Starting a pawn 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 pawn shop.
Importantly, a critical step in starting a pawn 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 Pawn Shop:
- Choose the Name for Your Pawn Shop
- Develop Your Pawn Shop Business Plan
- Choose the Legal Structure for Your Pawn Shop
- Secure Startup Funding for Your Pawn Shop (If Needed)
- Secure a Location for Your Business
- Register Your Pawn 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 Pawn Shop
- Buy or Lease the Right Pawn Shop Equipment
- Develop Your Pawn Shop Marketing Materials
- Purchase and Setup the Software Needed to Run Your Pawn Shop
- Open for Business
1. Choose the Name for Your Pawn Shop
The first step to starting a pawn 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 own pawn shop:
- 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 new business.
2. Develop Your Pawn Shop Business Plan
One of the most important steps in starting a pawn shop 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 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 pawn shop.
- Company Overview – this section tells the reader about the history of your pawn shop and what type of pawn shop you operate. For example, are you a traditional, big-box, or a luxury pawn shop?
- Industry Analysis – here you will document key information about the pawn 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 audience are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services 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 pawn 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 pawn 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 Pawn Shop
Next you need to choose a legal structure for your pawn 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 pawn shop owner and the business are the same legal person. The business 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 businesses. It is an agreement between two or more people who want to start a pawn shop together. The partners share in the pawn shop’s 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 pawn 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 pawn 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 pawn 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 Pawn Shop (If Needed)
In developing your pawn 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 pawn shop 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 pawn shop that they believe has high potential for growth.
5. Secure a Location for Your Business
There are a few things you’ll want to keep in mind when looking for a location for your pawn shop. First, you’ll want to make sure that the location is accessible and visible to customers. You’ll also want to make sure that the location is in a safe and busy area.
The following is a list of recommended locations:
– Strip malls or retail centers with high customer traffic
– Commercial buildings with proper utility connections
– Industrial areas where a pawn shop is permitted
Commercial zones, strip malls, and retail centers are the most popular locations because they typically have large signage that can be seen from a distance, have a high volume of customers, and have relatively low rent and utility costs.
6. Register Your Pawn 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 pawn 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 pawn 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
A pawn shop is a business that allows customers to pawn or sell items in order to receive a loan. In order to start a pawn shop, you will need a business license and a pawnbroker’s license. You may also need a pawn shop license, a precious metal dealer license, a secondhand dealer license or a federal firearms license.
Contact your city hall to learn the different licenses you need to start your business and how to obtain them.
10. Get Business Insurance for Your Pawn Shop
The type of insurance you need to operate a pawn shop will depend on your location and the type of business you are running.
Some business insurance policies you should consider for your pawn 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.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- 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 Pawn Shop Equipment
To run a pawn shop, you will need the following equipment: cash register, safe, security system, display cases, and signage.
12. Develop Your Pawn Shop Marketing Materials
Marketing materials will be required to attract and retain customers to your pawn shop.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your pawn 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 pawn shop website provides potential customers with information about the products and/or services 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 online platforms will help customers and others find and interact with your pawn shop.
13. Purchase and Setup the Software Needed to Run Your Pawn Shop
To run a pawn shop, you need software that can manage transactions, track inventory, and report on financials. Some of the most popular accounting software for managing transactions and accounting include QuickBooks and Xero.
14. Open for Business
You are now ready to open your pawn 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.
How to Finish Your Ultimate Business Plan in 1 Day!
Don’t you wish there was a faster, easier way to finish your pawn shop business plan?
With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!
Click here to finish your pawn shop business plan today.
How to Start a Pawn Shop FAQs
Is it hard to start a pawn shop?
No. It can be quite simple to find startup capital, and a pawn shop requires very little in terms of inventory or personnel. The great part about being a pawn broker is that you're already in the business of accepting valuables from your customers (pawns) as loan collateral, which means it's easy to turn around and sell those same items for profit.
How can I start a pawn shop with no experience?
To start a pawn shop with no experience, you'll need to do some research on the industry trends and what it takes to operate a successful pawn shop. You'll also need to develop a business plan and secure financing. Finally, you'll need to get started marketing your new pawn shop and building relationships with the local community.
What type of pawn shop is most profitable?
Pawn shop profitability varies by location, selection, and pricing. The most profitable type of pawn shop provides loans. Additionally, pawn shops that buy and sell jewelry and precious metals such as gold are typically more profitable than those that do not.
How much does it cost to start a pawn shop?
There is no definitive answer to this question as the cost of starting a pawn shop will vary depending on the location, size, and other factors. However, the average startup cost for a pawn shop ranges from $10,000 to $50,000. This includes buying or leasing a building, fixtures, initial inventory, and equipment.
What are the ongoing expenses for a pawn shop?
The ongoing expenses for a pawn shop include rent, employee salaries, and inventory. Other ongoing expenses include the costs associated with picking up inventory and paying for marketing, such as print advertisements.
How does a pawn shop make money?
Pawn shops make money by buying products from people for a lower price than what they sell it for. They also make money by charging interest on loans, renting out their space to customers looking to display items, or trading secondhand goods.
Is owning a pawn shop profitable?
Yes, owning a pawn shop can be profitable. Pawn shops typically charge interest rates on loans that are higher than most banks, so they can be a good option for borrowers who need money quickly. In addition, pawn shops often sell used items at a markup, so they can be a profitable business venture for shop owners.
Why do pawn shops fail?
Many pawn shops fail because they do not have the right products and services to attract customers. Many people go to pawn shops to get a loan, and if the pawn shop does not offer loans, it will likely fail. Additionally, other pawn shops often do not have a good marketing strategy and thus cannot reach enough potential customers.