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A Special Message For Anyone
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So you’re thinking about opening a pawn shop? You want to start your own pawn shop, but you’ve begun to do your research on the industry and due diligence on the business and you’ve come up nearly empty handed. Don’t worry, I understand, I’ve been there before myself, and I realize your frustration.
My name is Steve Krupnik and I’ve been a pawnbroker for over 30 years. Back when I got into the industry there was practically NOTHING available on how to successfully open and manage a pawn shop business. Because of this I struggled mightily to succeed. But I did, and I tell you this with sleeves rolled up bloody nosed dogged determination experience. It is my hope to help you ease your struggle.
Times have changed. So has pawnbroking. There is so much to learn about opening and running a successful pawn shop and yet it is so difficult to locate practical and useful information on how to make it happen. That’s why I’ve created this website for you.
Here is how you can make the best use of your time on this website. Enter your name and e-mail address into the box you see on this page and click on submit. By doing so you will receive by e-mail two special reports I’ve written for people just like you who are doing research on the pawnbroking industry. You will also receive directly from me occasional e-mails about updates that have been made to this website and additional valuable information that has been added. Don’t worry, I do not sell or rent your information. You can also opt out of these e-mails at any time.
Top 10 Mistakes People Make
When Starting A Pawn Shop Business
The first report entitled “Top 10 Mistakes People Make Getting Into The Pawnbroking Business” may help clear up some misconceptions you have about the industry. I’ve seen these mistakes made time and time again by otherwise intelligent entrepreneurs like you. You may not agree with me about these top 10 mistakes, but remember this.
These mistakes are not based on my feelings. They are based on my observations.
That’s because I was in charge of a State Pawnbroker Association for 17 years. I witnessed many business people who wanted to get into the pawnbroking industry, and these are the biggest mistakes they made. I am providing you with this special report in hopes that you will not follow in their footsteps and make the same mistakes.
Tips For Opening A Pawn Shop:
How To Become
A Pawnbroker Yourself
The second report entitled “Tips For Opening a Pawn Shop” will give you many useful ideas on choosing pawnbroking as a business, what you will need to prepare to enter into the business, the best way to choose potential locations, and many other helpful tips in your pawnbroking endeavors. I can only wish I would have had such a report available to me when I first entered into the business. It would have vaulted me to success in a much smoother and timely fashion.
Now that you’ve gotten this far with me I feel it’s wise to inform you of what owning a pawnshop is not. First of all, it’s not a part-time business that you can run from your kitchen table in your underwear. It’s not a get rich quick scheme where you can be here today and gone tomorrow. It is not loan sharking, a flea market, or a secondhand junk dealership. And it’s certainly not a licensed opportunity to take advantage of people or to deal in stolen merchandise. If you would happen to believe the pawnbroking industry is any of these you have been watching too much television.
Becoming a pawnbroker requires dedication, education, and resources. It is a reasonably recession-proof business that can offer you and your family business freedom, financial security, and peace of mind. It will provide you with an opportunity to truly help many consumers in your market area. The main focus of the business is on short-term consumer credit. Pawnbroking is the oldest form of consumer credit. But because you accept personal property as collateral for the customer to obtain credit from you, there are none of the typical qualifiers as there are in more mainstream credit. There is also no recourse on the loan except for the personal property that was pledged.
If you are still interested in getting into “the business” I again advise you to enter your name and e-mail address into the box you see on this page and click on submit. The two special reports you receive by e-mail will assist you in making decisions about your new business venture and will also help you to utilize the additional resources available on this website. Good luck with your new business enterprise and welcome to the world of pawnbroking.
Steve Krupnik
Creator of the Pawn Shop Advisor™ coaching program
Creator of the Pawn Shop Performer™ coaching program
Author of the best selling book Pawnonomics
Questions and Comments Answered by Steve Krupnik:
What Is YOUR Biggest Question About How To Start A Pawnshop?
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Mike,
The business venture you are proposing is not a pawn shop. It is a second hand dealer or buy/sell store. Depending on regulations in your locale, odds are you will need to be licensed as either a second hand store, a precious metals dealer, or both. This type of business can be started with minimal investment however the business model is very different from that of a pawn shop. Remember, most second hand stores that do well tend to specialize in some type of merchandise. Find your specialty! Steve
Hello,
I would like to know more about opening a pawnshop without a license. ?I would like to buy and sell not offer loans at least for now. Also what would u think would b a reasonable start up fund for this, just a small pawnshop buying and selling? Thanks
Edd,
That’s the million-dollar question in this economy. There are currently no conventional commercial lenders willing to invest in pawn shop start ups that I know of. At least not in the US. And private capital has been on strike for several years now.
