Start a formal wear rental business by following these 10 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 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.
Check out our How to Start a Business page.
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 much can you charge customers?
- 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 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
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.
STEP 2: Form a legal entity
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.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
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?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
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.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
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.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
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.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
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.
Learn more about General Liability Insurance.
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.
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.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
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.
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.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
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.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
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.
TRUiC's YouTube Channel
For fun informative videos about starting a business visit the TRUiC YouTube Channel or subscribe below to view later.
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.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
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.