Industry Sector: Art Gallery

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1 Industry Sector: Art Gallery Introduction You have decided that you want to run a commercial art gallery - now decide how you will achieve this. Will you: buy an existing business start up a new business from scratch Perhaps you're an artist and you intend to set up a gallery to showcase and sell your own work. The course of action you choose will affect the costs you will incur and may also affect how soon you start to receive income from the venture. This Business Guide will help you to complete your cash flow. The topics listed under Income and Expenditure relate to fields in the cash flow section of the Business Plan. Cash sales 'Cash sales' means all income from your main business activity which is received at the time of sale. Income that is received a month or more after the sale has been made is 'Cash from debtors'. While some of your customers may pay you in cash, remember that Cash sales can also include: credit and debit card payments vouchers payments made through online services like PayPal and Nochex cheques To prepare your cash flow, you need to estimate how much income you will receive over the next twelve months, including VAT. (For the purposes of the cash flow forecast, your income will be the commission you keep on the sale of a piece of art, not the full selling price of the item.) To do this you will need to work out how many pieces you are likely to sell, the level of commission you will charge on each piece and when you will receive the money. You will also need to decide what, if any, other services you will offer and how much income they will generate. There are a number of things to consider when you make your estimates. Sources of income It is quite possible that your gallery's sales income will come just from the commission charged on the sale of pieces of art and/or from profits you make on pieces and other items (like prints, cards and giftware) that you buy in to sell on. However, you may also have some other sources of income, such as sales from a café or restaurant. Maybe you're an artist

2 yourself and you sell your own work elsewhere - possibly in other galleries around the UK and even overseas. Pricing policy It's important when setting the level of commission you charge that you make sure it's enough to cover your overheads but not so high that artists are put off from exhibiting in your gallery. Try to find out what other galleries in the area charge. Seasonality You may find that your sales income is affected by the time of year. For example, during the summer your customers numbers may increase due to tourists visiting your area. You may also experience an upturn in sales around Christmas time. To help with your decisions, click on the checkpoints for guidance. Once you have worked out a Cash sales figure add it to the relevant field in your cash flow forecast. Buy an existing business You might decide to buy an existing gallery rather than start your own gallery from scratch. Buying a going concern can mean that: the premises, business equipment and fittings are already in place there may be established customers the business can generate income immediately relationships with one or more artists have already been established the business has a track record, which can help if you are looking for finance staff may already be in place However, look critically at any business that you are interested in to make sure that the price you negotiate with the seller is a fair one. Try to establish why the business is for sale - for example, is the owner keen to retire or is there another personal reason for selling up. Your market research into the sector as a whole and the locality in particular will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. This may not necessarily deter you - many business people are confident that they can turn a failing business around. The important thing is to have established the current position so that the price you pay for the business is not too high. Other matters to consider include: the state of the premises, fittings, equipment and so on. Will you have to spend money refurbishing or replacing assets the type, condition and value of any stock you are purchasing - be sure about which items are owned by the gallery and which are owned by the original artists or other third party sellers

3 how to retain key personnel once you've taken over does the business owe money that you will be responsible for if you are paying for goodwill, to what extent does this depend on the skills and personality of the seller Ask your accountant to look critically at the business accounts for the past three years and discuss with him or her the selling price in the light of what the accounts reveal. Make sure you budget for other professional fees such as legal fees and valuation and survey costs. Industry Sector: Art Gallery Market research It's important that you carry out some market research to gauge the level of demand for your gallery. Competition Your competition will come from other businesses that offer the same or similar items for sale as you do as well as offering similar services. Depending on the exact nature of your gallery, your competitors may include: other local galleries online galleries specialist art equipment retailers craft shops gift shops picture framers specialist picture restorers artists who sell their work direct to the public It may be useful to try to identify how many competitors there are in your area by looking in a directory, such as the Yellow Pages or by making a physical count yourself. Be aware though that it's not always a bad thing to be located near to other galleries. Towns like St Ives in Cornwall have become famous for their art and galleries, and they attract thousands of art lovers each year. Just try to make sure that you don't stock items that are too similar to those stocked by your competitors. Estimating demand Your knowledge of the art scene in your local area may be such that you already have a good idea of how much demand there will be for the work you are planning to sell and you don't need to carry out any further market research. However, if not, you may wish to assess local market conditions by: visiting other galleries to see how busy they are and to see how swift the turnover of art is

4 talking to the artists whose work you are planning to sell contacting your local tourist board to try to obtain statistics showing the number of visitors to your area, by month, if possible Why will customers choose your gallery Customers may choose to buy from you rather than one of your competitors for a number of reasons, including: the artwork that you stock. You will have your own ideas of what will sell and hopefully the pieces that you choose will prove popular with your customers the amount of promotion you do. Promoting an artist's work - through exhibitions, printed advertisements and so on - can increase your sales and introduce an artist to a new audience your location. You should look to open your gallery in an easily accessible area, preferably with ample parking nearby your premises. It is important that customers feel comfortable walking into your gallery for the first time and that they feel able to walk round and see everything you have to offer. Your interior should be clean, well-maintained and well lit so that customers can enjoy the art fully the nature of any other services you offer. You can broaden your potential customer base by offering extra facilities, such as a café your opening hours your prices your connections Print out the record sheets to note down the results of your market research. Sector trends What has been happening in the art retailing sector Art has become important to more and more people as interest has grown in interior design and decor - and in art for art's sake. Investing in originals has become popular with more wealthy buyers, while at the top end of the market the super-rich pay record prices for fine art. Demand for affordable prints and reproductions, meanwhile, has also flourished. The internet has become popular with both artists and galleries for marketing art works, and 'virtual galleries' have sprung up to offer sellers a new marketplace for their pieces. Although foreign holidays have never been more popular, a number of the UK's seaside tourist towns have successfully re-invented themselves as upmarket short break destinations. In many of these towns there's a vibrant local art scene, and galleries benefit from the influx of tourists and day trippers. Unfortunately it's not all good news for the art business. The economy took a dive during the late 2000s and remained very weak into the early 2010s, and shoppers were quick to cut back on non-essential spending.

