6 Things to Know Before Starting a Pawnshop

man inspecting gems


Pawnshops mainly make money in two ways: through the interest from collateral loans they offer and by buying items and selling them at a higher price. However, being able to turn a profit as a pawnbroker requires industry-specific knowledge. Learn a few things about running a pawnshop here.

Will You Need a Lot of Inventory?

It’s good to have some inventory when you start your pawnshop, but you don’t need a shop full of it right away. The more important thing to consider is your capital. In addition to startup costs, you need enough to run your business with minimal revenue and negative cash flow for several months.

Yes, negative cash flow. It’s actually not uncommon even for pawnshops that are past their startup phase, and you’ll get ups and downs with your loan balance from month to month due to the nature of the business.

External factors will also affect you. Some of these are layoffs, seasonal work, and other local economic conditions.

Qualified Employees Can Come From Varied Backgrounds

The people you choose to hire can come from a wide range of backgrounds. In fact, the National Pawnbrokers Association (NPA) recommends you hire those with non-pawn experience. This is because those with previous experience in pawnshops might have been trained improperly in their previous job.

You can hire anyone with previous retail experience or even previous military experience. Electronics are one of the most common items sold to pawnshops. So someone with a background in electronics would be good as they would have some idea about the depreciation of a device’s value.

A graduate gemologist would be great as they can add another stream of revenue to your shop by being able to appraise precious gemstones. Of course, you can also just temporarily hire a gemologist’s services, but having one as an employee is even better.

When creating a business plan, set criteria for potential new hires. And create procedures for background checks, credit checks, and drug tests.

Inform Yourself on a Variety of Subjects

Even if you were the most skilled recruiter on the planet, it’s unlikely you’ll be able to assemble a staff that can appraise everything.

To compensate for this, you can partner up with experts in specialized fields and you can educate yourself and your staff. You’ll miss out on amazing deals or lose out by buying fakes if you’re not informed. The more things you’re able to accurately value, the greater your revenue will be.

safe with cash

Security is Particularly Important for Pawnshops

As with any business with expensive items as merchandise, strong security is a fundamental necessity  for pawnshops.

However, it can be difficult to strike a balance between being secure and having a store that feels open to customers. On the one hand, you will want some particularly valuable items like jewelry and luxury watches to be secure. On the other hand, cages and bulletproof glass might put potential customers off.

Investing in strong security should be part of your business plan. You will need high-security safes for cash and valuables that aren’t currently on display. Your store will also need a state-of-the-art surveillance system.

Authentication is Key

Many of your clients will likely be honest but also ignorant of how authentic or fake the item they’re trying to sell is.

For example, they might have been led to believe that their Star Wars poster was actually signed by the late Carrie Fisher. They might believe this even if they don’t have a certificate of authenticity. You won’t know whether it’s real or not either, but obviously, you shouldn’t take a risk on it.

To ensure that the item is authentic autographed memorabilia, you have to get an expert to examine it. They can authenticate the autograph by performing an ink analysis. They’ll be able to identify how close it is to the celebrity’s signature, how old the ink is, and other characteristics that hint at its authenticity.

Side Businesses

Most pawnshops also offer other services. For pawnbrokers, the most common side businesses available to them usually stem from their main business’s requirements.

As pawnshops need a fair amount of storage for pledged merchandise, they’re also able to offer storage services. Since they do appraisals to check the authenticity of some merchandise, they offer appraisal services. Other common side businesses are check cashing and online sales.

There’s quite a lot to wrap your head around when it comes to running a pawnshop, but keep at it. A lot of it comes with experience as well as adequate preparation. You’ll be running a successful pawnshop as long as you keep everything here in mind when setting up.

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