The hardware store industry is one that will never go away. Tools may get fancier, but they’ll always be necessary for a variety of needs. In fact, the hardware store industry has been growing, expanding by more than 70% in the last decade. This is in part due to the DIY trend and the availability of how to guides and videos online.
If you have extensive hardware knowledge, opening a hardware store could be the perfect opportunity for you. However, much is involved in getting your business up and running.
You’ll need to follow these steps to launch your successful hardware store.
Calculate Your Startup Costs
Opening a hardware store, of course, comes with a price tag. You’ll need to rent a space, and prepare it with shelving, checkout counters, a point-of-sale system, and signage.
The biggest expense, however, will be your inventory. You’ll need to find suppliers, learn their wholesale costs, and figure out how much you’ll need to stock to get your doors open.
Total costs could easily add up to more than $100,000, depending on the size of your store.
Determine Your Pricing and How Much You’ll Make
It may seem early to do this, but these first few steps are going to lead up to creating a business plan, which we’ll cover later. Your business plan will include financial projections including how much profit you expect to make and when you’ll reach a breakeven point.
Markups from wholesale prices will vary by item. You’ll need to mark up the wholesale prices enough that you’ll be able to cover your costs and make a profit, but you’ll also need to keep your prices competitive. Check your competitors’ prices and keep yours close.
Then consider realistically how many sales you can have in a day, week, and month. If you’re in a location with a lot of foot traffic, you can assume that you’ll get some walk-in traffic.
Then consider what the average total price of each sale might be. Depending on the types of items you’re going to stock, this will vary. You might assume that each sale will be about $50. Then simply multiply that by how many customers you think will come in daily, weekly, and monthly, to get your total revenue projections for each month.
From that number, you’ll deduct your expenses, including your cost of goods sold, rent, overhead, and employee expenses. That will give you your total monthly profit.
Find a Location for Your Store
Next, you’ll want to find potential locations for your store. For a hardware store, location is critical. It needs to be convenient and highly visible and preferably be in an area with a lot of foot or road traffic.
If you go to a lender for financing, your location will be an important factor in the lender’s evaluation of your plan.
Create a Business Plan
If you’re going to need financing from a lender, they will require a business plan. A business plan also helps you to think through every aspect of your business.
Your plan needs to include an overview of your business, who will own and manage it, the type of business entity you plan to form, and your proposed location.
It also needs to include details about:
- The specific products you plan to sell
- Your target market of customers
- The hardware store market in general
- The competitive landscape of the industry in your area
- Your marketing and sales strategy
- Your team strategy, meaning who you plan to hire including managers
- How you will operate you store on a day to day basis
- Your financial projections and plan
After you write these sections, you’ll want to create an executive summary, which will summarize the key points of your plan and what capital you need from a lender, if applicable. This section will go at the beginning of your plan.
Apply for Financing (If You Need It)
While there are other ways to raise capital, for a hardware store a bank loan or an SBA loan is probably your best bet. Most banks offer both traditional business loans and SBA loans, so start with the bank where you already do business. They will review your application and your business plan to make a decision.
Keep in mind a few things. One, you’ll be required to put a certain amount of your own money into the business. Lenders want you to have “skin in the game”. Two, it’s more than likely that you will have to personally guarantee the loan. That means that if the business itself is not able to make the payments, you’ll be personally responsible to pay them.
If you can’t make the payments and the lender sues you for the money, your personal assets may be at risk.
Choose and Form Your Business Entity
If you just start doing business and don’t form a business entity, you’ll be operating as a sole proprietorship. With a sole proprietorship, you and the business are considered one and the same, so you’re personally liable for the debts and obligations of the business.
Many new small business owners instead choose to form a limited liability company (LLC). With an LLC, you and the business are separate entities, and you therefore have personal liability protection because the LLC has its own debts and obligations that are not yours. (One exception to this comes when you personally guarantee a business loan).
For tax purposes, however, if you are the sole owner of the LLC, you’re considered a sole proprietorship. The profits and losses of the business will pass through to you, as the sole owner, to be reported on your personal tax returns. The LLC itself is not taxed.
Some Administrative Details
You’ll have a few administrative tasks to complete.
- Talk to your insurance agent about the types of insurance you’ll need
- Open a business bank account
- Obtain an Employer Identification Number (EIN) from the IRS
- Register with your state taxing authorities for tax withholdings and payroll taxes
- Check with your state and local governments about any business licenses and permits you might need
Start Building Your Business
Now it’s time to start moving closer to your grand opening by preparing your store. Get your lease signed on the property you’ve chosen, get the space prepared, and start ordering your inventory. You can also start the hiring process if you’re going to have employees right away. Note that you’ll probably want to get payroll and accounting software to help you with those functions, or hire a payroll service and an accountant.
At this point, you should be able to plan your grand opening date, so you need to get the word out. You should build a website to help people find your store online and post your website and your grand opening information on social media sites.
Be sure to get listed on Google My Business so that people can find your store locally.
If you can, invest in some ads on social media and on Google to build awareness of your grand opening.
You might also put up signs on the streets in your area.
Now You’re Ready!
At this point, it’s time to open those doors and start making money! Remember that starting a business is one thing, but managing it is another. You’ll be learning as you go, so be prepared for all the challenges you’ll face along the way. But don’t worry. If you work hard and learn from your mistakes, you could eventually make your hardware store the next Home Depot!