5 Other developments in the art retailing business include: the introduction in October 2003 of the Money Laundering Regulations. The regulations require 'high value dealers' who transact sums of 15,000 euros or more as part of their business to register with HM Revenue & Customs (HMRC) and to keep certain records relating to those transactions the imposition of the droit de suite levy on art works sold in the UK. The levy is a payment made to the original artist (or to his or her estate) which becomes due when a work of art is sold. It was introduced in the UK at the start of 2006 for living artists and extended in 2012 so that payments are also due to artists' heirs up to 70 years after their death a reduction in Lottery funding for the arts to help fund the 2012 Olympics - and then further cuts in public spending on the arts as a result of the economic downturn Keeping up to date with developments Joining a trade association is an excellent way of keeping up with developments in your industry - and in the art world in general. The Visual Arts and Galleries Association (VAGA) represents commercial art galleries in the UK. Contact the VAGA at The Old Village School, Witcham, Ely, Cambridgeshire, CB6 2LQ - or visit their website. The Fine Art Trade Guild is an international trade organisation that aims to promote and develop the art and framing industry. The Guild can be contacted at Empress Place, London, SW6 1TT - or visit their website. Journals Subscribing to a trade journal is another good way of staying up to date. Art Business Today is a trade journal published by the Fine Art Trade Guild. It is aimed at art and framing professionals and provides a forum for debate about industry standards, vocational skills and qualifications as well as promoting and developing the picture industry. Sources of income Your gallery's sales income is likely to come from a number of different sources. These might include some or all of the following: sales of pieces that you have created yourself. You may be intending to sell your own art, either exclusively or in combination with other artists' work commission from sales. A large amount of your income will come from the commission earned from the sale of pieces of art created by artists other than yourself. You should set the level of commission you charge so that it is sufficiently high to generate enough income for you to cover your overheads (including your own drawings) but not so high that it scares artists away. Typically, galleries charge around 20% to 30% commission (and sometimes more). Be aware that, although some commercial artists may want input from you on the prices they should charge for their

6 work, many will want at least a say in the selling price. Of course it's up to you whether or not you're prepared to display their work at a particular price sales of prints, posters and cards made from originals entry charges. You may decide to charge a small fee for entry to your gallery, although you should give this careful consideration as it may put off potential visitors. If you plan to open a fully commercial gallery where the aim is to sell art works then an entry fee is probably out of the question sales of gift items. You may sell items such as crafts, postcards, ceramics and so on sales of art equipment. This may prove popular with art students, amateur artists and possibly professionals, depending on the quality of the items stocked picture framing picture restoration artists' workshops sales from a café or restaurant Customer profile Your market Depending on the nature of your gallery your customers are likely to be predominantly members of the public, though you may also have some business clients. Members of the public might include: passers-by and tourists art enthusiasts, including artists, art critics, collectors and so on art students The greater the range of ancillary services you offer, such as a café, the greater the likelihood of attracting a broader cross-section of customers. Your corporate clients may include: other galleries professional interior designers businesses that purchase art to decorate their own premises businesses that maintain an art collection Advertising your gallery Whatever the nature of your gallery, you must make sure that your potential customers know about you and the products and services you offer. There are a number of things you can do to promote your business: advertise in your local newspaper and any local directories launch your own website, showing 'thumbnail' images of the pictures and pieces of art that you have in the gallery

7 organise exhibitions of local artists' work and try to gain as much publicity for these as possible contact local colleges to offer art students a discount on art equipment (if you decide to stock such items) Pricing policy When deciding on the prices to put on the pieces of art that you sell, you should take into account the following: the amount of commission that you charge must cover your overheads, including lighting and heating the gallery and your drawings. Most galleries charge a commission of around 20% to 30% (and sometimes more). Be aware that, although some commercial artists may want input from you on the prices they should charge for their work, many will want at least a say in the selling price. Of course it's up to you whether or not you're prepared to display their work at a particular price what sort of prices would your prospective customers expect to pay how much input will artists have when it comes to setting prices for their work if competitors sell the same or similar pieces as you, will you set your own prices broadly in line with theirs are there any reasons that could justify you charging higher prices than your competitors. For example, you may be well known within local art circles or your gallery may be in a very prominent location will your prices be fixed or will you be prepared to consider offers. If you're prepared to haggle over prices you'll need to check that this policy is acceptable to any artists whose work you sell on commission will you offer discounts to any customers You will also need to give some thought to the pricing of any other services you offer. Some points to consider are: will the level of local competition influence your prices is it worth setting low prices for some things (such as drinks in a cafe) in the hope that an increased number of customers will be attracted to your gallery Discounts You may decide to offer discounts to certain customers. For example, if you sell art equipment you might give a small discount to art students. You may also give discounts to customers who spend a large amount or who buy from you on a regular basis.