If you are looking to open a pawn shop, you need to consider several factors, such as cost. You will need to make a budget that covers all the costs involved in opening a pawn shop. This cost will largely depend on commercial retails prices in your area.
However, you can easily make your budget with a few steps. This guide will review the costs involved in opening a pawn shop and how to go about opening it.
Costs involved in opening a pawnshop
If you intend to open a pawn shop, you would need a minimum of 10,000 dollars. Pawnshops make most of their profit from giving loans to customers. This means that the income you will make is limited by the amount of money available. Therefore, it is advisable to have a significant amount of capital before opening a pawn shop.
You need to consider the following costs if you want to open a pawn shop:
- Rent: – This is your most enormous fixed cost. When choosing a pawn shop location, you need to avoid places in the high-rent business district. But make sure the site you choose is convenient for your customers. You need a space that is big enough to test, display, and store items.
- Operating capital: You will also need a considerable percentage of your budget for operating capital. This is the money you will give out to your customers as loans and run your pawn shop.
- Security: – This is very important because pawn shops always have plenty of cash and valuable items. For this reason, they are a target for thieves. Therefore you will need to allot a percentage of your budget to install a good security system.
- Insurance: – You will also need comprehensive insurance to protect your shop from loss and legal liability. The amount of insurance your pawnshop must carry will depend on the state where it operates.
- Initial inventory: – You will need to spend some of your budgets on some inventory because no one wants to see an empty showroom. So, ensure that you have a few inventories in stock before opening your doors. But you do not need to blow your budget on this.
- Pawn Shop POS : – You will also need to get a Pawn Shop POS system for researching, keeping records, and printing receipts.
Ongoing Expenses for Pawn Shops
The ongoing expenses in a pawn shop include the following:
- Utilities
- Salaries
- Rent
- Security
How much can you charge customers?
The state controls the maximum amount that pawnshops can charge customers on loan. The National Pawnbrokers Association permits a $15 charge on a 30-day, $150 loan. So, you can mark up the items you sell between 15% and 45%.
How Much Profit Can My Pawn Shop Make?
This depends significantly on the location of your pawnshop. PayScale.com estimates the average salary for a pawn shop owner to over $32,000 per year.
How to Make your Business more Profitable
To increase your profitability, you need to add a couple of sideline businesses to your pawnshop. Some common ones include online sales, storage, check cashing, and appraisal services.
Requirements for Opening a Pawn Shop
If you intend to open a pawn shop, there are several things you need to do, and I have compiled a step-by-step guide to help you. Kindly follow the steps below:
Step 1: – Planning your Business
If you intend to open a pawn shop, you will need a clear business plan. This will help you uncover some unknowns and figure out the specifics of your business.
Step 2: – Forming a Legal Entity
When you have mapped out a business plan, the next thing to do is establish a legal business entity. With this, you will not be personally liable if your pawnshop gets sued. You can choose from the following business structures:
- Corporations
- Limited Liability Companies (LLCs)
- DBAs.
You will also need to protect your privacy and stay compliant. You can do this by using a registered agent service.
Step 3: – Registering for Taxes
Before you can open for business, you will need to register for some state and federal taxes. To do this, you will apply for an EIN. Don't worry. The application is free and easy.
Step 4: – Opening a Business Bank Account and Credit Card
You will need dedicated business banking and credit accounts for your pawnshop to protect your asset. Do not mix your personal account and your business account. When you do this, your assets such as your car, home, and other valuables are at risk if your business gets sued. This is known as ‘piercing your corporate veil' in business law.
Step 5: – Setting up Business Accounting
You need to record all expenses and income sources to know how well your business is doing financially. Doing this will also simplify your annual tax filing.
Step 6: – Obtaining Necessary Permits and Licenses
You will need to acquire all the necessary permits and licenses. If you fail to do so, you will attract fines, and they might even shut down your business. Ensure that you have the following permits and licenses:
- State and Local Business Licensing Requirements
- Certificate of Occupancy
- Services Contract
Step 7: – Getting Business Insurance
You will need business insurance to operate your pawnshop safely and lawfully. With insurance, you will protect your business in the event of a loss. You can select from a variety of insurance policies for different types of companies with different risks. If you are not sure of the risks involved in your business, it is advisable to choose General Liability Insurance.
This insurance coverage is widespread among small businesses. So you can start with it for your business.
Step 8: – Defining your Brand
This is very important because a strong brand will make your company stand out from competing brands. Your brand determines how the public perceives your business.
Step 9: – Establishing your Web Presence
You will need a business website for customers to quickly learn more about your company, the products, and its services. Social media is another excellent tool that you can help you attract new clients or customers.
Conclusion Opening a pawn shop is not a bad business idea. However, you will need a capital of at least 10,000 dollars to startup. This guide contains the necessary information on the costs of opening a pawn shop. Now, it’s time for you to use this information to startup.