This is a growing problem in this growing industry.
Steve, seems that the big question is how much capital is needed to get rolling. My question is related to this, any ideas where to get finacing and investors? Im in Eastern Colorado, wanting to start a new shop, no other shop within 70 miles… Interested???
Dustin, Minnesota does have a state statute that can be located here:
https://www.revisor.mn.gov/statutes/?id=325J.01
The statute is administered and enforced by local city or county government. Odds are pretty good that there’s additional code on the books at a local level. A quick check with the city clerk’s office will confirm this. Licensing is also local.
Operating a pawnshop in a small community is not much different than operating in bigger cities or towns. However, in order to operate profitably you should choose to offer many additional goods and services other than just buying selling and loaning.
This is because you will be quite limited on the finance charges you will be able to collect on your pawn loan base. An example of some services to offer that may be a good fit to your area might be jewelry repair, gunsmithing, estate evaluations, consignment sales, Internet sales, and even bill pay. But again, this will depend on the needs of your prospective customers. Find out what they want and then figure out a way to give it to them.
Hello Steve, Would you be able to tell me the laws/regulations/license for minnesota? i live in a small town (le sueur,mn) which currently has no pawn shop and wonder if a pawn shop could make it in a town of less then 3000? most of which are farmers and country folk. I would imagine more buying and selling of goods vs loans on goods. I assume pawnbrokers main income comes from loans vs the buying and selling of goods? thanks for all you do and your help.
Hi Chris, To directly respond to your question my answer would be Alaska. That being said, the easiest opportunities are not necessarily the most profitable opportunities. Your choices should be based on the type of customers you wish to attract to your new business and also on the amount of capital you have behind you to get going.
In this currently unknown economic climate there are many pawnbrokers experiencing wild cash flow swings and great difficulty locating additional operating capital. Conventional commercial lenders are not loaning to the trade and private capital is on strike. This will not change anytime soon and many more opportunities in the pawn industry will begin to surface. No matter what your plans I suggest you try to remain as liquid as possible. It’s going to be a bumpy ride for even the most savvy of entrepreneurs.
Hi Steve-
Awesome book! I have a question: which states would you consider to be the easiest to set up a new pawnshop in?
Shea, There is not a one-size-fits-all answer to your question. How much cash you should have on hand to get the new business to cash flow properly will depend on your market area, your lending style,
your state regulations, the type of customers you choose, and of course your overhead. That being said, starting a pawn business on a shoe-string budget is a recipe for failure. If you run out of money to make small loans you are no longer a pawn shop owner. You’re a broke second hand dealer!
how much money do you need to start a pawnshop thanks
Hi Dave,
I have a number of fine clients in the UK who benefit from the programs I provide for the industry.
Your #1 source for info is the National Pawnbrokers Association of the UK. You’ll find them here:
http://www.thenpa.com/
Hi Steve
Come across your website which i find very interesting but being from the UK i find a bit limited do you have any UK based contacts that can provide UK relevant info.
Thanks for your time
Dave
John, The only degree required to enter this industry is an advanced degree in “Street Smarts.” Although, considerable knowledge of precious metals and gemstones are a huge asset. I’ve included many fine reference materials on this here: http://startapawnshop.com/vendors/books-and-publications.html
Donald, In So Carolina there is a minimum $35,000 liquid capital requirement to be issued a pawn license. Depending on your market area and your lending style this may or may not be sufficient to get running until profitable.
I’m a high school graduate. Do I need a degree to get into this business?
How much start up seed money will I need to start an pawn shop in S.C. Thank you!
Frank, yes, licensing is required. Please download and read the free reports on this website. They contain the information you seek.
Hello i want to start a Pawn shop but i was wondering if there is a Pawn Shop License you need to obtain or no ? Please get back to me in my email thank you.
Tom, When looking for a location to start a pawnshop nothing trumps population. Louisville, Lexington, Bowling Green, Owensboro, or Covington would really do the trick. With that type of population you never need to concern yourself with competition. There’s plenty of business for everyone.
If nothing else at least find an area that contains less than one pawnshop per 10,000 inhabitants.
Steve, what town in Ky would be the best to open a new Pawn shop with new shops opening such as Dan’s Throughout central Ky?
Bill, One of the biggest factors in your capital flow starting to rotate back into your shop is your state and/or local regulation. In other words, what your holding time is on a pawn loan. A few places are 30 days period. More often you see 30 day loans with another 30 day grace time. There are also areas with longer holding times. 120 days up to a year in some places. Longer holds can sometimes produce a longer period of time from loan date to return on investment. The good news is it no longer has to be the rule.
