Starting a retail business 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 retail business.
Importantly, a critical step in starting a retail business is to complete your business plan. To help you out, you should download Growthink’s Retail Business Plan Template here.
15 Steps To Start a Retail Business:
- Choose the Name for Your Retail Business
- Determine the Type of Retail Business You Will Launch
- Develop Your Retail Business Plan
- Choose the Legal Structure for Your Retail Business
- Secure Startup Funding for Your Retail Business (If Needed)
- Secure a Location for Your Business
- Register Your Retail Business 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 Retail Business
- Buy or Lease the Right Retail Business Equipment
- Develop Your Retail Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your Retail Business
- Open for Business
1. Choose the Name for Your Retail Business
The first step to starting a retail business 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 retail business:
- 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 retail business.
2. Determine the Type of Retail Business You Will Launch
The next step is to determine the type of retail business you will launch. The four main types of retail businesses are:
- Storefront Business: This type of business involves a physical location, storefront or office where customers can visit and look at products.
- Online Store: This type of retail business allows customers to purchase products online from the comfort of their own homes.
- Catalog Sales Business: A catalog sales business is a hybrid between an online store and a brick-and-mortar store. Customers can purchase products from an online catalog, but they must pick up the items in-store or have them shipped to their homes.
- Mobile Business: A mobile business involves a physical location that moves around, usually with a vehicle or trailer. Common examples include food trucks and flea markets.
Then, you can break down the retail business by sub-categories. For example, you might decide to sell:
- Sports equipment
3. Develop Your Retail Business Plan
One of the most important steps in starting a retail business 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 retail business.
- Company Overview – this section tells the reader about the history of your retail business and what type of retail business you operate. For example, are you a boutique or a convenience store?
- Industry Analysis – here you will document key information about the retail 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 customers 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 retail business? 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 retail business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
4. Choose the Legal Structure for Your Retail Business
Next you need to choose a legal structure for your retail business 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 owner of the retail business 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 businesses. It is an agreement between two or more people who want to start a retail business 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 retail business 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 retail business 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 retail business, 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.
5. Secure Startup Funding for Your Retail Business (If Needed)
In developing your retail 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 retail 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 retail business that they believe has high potential for growth.
6. Secure a Location for Your Business
Having the right space can be important for your retail business, particularly if you’d like to meet clients there.
To find the right space, consider:
- How much space you need
- How much it will cost to rent or purchase the space
- How accessible the location is for your customers
- How close parking is for customers
- How visible the space is from outside
- Driving around to find the right areas while looking for “for lease” signs
- Contacting a commercial real estate agent
- Doing commercial real estate searches online
- Telling others about your needs and seeing if someone in your network has a connection that can help you find the right space
7. Register Your Retail Business 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.
8. Open a Business Bank Account
It is important to establish a bank account in your retail business’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
9. Get a Business Credit Card
You should get a business credit card for your retail business 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.
10. Get the Required Business Licenses and Permits
Every state, county and city has different business license and permit requirements.
Nearly all states, counties and/or cities have license requirements including:
- General Business License: getting your Articles of Incorporation as discussed above
- Sales Tax License or Seller’s Permit: for selling products
- Zoning Approval: typically at the city or county level, this provides authorization for construction or use of a building or land for a particular purpose
- Fire Department Approval: a process by which the local fire department reviews and approves the installation of a fire alarm system.
Depending on the type of retail business you launch, you will have to obtain the necessary state, county and/or city licenses.
11. Get Business Insurance for Your Retail Business
There are a few different types of insurance that you may want to consider for your retail business.
General Liability Insurance: This type of insurance protects your business from any legal claims made against it. For example, if a customer slips and falls in your store, general liability insurance would help to cover the costs associated with any lawsuits that may arise.
Product Liability Insurance: This type of insurance is designed to protect your business against claims made by customers who have purchased a product from you. For example, if a customer purchases a defective item and sues your business, product liability insurance could help cover any legal costs or settlements.
