How to Start a Formal Wear Rental Business

Start a formal wear rental business by following these 10 steps:

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

We have put together this simple guide to starting your formal wear rental 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 Formal Wear Rental 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 formal wear rental business?

Exact costs will be based on where you choose to open, and how much space you need. If you choose to franchise, you’re paying not just for the name and methodology of an established company, but marketing, general support, and (potentially) inventory. Gingiss Rental places the low-end estimate at around $95,000 and the high end at around $243,000. If you choose to open on your own, you may have much lower numbers, but you’ll likely end up spending the rest of the money in marketing and outreach campaigns.

What are the ongoing expenses for a formal wear rental business?

Owners will need to continually update their styles to keep up the demand. In addition, owners will have the following expenses:

• Store maintenance and yearly license fees
• Inventory cleaning and repairs
• Employee salaries
• General clothing supplies ( mannequins, racks, hangers)
• Office supplies
• Advertising costs
• Website upkeep and potential online rental expansion

Who is the target market?

The ideal client is someone who understands they’re not going to wear an expensive suit or dress enough to justify its full cost. You want parents looking for suits and dresses their kids will grow out of immediately, high school students who can’t spend thousands on one dance, and hard-working people who need formal wear for big job interviews and weddings.

How does a formal wear rental business make money?

Companies make money by renting formal wear at a comfortable profit margin. An average tuxedo may cost around $1,000, and the average tuxedo rental is $196. After just 10 rentals, the suit will have generated around $1,000 in profit (minus the cost of dry cleaning and upkeep.)

How much can you charge customers?

Most people are willing to spend up to $200 for a rental, especially considering buying a tuxedo can be 6 times that cost. However, you are limited by the area you sell in. If you’re charging $200 per rental when the average income in the area is $25,000 a year, then you could end up being pushed out of the market quickly. In these circumstances, you may want to focus on building profit through high-volume sales.

Open up shop in an affluent area, and you can charge up to $500 for a designer suit. You will also need to include ways to recoup your costs if the rental comes back damaged (e.g, by holding onto a credit card until the formal wear is returned in good shape.)

How much profit can a formal wear rental business make?

Formal rental wear companies will have different profit margins based on where they choose to operate. Whether a business specializes in high volume at lower profit margins or the other way around though, there is the potential to achieve a healthy bottom line when pricing is managed correctly.

How can you make your business more profitable?

Your business may benefit from offering custom tailoring or alterations for clients, as it will be impossible to size for every body type. You may also want to consider renting online if your company finds a niche market that can be expanded to other parts of the country (e.g., formal wear for football enthusiasts.)

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 formal wear rental 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 formal wear rental business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Certificate of Occupancy

A formal wear rental business can be run out of a large or small storefront. 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 a storefront:
• 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 formal wear rental 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 or build a storefront:
• 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 formal wear rental business will be in compliance and able to obtain a CO.

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?

The best owners will be those who understand formal attire and current trends in formal wear. Sizing, fashion, and customer service will all play major roles in how successful an owner is. Entrepreneurs do not necessarily need to be a tailor, but it helps to understand how the alterations process works.

What happens during a typical day at a formal wear rental business?

Owners are generally in charge of overseeing all operations, including:

• Selecting and purchasing items to rent
• Managing employees
• Sizing customers
• General sales floor duties
• Setting prices (including specials during busy times)
• Promoting different uses for formal wear (e.g., job interviews)
• Determining and recognizing new trends in formal wear

What are some skills and experiences that will help you build a successful formal wear rental business?

Formal wear sometimes gets a bad reputation because the quality of the clothes may be low while the prices are high. People complain of outdated fashions, and signs of wear and tear like ripping and fading. Owners will need to work with customers to build their trust, and stay attuned to their specific needs. For example, Jim’s Tuxedos and Men’s Clothing Warehouse in Michigan saw success with a camouflage vest and tie that attracted hunters who were in the market for a rental.

What is the growth potential for a formal wear rental business?

There is only so much one brick-and-mortar formal wear rental business can grow, based on the demographics of the town. People generally won’t travel too far to pick up a rental, so you’re somewhat limited to the location you choose.

There are plenty of ways to grow if you choose to franchise. You may either want to choose an established company to franchise from, or you can start your own franchise after the success of your first independently-owned store. There are also ways to rent your clothing online, which can drastically increase your sales.