0|
|Purchase Other Current Assets||$0||$0||$0|
|Purchase Long-term Assets||$0||$0||$0|
|SUBTOTAL CASH SPENT||$35,296||$35,489||$43,882|
|Net Cash Flow||$11,551||$13,167||$15,683|
8.3.1 Profit Monthly
The following graph shows the monthly profit, as forecasted by the company’s financial experts.
8.3.2 Profit Yearly
The following graph shows the yearly profit, as forecasted by the company’s financial experts.
8.3.3 Gross Margin Monthly
The following graph shows the monthly gross margin, as forecasted by the company’s financial experts.
8.3.4 Gross Margin Yearly
The following graph shows the yearly gross margin, as forecasted by the company’s financial experts.
The following table shows detailed information about profit and loss, and total cost of sales.
|Pro Forma Profit And Loss|
|Year 1||Year 2||Year 3|
|Direct Cost of Sales||$15,100||$19,153||$23,206|
|TOTAL COST OF SALES||$15,100||$19,153||$23,206|
|Gross Margin %||94.98%||94.72%||94.46%|
|Sales and Marketing and Other Expenses||$1,850||$2,000||$2,150|
|Total Operating Expenses||$188,766||$220,744||$252,722|
|Profit Before Interest and Taxes||$105,205||$146,040||$186,875|
8.4 Projected Cash Flow
The following column diagram shows the projected cash flow.
8.5 Projected Balance Sheet
The following table shows detailed data about pro forma cash flow, subtotal cash from operations, subtotal cash received, sub-total spent on operations, subtotal cash spent.
The following projected balance sheet shows data about total current assets, total long-term assets, total assets, subtotal current liabilities, total liabilities, total capital, total liabilities and capital.
|Pro Forma Balance Sheet|
|Assets||Year 1||Year 2||Year 3|
|Other Current Assets||$1,000||$1,000||$1,000|
|TOTAL CURRENT ASSETS||$201,259||$237,468||$273,677|
|TOTAL LONG-TERM ASSETS||$980||$610||$240|
|Liabilities and Capital||Year 1||Year 2||Year 3|
|Other Current Liabilities||$0||$0||$0|
|SUBTOTAL CURRENT LIABILITIES||$9,482||$10,792||$12,102|
|TOTAL LIABILITIES AND CAPITAL||$198,839||$232,978||$267,117|
8.6 Business Ratios
The following table shows data about business ratios, ratio analysis, total assets, net worth.
|Year 1||Year 2||Year 3||INDUSTRY PROFILE|
|Percent of Total Assets|
|Other Current Assets||1.75%||2.02%||2.29%||27.40%|
|Total Current Assets||138.53%||150.99%||163.45%||54.60%|
|Percent of Sales|
|Selling, General & Administrative Expenses||74.29%||71.83%||69.37%||65.20%|
|Profit Before Interest and Taxes||26.47%||29.30%||32.13%||2.86%|
|Total Debt to Total Assets||2.68%||1.04%||0.76%||67.10%|
|Pre-tax Return on Net Worth||66.83%||71.26%||75.69%||4.40%|
|Pre-tax Return on Assets||64.88%||69.75%||74.62%||9.00%|
|Additional Ratios||Year 1||Year 2||Year 3|
|Net Profit Margin||19.20%||21.16%||23.12%||N.A.|
|Return on Equity||47.79%||50.53%||53.27%||N.A.|
|Accounts Receivable Turnover||4.56||4.56||4.56||N.A.|
|Accounts Payable Turnover||14.17||14.67||15.17||N.A.|
|Total Asset Turnover||1.84||1.55||1.26||N.A.|
|Debt to Net Worth||0||-0.02||-0.04||N.A.|
|Current Liab. to Liab.||1||1||1||N.A.|
|Net Working Capital||$120,943||$140,664||$160,385||N.A.|
|Assets to Sales||0.45||0.48||0.51||N.A.|
|Current Debt/Total Assets||4%||3%||2%||N.A.|