Property Insurance: If you are renting or buying a retail space for your business, you will need property insurance to help protect your assets. Property insurance helps protect against damages caused by fire, theft, wind and other disasters.
Workers’ Compensation Insurance: If you are hiring any employees for your retail business, you will need workers’ compensation insurance. This type of insurance provides benefits to your employees if they are injured or become ill due to work-related activities.
Business Interruption Insurance: This type of insurance helps protect your business if you have to temporarily close down due to a disaster or other unforeseen circumstances. It can help cover lost income and any necessary expenses incurred while operating out of a temporary location.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
12. Buy or Lease the Right Retail Business Equipment
When starting a retail business, you will need to outfit your store with the proper equipment. This may include cash registers, point-of-sale systems, displays, signage, and more.
It is important to buy or lease the right equipment for your business. Not only does it need to be of high quality, but it also needs to be compatible with the products you are selling.
When shopping for retail business equipment, be sure to consider the following factors:
- The size of your store
- The type of products you are selling
- The budget you have available
- The features you need from your equipment
- The manufacturer’s warranty and customer service policies
- The ease of use and installation
- The cost of replacement parts and repairs
- The ability to upgrade or expand your system in the future
- The availability of training and support from the manufacturer
- The ease of accessing supplies and spare parts
Once you have considered all of these factors, you will be able to choose the right type of retail business equipment for your store.
When trying to decide between buying or leasing equipment for a retail store, consider how long you will need the equipment. If you only plan to use it for a short period of time, leasing may be the best option. However, if you plan to use the equipment for an extended period of time, buying may be the better choice.
13. Develop Your Retail Business Marketing Materials
Marketing materials will be required to attract and retain customers to your retail business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your retail business. 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 retail business 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 networks will help customers and others find and interact with your retail business.
14. Purchase and Setup the Software Needed to Run Your Retail Business
In order to run a retail business, you will need some essential software. This software will help you manage your inventory, process sales, and track customer data.
The most important software for a retail business is a Point of Sale (POS) system. A POS system allows you to process sales, track inventory levels, and manage customer data. There are many different types of POS systems available, so be sure to choose one that fits the needs of your business.
Another important piece of software for a retail business is an inventory management system. This system allows you to track the stock levels of your products and place orders for new stock when necessary.
Finally, you may also want to consider customer relationship management (CRM) software. CRM software helps you track customer data, such as contact information, purchase histories, and preferences. This information can be helpful in developing marketing campaigns and targeted offers to customers.
15. Open for Business
You are now ready to open your retail business. 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 Retail Business FAQs
Is it hard to start a retail business?
Starting a retail business is not hard, but there are some things you need to do in order to be successful. First, you need to research the market and find a product or products that customers want or need. You also need to develop a business plan and set up your accounting and marketing systems. Finally, you need to purchase and setup the necessary equipment. If you follow these steps, you will be well on your way to starting a successful retail business.
How can I start a retail business with no experience?
Starting a retail business with no experience is not impossible. One way to get started is to research the market and find a product or products that customers want or need. You can also look for a business mentor who can help guide you through the process. Additionally, you can read books or online articles about how to start a retail business. Finally, you can attend workshops or webinars that teach how to start a retail business. If you follow these steps, you will be well on your way to starting a successful retail business.
The best way to start a retail business with no experience is to start small. You can offer your products to friends and family members, or to local businesses. Once you have a few clients, you can then start marketing your business more aggressively.
What type of retail business is most profitable?
There is no one-size-fits-all answer to this question, as the profitability of a retail business will vary depending on the type of products sold, the location of the business, and other factors.
However, some types of retail businesses are more profitable than others. For example, businesses that sell luxury items or unique products tend to be more profitable than businesses that sell everyday items. Additionally, businesses that are located in high-traffic areas tend to be more profitable than businesses that are located in low-traffic areas.
So, what type of retail business is most profitable? There is no definitive answer, but it is important to do your research and find a business model that fits your skills and resources.
How much does it cost to start a retail business?
