Start a resale 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 guide to starting your resale 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 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.
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 resale business 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.
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.
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
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 resale business
Studies show that for resale businesses, experiential marketing that utilizes all the senses is more effective than traditional marketing techniques. Thrift store shoppers are seeking pleasurable visual, auditory, and tactile experiences as well as unique items at bargain prices. That’s why many successful resale business owners both attend and organize community events such as bake sales, local plays and art exhibitions. It’s also helpful to keep abreast of resale trends by reading articles that discuss recent studies and research within the industry.
How to keep customers coming back
Successful resale business owners know that one of the things that keeps their customers coming back is the constantly changing inventory. Prominently displaying the most popular brands and highest-quality items is a good way to attract attention to them. Offering specials such as buy one, get one free is also an effective marketing strategy. Discounts and markdowns using colored tags are also great incentives for budget conscious customers. Whatever strategies you use must include friendly, helpful customer service. Not even a free gift can replace a warm greeting or an offer to help a customer find exactly what they’re looking for.
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 Resale 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?
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.
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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
Although it is possible to start and maintain a small resale business without assistance, successful expansion requires additional help. There are a number of options for building a team. One is to create a partnership in order to share expenses and responsibilities. Another is to hire employees at a regular wage, as your revenue increases to allow for an expanding staff. Profit sharing is becoming an increasingly popular option, since it reduces expenses and increases incentive.