Start a formal wear rental business by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step 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.
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 are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
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.)
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your formal wear rental business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
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!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
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
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment 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.
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.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
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
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a formal wear rental business
One way to market your company is to franchise your business from a larger company. Big-name companies will already be doing much of the marketing for you. When they advertise at the corporate-level, you benefit without having to do any additional work.
If you choose to open your own company, you’ll want to take advantage of both online, print, and television ads. Use your advertising budget wisely by figuring out what newspapers your clients read, what websites they’re on (e.g., prom fashion websites), and what television shows they watch.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
The best way to attract customers is to offer the fashions they most want to be seen in. The best way to retain customers is to offer superior service at every step of the way, and to never let a person leave in a suit or a dress that could be perceived as ‘second-hand.’ You should also cater to your client’s schedules (within reason), including rush orders when possible.
When working with customers, it is important to educate them about the work that you are doing for them. Tell them how things are supposed to fit, and show them that you are fitting their clothing the proper way. This will reassure them that you are well-educated on the service that you are offering, and it will increase their satisfaction. This satisfaction will lead them to share their experience and promote your business to others.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start a Formal Wear Rental Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
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.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a formal wear rental business?
Late spring is a good time to make a splash because it’s both prom season and the kick-off to wedding season. You’ll especially garner attention if you open in an area with limited rental options. Owners need to pay close attention to what’s hot in the rental business. There are a variety of companies that make it easier for both men and women to find the fashions they’re looking for without the hassle. Give people a reason to come visit your store, whether that’s a special discount, a bigger selection, or designer labels.
How and when to build a team
A small rental shop may only need one employee to stay afloat. Owners could potentially operate based on appointment only, or keep limited business hours. As long as the community is serviced, there is some flexibility in terms of how and if you build your team.
However, if you choose to open a franchise or larger business, you’ll want to start hiring managers and sales floor employees right away. Consider hiring someone in every demographic you wish to serve. For example, a high school student can you tell you what’s hot with their friends and classmates.