How to Start a Resale Business

Start a resale business by following these 10 steps:

1. Plan your Resale Business
2. Form your Resale Business into a Legal Entity
3. Register your Resale Business for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Resale Business
6. Get the Necessary Permits & Licenses for your Resale Business
7. Get Resale Business Insurance
8. Define your Resale Business Brand
9. Create your Resale Business Website
10. Set up your Business Phone System

We have put together this simple guide to starting your resale business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Resale Business Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.

What are the costs involved in opening a resale business?

While opening a resale business costs less than many others due to the fact that some merchandise is donated, it does require some startup capital. The amount depends on whether your business is conducted online, at a flea market, or in a store. For a physical store, business licenses, liability insurance, space rent and merchandise are among the initial startup costs. Those costs can range from as little as $5,000 to as much as $30,000, depending on the type of items being sold and the percentage of your inventory that comes from donations. Start-up and operating costs can be reduced by utilizing software developed specifically for resale businesses. That software allows you to automate tasks such as maintaining customer databases, tracking sales and inventory, and creating sales promotions.

What are the ongoing expenses for a resale business?

Depending on the type of resale business, ongoing expenses may include space rent, website maintenance, a business phone, employee salaries and a company vehicle for picking up donations. For online businesses, your main costs will include managing a warehouse and preparing and shipping orders.

Who is the target market?

Preferred clients are those who purchase items for their own use, rather than for resale purposes.

How does a resale business make money?

A resale business makes money by selling used merchandise at a profit. Competitive pricing that factors in the cost of merchandise and operating expenses is crucial to the success of any retail business.

How much can you charge customers?

The amount you can charge customers is based partly on your chosen target market and the amount of competition for that market in your area. Pricing is based in part on ensuring that there is a profit after operating costs are subtracted from sales figures. Other factors that affect pricing include the quality of the items, their current market value, and the strength of the local economy. Some resale businesses specialize in selling large quantities of low-cost items, while others focus on selling high-cost items. High-end designer fashions, appliances, and furniture command a higher resale price than lesser-known brands even though the quality may be comparable. The ambiance of your store and the language used to describe your merchandise can also affect pricing.

How much profit can a resale business make?

The amount of profits a resale business can make depends on its resources. Those resources include merchandise and equipment as well as human resources. Knowledge, expertise and the development of company and community relationships all contribute to increasing profits. Annual earnings for small resale businesses average from between $30,000 and $60,000.

How can you make your business more profitable?

You can make your business more profitable by conducting regular market research, which includes visiting competitors to compare prices and find new ways to set yourself apart. Increasing your donations by offering convenient pick-up and purchasing items in bulk from wholesalers whenever possible can also increase your profit margin.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your resale business is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a resale business business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Certificate of Occupancy

A resale business is generally run out of a retail store. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.

If you plan to lease retail space:

• It is generally the landlord’s responsibility to obtain a CO.
• Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a resale business.
• After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.

If you plan to purchase retail space:

• You will be responsible for obtaining a valid CO from a local government authority.
• Review all building codes and zoning requirements for you business’ location to ensure your resale business will be in compliance and able to obtain a CO.

Certain resale products cannot be sold. These products are determined federally and include products that have been recalled, that don’t comply with the federal limit on lead, unsafe toddler and infant products, and anything in violation of CPSC’s safety standards, bans, rules or regulations.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

This is a great business for those who enjoy interacting with people while treasure-hunting for bargains at flea markets or estate sales. Those who have a talent for finding bargains and negotiating prices can transform that talent into a successful resale business. It’s also a good choice for recycling enthusiasts who want to save usable items from landfills and help conserve natural resources. Community-oriented people who want to help provide necessities for low-income residents at reduced prices are also good candidates for this business.

What happens during a typical day at a resale business?

• Accepting donations and purchasing merchandise from various sources such as wholesalers, local charities, estate sales, and yard sales
• Separating, cleaning, repairing, pricing and displaying donated and purchased items
• Market research and targeted advertising
• Attending community events, advertising and creating sales promotions
• Interacting with donors, vendors and customers
• Training, scheduling and managing employees

What are some skills and experiences that will help you build a successful resale business?

Many people gain experience in the resale business through garage sales, flea markets, or selling items online before starting their own businesses. Whether your store is online or has a physical location, negotiation skills are essential, since profit depends on purchasing items for less than their resale price. Market research skills are as vital for pricing merchandise as good customer service skills are for building a regular clientele. An artistic eye is also helpful for creating attractive displays that showcase your goods in the best possible light.

What is the growth potential for a resale business?

Resale businesses can become so successful that they are able to offer franchise opportunities for others. Play It Again Sports is a good example.