Pawn shops have been a staple of American life for years, with countless people seeking them out with the hope of making a quick buck. Because of their longevity, owning a pawn shop is a great opportunity for entrepreneurs.
This blog post will show how to open a pawn shop, so you can take advantage of this unique and exciting opportunity.
Why Should You Start a Pawn shop?
According to the National PawnBrokers Association, 30 million Americans routinely rely on pawn shops. It’s no wonder then that American Pawn shops make nearly $15 billion in revenue each year.
And thanks to popular TV shows like Pawn Stars and American Pickers, the pawn shop industry has been given a second wind and a broader consumer base.
So, if you love antiques and finding hidden gems, setting up a pawn shop is perfect for you can and can be a very lucrative cash cow.
How to Start a pawn shop: Step by Step
1. Gain skills, Inventory and Connections with Appraisers
The first step in understanding how to start a pawn shop is to learn how to assess the value of an item. Online sites like eBay and Craigslist are a good source for understanding the value of used items as well as taking note of what other local pawn shops are doing.
Next, you need to build inventory. Stock your pawn shop business with goods found at flea markets, thrift stores, and garage sales. Craigslist is another valuable resource for finding cheap goods. Get an inventory system if needed.
Lastly, you need to develop connections with appraisers who are experts in their field. For example, you may be well-versed in the value of baseball cards, but unaware of the value of old coins. Having a connection with someone who specializes in vintage/antique money will help you determine its value.
2. Get Proper Licenses/Permits
Because pawnbrokers are regulated by the state, there are certain licenses and requirements. These pawn shop requirements vary from state to state, but you typically need to provide the following:
- Sales tax permit,
- Federal tax identification from the IRS
- Federal Firearms License from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) (if you intend to sell guns). Check the ATF website for a firearms application kit.
- Now, if you’re wondering how to start a pawn shop in Texas and all the licenses you’ll need, visit the Texas Office of Consumer Credit Commissioner website to obtain a pawnshop licensing kit.
3. Finding a Location
Unless you’re reading this to learn how to start an online pawn shop, you’re going to need to find a suitable location for your store. This can get tricky since pawn shops must adhere to strict minimum distance requirements (such as from schools). So, don’t wait until the last minute to find a location.
To minimize the need for zoning approval and additional permits, consider leasing an old pawn shop. Keep security top-of-mind and make sure it’s in a safe neighborhood with lots of foot traffic.
4. Form a Legal Entity (Using Inc Authority)
If you forget everything else about how to start a pawnbroker business, remember this: You MUST form a legal entity.
There are many business structures to choose from, but LLCs are the most popular. By forming an LLC, you protect your personal assets and safeguard yourself from being personally liable for debts incurred. Without one, you’re personally liable and could lose everything in the event of a lawsuit!
We here at Inc Authority specialize in forming LLCs and can get you started in a few simple steps. Did we mention that our LLC setup service is 100% free!
5. Get Financing
The basic costs for a pawn shop startup can vary greatly, but on average range from $10,000 to $100,000. Either way, you’re going to need financing.
In order to get financing backing for your business, you’ll need to put together a business plan. That’s because business plans showcase and organize established strategies, required allocated resources, attention to business finances, and projected growth – all of which are essential for receiving funding from banks and lenders.
Non-traditional small business loans tend to be the most popular, but as there are a variety to choose from with different terms and interest rates, it’s best to speak to a business funding expert.
6. Market Your Business
Essential to learning how to start a pawn shop is understanding that you’ll need to come up with a marketing strategy.
So, defining your target market early is vital. Doing this will help you tailor your brand message. Research pawn shops you admire. Look at their messaging. What are they doing right, what are they doing wrong, and how can you do it better?
Lastly, you’re going to need to invest time and money in developing a social media and email marketing strategy to reach your potential customer base. Because we’re living in the digital age, this is vital!
Now that you know how to start a pawn shop, it’s time to start your free LLC with Inc Authority today! You’ll get your LLC in minutes as well as 9 FREE business management tools to help you run your startup.