What are the costs to start and maintain a consignment store?

The price of starting a consignment store varies depending on your location and the clientele you take items for. When starting, consider the costs of: Permits and licenses Building cost or rent Shelving and displays Office supplies Point of sale systems Security systems Visit our How to Start a Consignment Store guide to learn more about the costs of starting and maintaining this business.

Should I Start an LLC for My Consignment Store?

Starting a limited liability company (LLC) for your consignment store can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a consignment store, lawsuits can arise from things like a customer alleging that an item purchased in your store is contaminated (e.g., with bed bugs, etc.) or items getting lost or damaged within your premises.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your consignment store seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Consignment Store?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should form an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Consignment Store

By starting an LLC for your consignment store, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Consignment stores will benefit from liability protection because of the risk of personal injuries, libel, and property damage.

Example 1: A customer drops off several boxes of goods so you can assess their value. An overnight storm creates a leak in your roof, and the dripping water ruins the items. The customer asks you to cover the damage. Business assets could be used to pay for the cost, but your personal assets as the owner would be protected by limited liability from being an LLC.

Example 2: A customer is attempting to sue you for a pest infestation in their home, claiming the bugs came from an item sold at your store. Being an LLC, your personal assets could not be taken in a settlement due to limited liability.

Example 3: An electrical fire breaks out in your store and spreads to nearby storefronts. Your business neighbors are demanding you pay for the fire damage. As an LLC, limited liability would protect your personal assets as the owner from being used to pay for the damage.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Consignment Store

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a consignment store owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Consignment stores rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a trusted LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

Your LLC needs insurance because business assets can only be protected with insurance, not the limited liability afforded by being an LLC. Consignment stores need insurance because of the liability that comes with selling other people’s goods. If anything happens to their items before being sold, you are responsible for them. Insurance can help with the cost of damage or reimbursement in situations like that as well as for any damage to the store.

LLCs protect personal assets. Business insurance protects business assets.

Common Situations Business Insurance May Cover for a Consignment Store

Example 1: A high shelf suddenly collapses on a customer, causing serious injuries. General liability insurance would cover the customer’s medical bills.

Example 2: When a customer trips while entering your store, she breaks an ankle and decides to sue. General liability insurance would pay for your legal fees and any damages awarded in a settlement.

Example 3: A customer drops off several boxes of goods so you can assess their value. An overnight storm creates a leak in your roof, and the dripping water ruins the goods, many of which are quite valuable. General liability insurance would pay for the damages to the customer’s property.

Other Types of Coverage Consignment Stores Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all consignment stores should obtain.

Product Liability Insurance

When you sell products to the public, there’s always a chance a customer may file a lawsuit if they believe one of your products injured them. Product liability insurance would protect your business by covering your legal fees and any damages awarded in the event of a lawsuit.

Commercial Property Insurance

You’ve made major investments in your inventory of clothing and accessories. If you own the building in which you operate, you’re responsible for all business-related property housed there in the event of a fire or natural disaster. Commercial property insurance would cover the cost of replacing your inventory after an accident so you can recover quickly.

Workers' Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability benefits stemming from a work-related accident.

Professional Liability Insurance

If you offer professional advice about the value of the goods your customers bring to your store, it’s possible a customer could sue based on the advice you gave them. Professional liability insurance would cover your legal fees and any payouts awarded in the event of a lawsuit.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance, workers’ compensation insurance, and commercial property insurance.

Read our Consignment Store Business Insurance article for more info.

The price of starting a consignment store varies depending on your location and the clientele you take items for. When starting, consider the costs of:

Permits and licenses
Building cost or rent
Shelving and displays
Office supplies
Point of sale systems
Security systems

Visit our How to Start a Consignment Store guide to learn more about the costs of starting and maintaining this business.

You’ll have to pay the rent or mortgage on your store space along with utilities, taxes, employee salaries, and fees for any required permits and/or licenses.

Learn more about running a consignment store.

A consignment store sells a consignor’s items for a fee the consignor pays upfront or based on a percentage of the sale of each item. In some cases, consignment stores charge consignors fees at both points.

Learn more about starting a consignment store.

A consignment store charges a fee to sell goods for other people, called consignors. These stores may sell a narrow range of products in one category or a wide variety of items in many categories.

Starting a consignment store requires a good deal of money and expertise. In particular, you need to know where to find your inventory because it’ll come from individuals rather than retail suppliers. Consignment stores typically charge a fee of 25% to 60% of the sale price for each item they sell.

Learn more about starting a consignment store.