Starting a consignment shop can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful consignment shop.
Importantly, a critical step in starting a consignment shop is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Consignment Shop:
- Choose the Name for Your Consignment Shop
- Develop Your Consignment Shop Business Plan
- Choose the Legal Structure for Your Consignment Shop
- Secure Startup Funding for Your Consignment Shop (If Needed)
- Secure a Location for Your Business
- Register Your Consignment Shop with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Consignment Shop
- Buy or Lease the Right Consignment Shop Equipment
- Develop Your Consignment Shop Marketing Materials
- Purchase and Setup the Software Needed to Run Your Consignment Shop
- Open for Business
1. Choose the Name for Your Consignment Shop
The first step to starting a consignment shop is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your new business venture:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your consignment shop.
2. Develop Your Consignment Shop Business Plan
One of the most important steps in starting a consignment store is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your new business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your consignment shop.
- Company Overview – this section tells the reader about the history of your consignment shop and what type of consignment store you operate. For example, are you a traditional brick-and-mortar consignment shop, online consignment shop, or a drop-off consignment shop?
- Industry Analysis – here you will document key information about the consignment and resale industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target market are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your consignment shop? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your consignment shop make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Consignment Shop
Next you need to choose a legal structure for your consignment shop and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the consignment store owner and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small business owners. It is an agreement between two or more people who want to start a consignment shop together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a consignment shop include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a consignment shop is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your consignment shop, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Consignment Shop (If Needed)
In developing your consignment shop business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a consignment business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a consignment shop that they believe has high potential for growth.
5. Secure a Location for Consignment Shop
There are a few key things to consider when looking for the right location for your consignment shop. First, you’ll want to make sure the location is in a high traffic area with plenty of foot traffic. Additionally, you’ll want to make sure the space is large enough to accommodate your inventory. Finally, you’ll want to ensure the rent is affordable.
6. Register Your Consignment Shop with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your consignment shop’s name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your consignment shop to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
Licenses and permits you may need to launch a consignment shop include a business license, a seller’s permit, and a zoning permit. Contact your local government to find out more about the specific licenses and permits you need to start your consignment shop.
10. Get Business Insurance for Your Consignment Shop
There are various types of insurance that are necessary to operate a consignment shop.
Some business insurance policies you should consider for your consignment shop include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Consignment Shop Equipment
To run a consignment shop, you will need some basic equipment, such as racks, hangers, and shelves. You will also need a point of sale (POS) system for purchases. You may also need basic administrative equipment such as a phone, printer, and fax machine.
12. Develop Your Consignment Shop Marketing Materials
Marketing materials will be required to attract and retain customers to your consignment shop.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your consignment shop. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional consignment shop website provides potential customers with information about the products you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media platforms will help customers and others find and interact with your consignment shop.
13. Purchase and Setup the Software Needed to Run Your Consignment Shop
To run a consignment store, you will need software to manage your inventory and transactions. Inventory management software can help you keep track of what items are in stock, what items have been sold, and how much money you have made from consigned items. Transaction management software can help you keep track of payments from customers and consigners, as well as track your profits and losses.
14. Open for Business
You are now ready to open your consignment shop. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Consignment Shop FAQs
Is it hard to start a consignment shop?
No, it's not hard to start a consignment shop. In fact, there are a lot of great resources available online that can help you get started. You can also contact your local Small Business Administration office for tips and advice. Additionally, you can get in touch with other entrepreneurs who have successfully launched their own resale stores to learn how they did it.
How can I start a consignment shop with no experience?
There are ways that you can successfully run a consignment shop with no experience. You can research the process online and attend workshops or webinars on consignment shop operations. Seeking help from an experienced friend or family member can be helpful. You also need to decide on the type of consignment shop you'd like to open and develop a business plan outlining your goals, strategies, and financial needs.
What type of consignment shop is most profitable?
The most profitable type of consignment shop is the one that specializes in high-end items. These items tend to have a higher resale value, so you can make more money on them. You'll also need to have a lot of space to store these items.
How much does it cost to start a consignment shop?
Starting a consignment store typically costs around $10,000-$50,000. However, this can vary depending on your store's size and physical location. Startup costs include renting or buying a store location and building out the inside of the store with shelves and racks for holding inventory. You'll also need to cover marketing expenses like business cards and advertisements. Additional startup costs include the purchase of furniture, fixtures, and equipment to set up your office area (if separate from the retail space), as well as paying licenses and taxes.
What are the ongoing expenses for a consignment shop?
There are multiple ongoing expenses that need to be considered when starting a consignment shop. These include rent, utilities, advertising, and employee salaries. It is important to have a good understanding of these expenses before starting a consignment shop, as they can impact the overall profitability of the business.
How does a consignment shop make money?
Consignment stores make money by charging consignors a fee for displaying and selling their items and by taking a commission on items that are sold. The commission is typically a percentage of the sales price, and it varies depending on the store.
Is owning a consignment shop profitable?
Yes, a consignment store can be a profitable business because it doesn't require a lot of startup costs, making it a relatively low-risk business venture. Also, there are many customers who are looking for unique or hard-to-find items. There are also many consignors looking for an appealing consignment shop to sell their items.
Why do consignment shops fail?
One of the main reasons why consignment stores fail is because they do not generate enough sales. This can be due to a number of factors, such as a lack of marketing or an inability to attract customers. Another reason consignment shops fail is because they do not have a solid business plan in place. This can lead to financial instability and an inability to cover costs. Lastly, consignment stores can fail if the owner does not maintain adequate levels of inventory.