In the Pawn Shop Advisor(tm) coaching program I outline a number of ways pawnbrokers can leverage technology to gently encourage their pawn loan customers to come in monthly and at least renew any pawn loans they have outstanding. This helps immensely in monthly cash flow and will also greatly improve your overall redemption rate on your loan base. Rule of thumb in the industry is a 70% redemption rate on pawn loans and a 30% default rate. That being said, there are many steps an aggressively lending pawnbroker can take to improve this redemption rate to 80% or higher.
Once you can accomplish this, reinvesting your profits into your business to grow your loan base as fast as possible, you may even be able to change your diet to something more substantial than beans and water.
Many of my clients have tweaked their business to accommodate this unknown emerging new economy by aggressively lending and even more aggressively turning over unredeemed pledges. They no longer view defaulted loans as valuable inventory. They look at this stuff for what it is. A bad loan that has produced no income for the business. The quicker you turn it the quicker you can get the money back out on the street to work for you.
I get a large variance on how much money it takes to operate a Pawn Shop on loans going out from 5k to 20k a day. I actually had a gentleman that had a shop tell me all I needed was 5k to open a shop and after I heard that. I knew that there was not nothing else I could ask him. Because after my overhead and stock. I was figuring on spending at least 8k going out the door daily just on loans. My biggest question is what is a fair reasonable time to expect my capital flow to start rotating back into my shop. Not counting any of my other expenses or upkeep. Because each of us have our different ways of keeping our expenses other than the loans going out to a minimum. So I would have a lot better perspective on how long I would need to fund the money’s going out on loans. With what avg. percentage of loans defaulting. Even if I have to eat beans and water for a yr. I know that it will be fine in the end.
Yes Sharon,
I highly recommend Today’s Pawnbroker: http://bkbpublications.com/pawnbroker/
You may even be able to receive The Midwest Pawnbroker magazine free by requesting it here: http://indianapawnbrokers.org/Home.html
Is there a magazine for people who own pawnshops?
Hey Mark, Trying to enter the industry with a 50K investment would be a struggle without a large dependable line of credit. Many start-up costs involved including location, fixtures, licensing, insurance, marketing, signage, security, vault or safe, etc would consume that amount quickly. Then as soon as you get the front door open your REAL product is not the limited inventory, it is $$$$$$ for rent.
How much captial will I need? I worked at a pawn shop a few years back in between jobs and realized there is a TON of money in it. I can drum up about 50K to start one up in N Florida but dont really know if that is enough. I dabble in Estate sales,buy and selling on EBAY and buying storage units so can stock a store pretty easily with less than 5K. Any help on the subject would be great. I currently have a job and make about 70K a year but want to work for myself, is it worth giving it up and spending my last dime to get this started?
Hello Steve,
I just wanted to comment on the PawnMaster software that you listed above. Based on your recommendation I went to them to get the software, they then asked me about hardware and I said “sure” but after I got the quote I was insulted and angry that they would think myself or anyone else was really that stupid.
For instance for a $300 item they wanted to charge me a 1x fee of $354 and a Annual user agreement of $101 effectively turning a $300 item into an almost $800 item. This is just one example there are many more on there just like this.
I only bring it up because you always seem to have sound advice for me in your newsletters but this maybe one company that you shouldn’t associate your name with.
Just my $0.02 worth.
Hey Frank, Sorry for the holiday delay. It really depends on your situation and is a good question for your attorney and tax accountant. That being said, here in the US there are currently several advantages to going the LLC route. Of course, further changes in the tax code could change this immediately.
Hello Steve. What business structure in your opinion works best? LLC or Corporation?
Beneficial info and excellent design you got here! I want to thank you for sharing your ideas and putting the time into the stuff you publish! Great work!
While my coaching programs for the pawn industry have hundreds of useful tips for a startup operation, they do not actually contain a startup blueprint. Why? Because there is no one-size-fits-all. The correct formula for your business start up will depend on your market area, state and local regulations, and most importantly your vision of the business you are building. But large or small, urban or rural, the commitment will still be large.
Hello, I live in a small town in Kentucky where pawn shops have been established but have always went under. My family has such a big interest in pawn shops we would like to start one in our hometown. Does your program show you how to do this from scratch, straight from startup? Also how to not make serious mistakes and what is needed to run it? Thats what we are looking for, something to show us what we need to start this business venture as far as capital, licenses, etc. Thanks. As I said we are in kentucky and we have never worked in a pawn shop so my father is retired and wants to start this up, is it still too expensive to start?
