Guide To Start A Successful Pawn Shop: Learn What It Takes To Open A Pawn Shop

Opening a pawn shop can be a good idea when you spend time planning and researching before investing your time and money. The pawn industry is stable and has been around for several thousand years dating back to early China. Given the industry’s long-term history, pawn shops will likely be in demand for the next 100 years, too. Pawn shops play an important role in our economy by providing short-term credit to millions of people every year.

This post will help you get started in your journey to opening a pawn shop. We will walk you through pawn industry statistics, and share resources and tips that will help you along your way. We encourage you to take your time researching the decision and making a business plan. Also, you can always reach out to our team by contacting us.

In this post, we will walk you through the following steps to open a pawn shop:

1. Research: Your first step to opening a pawn shop should involve a lot of reading and talking with industry experts to get familiar with the pawn industry.
2. Create a business plan: Writing a detailed business plan will help you think through the various puts and takes of opening a pawn shop. Also, a well-written business plan can help you raise funds from friends, family, and banks.
3. Talk with local officials: Reach out to local officials for guidance on your venture. Forming solid relationships with local law enforcement and regulators will pay dividends in the future.

Step #1: Research

The foundation of all good investments is solid due diligence and research before deploying capital. New business ventures offer the allure of great fortunes, but they also present great risks, too. Research helps you identify the puts and takes of your new venture so you can get comfortable with the concept. Research forces one to think about the risk-reward trade-off of your new venture.

We recommend reading our post How pawn shops work if you are not already familiar with the intricacies of pawn shops.

Location, Location, Location

Pawn shops tend to be very location-based businesses. The National Pawnbrokers Association estimates that 80% of a pawn shop’s business comes from within an 8-mile radius of the pawn shop. This means that choosing the right location could be the single most import important factor in your business success.

Items you should consider include:

• Population: How many people live in your area? To answer this question, we recommend using the US Census Population data. Make sure you are targeting a sizable population that can support your store.
• Household income: What is the average household income in your area? To answer this question, we recommend using the US Census Income Data Tables.
• Local competition: How many other pawn shops are in the area? Use Pawn Shop Map’s tool to find local pawn shops. Try choosing a location without a lot of competition.
• Local laws: Pawn shop laws vary by county, state, and country. In some regions, local laws cap the amount of interest and fees that pawn shops can charge. Laws can make or break your store - an overly burdensome law that does not allow you to charge a proper interest rate and fees to cover operating expenses could result in your business failing.
• Street traffic: A good location should be visible from the street and have many cars or pedestrians passing by daily. Hard-to-find pawn shops have to spend more on marketing and advertising.
• Rent: Figure out which regions have reasonable rent that is within your budget.

Pawn Shop Laws

The pawn industry is regulated and pawn shops must follow many local, state, and federal laws. You should become familiar with all relevant laws.

We recommend that you find the answer to the following questions:

• What license(s) do you require to operate? Many states require pawn shops to have more than one operating license. For example, New York requires pawn shops to obtain a separate license to sell second-hand goods (see New York pawn shop requirements here)
• Do regulations cap the amount of interest or service fees you can charge? Very strict regulations could make operating a pawn shop unprofitable.
• What reporting requirements must you comply with, if any? Some regions require pawn shops to report serial numbers and other pawn ticket information.
• Is the local region generally friendly to pawn shops? Some regions make operating a pawn shop difficult.
• What liabilities are associated with pawning and selling used goods? What liabilities are associated with stolen goods?
• How long does it take to form a pawn shop? In some regions, it could take months or years to obtain operating licenses.
• Can pawn shop licenses be sold or transferred?
• What are the minimum capital requirements to obtain a pawn shop license?
• Do you meet all qualification requirements to obtain a license? Many states conduct background checks.

You can research a fair amount online, too. Avvo is a helpful website that enables you to ask legal questions and get free responses from lawyers.

Pawn Industry Statistics

We recommend that you study the pawn industry and become familiar with statistics. A good starting point is our Pawn Industry Statistics post. Other good resources include:

• National Pawnbrokers Association
• US Census
• Pawn stocks such as EZCorp and FirstCash. Public pawn stocks report industry information.
• FDIC Household Survey
• ConsumerFinance.gov

According to IBIS World and the US Census, approximately 70,000 people work in the pawn industry and about 9,000-10,000 pawn shops operate in the United States.

People employed in the pawn industry

Number of pawn shops in the United States

According to the FDIC, approximately 4% of under-banked US households used a pawn shop for a short-term loan in 2021. This figure has drifted down over the years from a peak of 8.2% in 2011. Pawn shop loan demand tends to be counter-cyclical, which means that demand for pawn shop loans increases when the economy worsens.

FDIC Survey Use Of Short-Term Loans By State In 2021

According to Zippia, approximately 54% of pawnbrokers are men and 46% are women. The median income for a pawnbroker is about $65,000.

Categories

Pawn shops tend to specialize in specific categories such as jewelry, gold, silver, tools & equipment, antiques, collectibles, guns, consumer electronics, and more. The National Pawnbroker Association estimates that more than half of all pawn shops specialize in jewelry.