The cost to start a retail business will vary depending on the type of business, the products being sold, and other factors.
However, some of the costs that are typically associated with starting a retail business include:
- The cost of setting up a retail space, including rent, utilities, and marketing
- The cost of purchasing and setting up the necessary equipment, including computers, registers, and signage
- The cost of hiring employees
- The cost of marketing and advertising the business
- The cost of registering the business with the state or local government
In general, it is possible to start a retail business for as little as a few thousand dollars. The average startup cost range is typically between $5,000 and $15,000.
It is important to remember that the cost of starting a retail business can be higher if you plan on hiring employees and purchasing more expensive equipment. Additionally, the cost of starting a retail business will vary depending on how much time and effort you are willing to put into it.
What are the ongoing expenses for a retail business?
The ongoing expenses for a retail business vary depending on the type of business, the products being sold, and other factors. However, some of the most common ongoing expenses include:
- Rent or mortgage payments
- Utilities, such as electricity and water
- Employee wages and benefits
- Marketing and advertising costs
- Supplies and materials needed to run the business
- Licensing and registration fees
In general, the average monthly expense for a retail business is between $1,000 and $5,000. However, this amount can vary greatly depending on the size and scope of the business.
How does a retail business make money?
A retail business makes money by selling products to consumers. The business can make a profit by charging more for the products than it costs to produce or purchase them. Additionally, many retail businesses offer discounts or sales promotions to attract customers.
Retail businesses can also make money from services such as repairs, alterations, or custom orders. Additionally, many retail stores offer gift cards and other rewards programs to encourage customers to shop with them.
It is important to remember that a retail business needs to generate enough revenue to cover its expenses in order to be profitable. Therefore, it is essential for the business owner to research the market and create a pricing strategy in order to maximize profits. Additionally, businesses should track their finances closely in order to ensure they remain profitable.
Is owning a retail business profitable?
Yes, owning a retail business can be very profitable.
The profitability of a retail business will vary depending on the specific industry, geographical location, and other factors. However, there are a few things you can do to increase the chances of your retail business being profitable.
Some of the key things you can do to make your retail business more profitable include:
- Offering discounts and sales promotions
- Charging more for premium products
- Offering services such as repairs, alterations, or custom orders
- Tracking your finances closely to ensure you are making a profit
- Researching the market to create a pricing strategy
- Investing in marketing and advertising to attract new customers
- Narrowing your focus to a specific niche market
- Optimizing your website for SEO to increase online visibility.
- Creating a unique selling proposition.
- Testing out different strategies with a limited budget, so you can see which methods work best before investing heavily in these areas of your business.
- Providing outstanding client service
Why do retail businesses fail?
One of the main reasons retail businesses fail is that they are unable to attract new customers. This can be due to a lack of marketing and advertising, or because the business is not targeting the right type of customer. Other reasons include a lack of financial planning and poor customer service.
Lack of planning includes not having a detailed business plan, not doing research on the industry, and not targeting the right customers. Lack of marketing and sales skills includes not creating a sales process and not having a clear and strong value proposition.
The last main reason is a lack of financial management skills. This can include not having a realistic budget, not tracking expenses, and not investing in the business.
Who are key players in the retail market?
The retail market is made up of a variety of different players, including small businesses, large enterprises, and even individuals.
Some of the key players in the market include:
- Home Depot
However, there are many other players in your specific target market, and it is important to research the market to identify the key players that may have the most direct influence on the success of your business.
How much should I charge for my retail products?
When it comes to pricing your retail products, it is important to find a balance between what you feel your products are worth and how much your customers are willing to pay.
You also need to consider the costs of producing and marketing your products, as well as how much profit you want to make on each sale.
For example, if you sell shoes through your retail business, you might charge:
- $50 for basic shoes
- $60-$80 for mid-range shoes
- $100+ for high-end shoes
The best way to determine the right fee for your retail services is to research the rates of similar businesses in your industry, and to also consider the value that you will be providing to the client.