Start a record store 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 guide to starting your record store. 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 record store?
By far the largest expense when getting started is investment in inventory. In order to have a nice selection, the investment in inventory is around $100,000. Some store owners use their own personal collection of items acquired over decades and open a record store in order to liquidate their personal collection.
Equipment needed is a cash register(s), bins to hold items for sale, appropriate lighting, and decorations to make the store attractive. The other thing needed is exterior signage. These add up to an additional $10,000 to the startup costs.
Finally, a deposit is often required to sign a long-term lease. The deposit amount depends on the monthly rent and the size of the retail location.
What are the ongoing expenses for a record store?
The main expenses are rent, electricity, and staff costs. To succeed, these need to be as low as possible. For example, renting a high-traffic location in a high-priced shopping mall is completely the wrong idea. The rent needs to be very low and the location can be in a very odd place or even out of the way. The attraction is the inventory and store-owner knowledge, not necessarily the location of the store.
Who is the target market?
People who love listening to music and collecting it are the ones attracted to this business. Another customer type is a DJ looking for extended play or dance mix albums to use in clubs.
How does a record store make money?
Records sell at retail prices with sales tax. For online sales, shipping and handling charges are additional.
How much can you charge customers?
Retail sales average around $24 per buying customer. Extremely rare collectibles can sell for many thousands of dollars.
How much profit can a record store make?
There may be low sales during any particular week. Then, a regular collector may come in and buy a significant amount of items. A small record store might make $800 to $1,000 per week in average sales or $41,600 to $52,000 in sales per year. Approximately 25% of the sales are profits, which equals $8,350 to $10,500 per year.
How can you make your business more profitable?
Great strategies to improve profitability of a record store business include:
- Acquire entire collections at bargain prices from estate sales.
- Find valuable old records in second-hand stores and at garage sales at low prices.
- Take rare items in on consignment.
- Sell both from the shop and online.
- Sell CDs and DVDs in addition to records.
- Feature in-store performances.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. 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 record store is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
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.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
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 open a record store. 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.
In addition, certain local licensing or regulatory requirements may apply. For more information:
- Check with your town, city or county clerk’s office for information about local permits and licenses
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
In order to play music in a business setting, permission must be acquired from the composer or license holder. Typically, it is possible to obtain “blanket” license allowing a businesses to play music owned by a large catalog of artists and recording studios. Such licenses can be obtained from Performance Rights Organizations, such as ASCAP and BMI.
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.
How to promote & market a record store
Establishing your store as an expert resource for a particular music genre(s) is critical. Some record stores cater to DJs looking for the newest released long-play vinyl records. Owning physical records is necessary to DJs for the type of mixing they do in a live club scene by hand. Other clients that come to these specialty record stores are looking for rare items, hard to find elsewhere.
The good news is that vinyl record sales are increasing dramatically. A report from Forbes says that the sales of vinyl records are up 30% in 2015, with a total of around $12 million in sales of records in the USA during 2015.
How to keep customers coming back
To take advantage of renewed consumer interest in vinyl records, a record store will do well by having many in-store record signing events to promote sales of signed items in the record store. Members of bands who appear for record signings, famous DJs, or others who are well-known for their musical importance are all potential candidates for such in-store events.
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 Record Store 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?
Do you like listening to music? People attracted to this business love listening to music. They enjoy understanding the detailed history of music (“musicology”). They know how the creation of a music style happened, who performed it, and how popular a style became. They enjoy serving as an authority/guide for others as a curator for specific styles. Independent record stores are not particularly lucrative and are best suited for music lovers, who are content with marginal profits.
What happens during a typical day at a record store?
The daily activities for the staff or owner of a record store include:
- Marketing efforts to find customers - A combination of selling online with a physical retail presence is most effective. The physical retail store may be very modest. In fact, it should be. However, profits do exist from managing vast catalogs of acquired materials and selling them both online and offline. The marketing budget is usually limited to free postings online such as offerings on Craigslist or eBay. Posting flyers around town and at music events or collector conventions is also helpful.
- Closing out the accounting for daily sales and updating inventory records – Every day, enter the sales from the day before in the accounting system and update inventory records to reflect the sales.
- Order fulfillment – Process any sales that need shipment and prepare the packages for pickup by the shipping company.
- Cash management – Count cash in the register(s) to verify the correct amount exists according to the transactions made. Note any discrepancies. Make change from the register proceeds for large cash bills to make sure the change is available for cash-paying customers. Deposit any excess over the baseline cash requirements into the business banking account.
- Clean the store – This includes making sure to clean all areas of the store according to a posted daily schedule. Additionally, check the bins for vinyl records for proper alphabetization and artist/genre categories to make sure the correct product, offered for sale, is in the correct place.
- Promotional materials – Put up and keep current the display of promotional materials.
What are some skills and experiences that will help you build a successful record store?
You have to love listening to music. The best ones in this business love learning the detailed trivia about the music, including information about its creation, who performed it, and why a particular record is significant.
What is the growth potential for a record store?
There are no significant franchise opportunities. The trend with record stores is that they are largely independent. This is a very niche area where there are no longer many retail chains. There is less possibility for expansion when starting with one store. Some of the best independent record stores closed down, so this industry sector is reducing not expanding.
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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.
How and when to build a team
Usually, the store owners do most of the work. If any staff is hired, the pay rate is typically close to minimum wage as revenues in this business seldom support large payrolls. It is important to hire staff that have a love for music, know a lot about it, and are enthusiastic about sharing their knowledge with customers.