Specializing in certain categories such as jewelry or watches means that you will have to learn category-specific knowledge and acquire category-specific equipment to operate your pawn shop. For example, pawn shops that specialize in watches need to have the equipment and expertise to inspect, authenticate, and repair high-end watches like Rolex.

The categories you choose will determine how much floor space you require, too. Jewelry tends to be a favorite because it is small and valuable. Other items like furniture might take up a lot of floor space. You should ask the following questions:

• How much inventory (in dollars) can I hold per square foot of floor space? You should try to maximize this number.
• What sort of equipment will I need to buy and sell items in this category?
• Do I have the expertise to appraise and sell items in this category? If not, can I learn easily?
• How much would it cost to acquire a starting inventory stock for this category?

The pie chart below shows a basic breakdown of FirstCash’s US pawn shop categories:

• Jewelry 68%
• Electronics 13%
• Sporting Goods ~6%
• Tools ~3%
• Other ~10%

First Cash Categories By Region

Step #2: Create A Business Plan

Writing a business plan helps you outline your strategy and it can also be used as a reference when you are raising funds from friends, family, or a bank. Business plans also help you identify voids that you had not previously considered beforehand.

You can download free business plan templates at Microsoft Office and bplans.com. Also, the Small Business Administration features helpful business plan resources.

Common components of a business plan include:

1. Executive summary: The executive summary summarizes what you expect to achieve with your business venture. It should be three to five paragraphs at most. The SBA recommends writing this piece last since it encompasses everything in the business plan.
2. Company description: You should include key information about your business, goals, and customers that you want your pawn shop to serve. Write about half a page to one full page describing your business in-depth. You should discuss the following topics:
   • Store name
   • Categories you will focus on
   • Location of the shop
   • Target customers you want to serve
   • Size of the store
   • Inventory strategy
3. Market analysis: Include data and statistics about the pawn industry. You can use the information we provided above, as well as other information you find. This section should analyze the pawn industry in your local market and why it is a good investment. You should discuss the following topics:
   • Pawn shop industry stats from above
   • Your region’s population
   • Discuss local laws that regulate the pawn industry
   • Discuss local contacts you have made (law enforcement, etc) and their opinions of the pawn industry
4. Competitive analysis: The competitive analysis section analyzes direct competitors (other local pawn shops) as well as other tangential competitors like online marketplaces (eBay, Craigslist, etc), thrift shops, and secondhand stores. You should discuss the following topics:
   • Number of pawn shops in your location, as well as their categories
   • Discuss if your market is competitive or not
   • Discuss any other types of stores that might compete with your pawn shop
   • Discuss if your local customers also tend to use online marketplaces
5. Management: Discuss who will run the business and their experience in the business. Include an organizational chart if you plan on hiring people. You should discuss the following topics:
   • The number of people who will operate the pawn shop (many pawn shops open with just one person acting as owner-operator)
   • The expertise of the people running the business (brief bio, relevant work experience)
   • Salaries
6. Products & services: Discuss the categories that your pawn shop will offer, and why you chose those categories. Discuss your inventory strategy and how you plan to acquire your initial inventory.
7. Marketing plan: Discuss how you plan to educate the local community about your pawn shop. You can reach out to the Pawn Shop Map team to add your pawn shop to our pawn shop locator tool to get free marketing.
8. Financial plan: Create a financial plan that outlines how much capital you will need to start, and how much your expenses will be as you operate. Forecasting your business operations will help you understand what sort of revenue you will need to earn a profit. You should focus on the following:
   • Licensing and fees
   • Cost to acquire inventory
   • Working capital needs
   • Rent expense
   • Salary expense
   • Utilities
   • Software and subscriptions (see our related article on pawn shop software)
   • Store furnishings
   • Marketing and advertising
   • Professional fees (lawyers, accountants, etc)
9. Timeline: Forecast several years and list the milestones you plan to achieve. Be realistic and set goals that you think are appropriate.

Step #3: Talk With Local Officials

Pawn shops are local businesses, which means that you will serve the local community and deal with local officials on a regular basis. Given the regulated nature of pawn shops, you should get to know key persons at local law enforcement and understand the local officials who will oversee your business.

Local officials can be a great ally when you are starting a pawn shop. Often local officials know the right people to contact when you have a specific question, and they can help you better understand required filings and licenses.

Many regions require pawn shops to report pawn ticket information to a centralized database shared with law enforcement. This helps track and identify stolen merchandise. As a pawn shop owner, you want to avoid stolen goods because they can lead to legal or financial problems (read more in How pawn shops deal with stolen property).

We recommend that you reach out to:

• Local police department
• County Clerk
• Chamber of Commerce

Conclusion

Opening a pawn shop can be a great idea and profitable when you do your own research and create a good business plan. Take your time planning, and do not rush into the decision. We recommend talking with experts and finding other pawn shop owners who will share details about their own journey.