Hi Terry,
There are many fine software programs available to the pawnbroking industry. There’s one thing you should keep in mind when choosing. This is no place to cut corners in your business. I cannot stress this enough and go into detail on this in my Pawn Shop Advisor(tm) coaching program. The three software companies I’m the most familiar with are Pawn Master, Compupawn, and Pawndex. You cannot go wrong with any of these.
What software do you recommend to run your pawn shop? I also noticed some ‘Gold Buying” software online as an “add on” to pawn software, I don’t imagine it to be needed if you have half a brain but I could be wrong. This is all new to me. Any input would be great. Thanks.
Justin, At your age I would suggest you apply for work at a pawn shop to learn the ropes and get your feet wet. Texas licensing is both complicated and very expensive. The new venture will take considerably more startup capital over what you may think.
Hi I am a 22 yrs old and I live in Dallas Tx. I wont to try to open a small p.s to start with. I dont have never worked for a pawn shop but know how they work and uderstand the basics of it but how do I get the ball rolling. Anywhere from stuff to fill the shevls on opening day,how much money is need to start ferm but reasonable. Pease just give me any tips you can on this please.
Peter,
There is not a one-size-fits-all answer to your first question. How much cash you should have on hand
to get the new business to cash flow properly will depend on your market area, your lending style,
your state regulations, the type of customers you choose, and of course your overhead.
A smaller town can easily support more than one pawnbroker. The key here is not to attempt to
“win over” your competition’s customer base, but to go after your own. Most pawn shop owners
do a rather pitiful job of marketing and advertising if they do anything at all. But by choosing the
type of customers you care to do business with and adjusting your marketing accordingly, you
can quickly and easily build a successful business with brand-new pawnshop customers.
Of course, you should choose to make your business as different as possible from your competitor.
Thank you, I’m glad you benefit from my e-mail tips.
Anyone reading this who does not yet received these
free pawnbroking tips can sign up for them here:
FREE TIPS
David,
Thank you for sharing your story. A mistake is only a mistake when you continue to make it.
There are always new things to be learned in this industry. Best of luck with the Fort Lauderdale location.
Jon,
I believe you may be able to find some useful information here:
http://www.nyc.gov/html/dca/html/licenses/080.shtml
Thank you for letting me know about the link not working properly.
Charles,
Much lower than a restaurant! Seriously, failure rate is under 10%.
And those who do fail are generally because of being undercapitalized
or refusing to run the business in a legal manner.
Eric,
All of the info for your state can be found here:
http://www.ok.gov/search.php?q=pawnbroker
I actually have two. Lets say I am looking at a 4000 SF shop. I have plenty of “stock” to put on shelves, and the build out to make it look as it should is not an issue… HOW MUCH CASH do I really need to get the ball rolling so to speak, and secondly.. can a smaller sized town support more than 1 pawn shop, with mine the larger, newer entity???
Thanks
the link for new york guidelines isnt working is there anywhere else i can look?
what is the failur rate in the first 5 years of a new pawn shop.
I’m having a problem finding the regulations for Oklahoma. I there another site that might help me?
This depends on your market area. Details are in the pawnbroker reports on this website and also on the website here:
http://startapawnshop.com/statelaws.html
i just wanna know what licenses i need and how to get them.
Loren, The biggest advantage to purchasing an existing shop is that you will realize a return on investment from day one. You are also purchasing an established customer base.
The most important question to ask yourself is, does the existing business and established customers come close to matching the vision I have of my pawn shop business? If so, it could be a big advantage.
Bill, Percentage of fair market value (not retail value)depends on the type of item. Does it have a shelf life? How quickly will it sell if unredeemed? How stable is its value? How stable is the customer’s history? These and other factors will have you loaning between 25% and 80% of FMV.
Mike, There are many. More than ever actually. Determining fair market value is a skill best learned through practice. Not just books or websites.
Leon, Range of capital will vary widely by market area, State Regulations, aggressiveness of operator, and prospective customers marketed to. I’d be happy to help you further. Send details to: steve@startapawnshop.com
Range of capital required to open a pawn shop
Are there valuation resources available to help pawn brokers determine the value of items?
What percentage of retail value (used) do you pawn and for how long?
Your articles are extremely helpful. Thank you! I am trying to purchase an existing pawn shop. I guess my biggest question is how do I evaluate the pros and cons of purchasing an existing one versus starting one from scratch? Any tips on doing due diligence?
Loren