Made a plan. Obtained financing. About to start my journey.

[Pawn_Guy]

As my name suggests, I am starting my own pawn shop business. It's the only thing that I've ever done, and after getting an offer from a friend, I decided to go off on my own. I had a great job as an executive level employee with a growing company, and it would have rewarded me very well eventually. But I felt that I was one of only a couple of people with enough knowledge about every aspect of the business to be able to do it all. So when a friend offered to invest capital and help with securing a loan, I quit my job and began putting together a business plan.

My partner allowed me 50% ownership without investing any capital, while he invested $300k in cash and co-signed on the loan for an additional $300k. I put together a projected P&L, balance sheet, and cash flow, designed the layout, got in-fill estimates, obtained the loan, and we're about to sign the lease. Now I'm really looking forward to the fun part.

As I stated, I have about 10 years experience in this field. My last job consisted of handling store acquisitions for my company, which allowed me to learn even more about the right and wrong ways to go about running a pawn shop by seeing how other pawn shops were run by their previous owners. So coming into this, I feel more prepared than someone who has worked in a single store, and not been exposed to different ways to go about running this type of business.

My focus is on having very nice, clean, well merchandised stores, and focusing on customer service and sales. The stores' focus will be on jewelry and firearms, while also dealing in the other common merchandise such as electronics, tools, and musical instruments. We will not handle porn, cigarettes, novelty nick-nacks, or antique merchandise. We will also do no loans other than pawn loans. Payday and title loans get people into a never ending cycle of debt that they have no way out of.

Our forms of revenue will be retail sales, precious metal recycling, and pawn service charges. Having worked with P&L's for many different size stores, all operated in different ways before being purchased by us, I have a good understanding of income to expense ratios, profit margins, etc. Well-run stores the size of our first location are capable of just over $1 million EBITDA per year once established. Stores half the size of our first store, and located in small towns, are still capable of $300k-$400k EBITDA.

Our growth plan is to focus on making stores self sufficient as soon as possible, and then continuing on to open an additional store. Most pawn shops never grow past a single store because the owner doesn't know how to put systems in place to allow the store to function without him/her there constantly. Beginning with our first store, we will design and operate stores to function without an owner as soon as possible. I'm still not sure exactly how fast we'll be able to grow, and growth will obviously be slowest at the beginning. I hope to be opening my 4th store 5 years from now. Having a capable partner should help make this possible. My hope is that in 5 years my 50% ownership of the company will be worth around $1.8 million total in after tax owner distributions and equity.

I know that this isn't a "turn a hundred dollar bill into a million dollars in a year" kind of plan, but it's realistic, sustainable, and will provide real tangible equity along with good cash flow. With 25 stores (our current goal) we could see around $13 million a year EBITDA and have around $19 million in non-depreciating tangible equity not including any property/buildings.

I plan on staying on this site and updating as things progress. If anyone has any questions though please feel free to ask. I hope I can answer most any question pertaining to this plan, as I don't believe there is anything that I haven't already thought about and planned out. Obviously any pawn shop specific questions that people have are welcome, as I know many people have preconceived notions and opinions about pawn shops.

 

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[JEdwards]

You will do well..

 

[Wuping]

Good luck
Keep us posted!

 

[Milkanic]

Look forward to the updates.

check out pawnamerica.com - I'm really impressed with their business and marketing.

 

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[Pawn_Guy]

Look forward to the updates.

check out pawnamerica.com - I'm really impressed with their business and marketing.

Thank you very much for pointing them out to me. I'd never heard of them since I'm located in Missouri and my previous company's stores were all located in the southeast. I know there are a good number of really well run pawn shops out there, and this is definitely one of them. Fortunately, and unfortunately, there aren't any pawn shops of this caliber anywhere in Missouri. This is good because I won't have the competition that I would deal with being near a store like Pawn America. It is also bad because there hasn't already been a really good pawn shop running a PR campaign to change public perception, which means that job will be up to me. If I do it well though, I will be rewarded for it.

After seeing what Pawn America is doing, I believe that I may make a trip up there to see their operations in person and hopefully meet with their owner a bit. They're doing things much the same way that I plan to, with the major exception that they don't handle firearms. Firearms is actually the part of the business that I'm most familiar with, having taken the store that my family used to own from doing almost no firearms business to doing $2 million in annual firearms sales in that store alone. So I'm hoping that I might be able to gain some ideas that I hadn't previously seen or thought of by visiting those stores.

 

[JasonR]

Have you thought about selling online?

I'd like to hear more about the firearms side of the business. I actually thought about opening an online gun shop (as no one out there is really doing it right), but the major drawbacks I ran into is the lack of capital to start it, and the fact that I'm in California.

$2 million in annual firearms from one store is impressive. Can you elaborate? I'm assuming you purchased guns from people pawning them, and resold them? As a firearms enthusiast, I have see quite a few nice guns (HK SP89, HK91s, etc.) in pawn shops.

 

[Pawn_Guy]

Have you thought about selling online?


I'd like to hear more about the firearms side of the business. I actually thought about opening an online gun shop (as no one out there is really doing it right), but the major drawbacks I ran into is the lack of capital to start it, and the fact that I'm in California.


$2 million in annual firearms from one store is impressive. Can you elaborate? I'm assuming you purchased guns from people pawning them, and resold them? As a firearms enthusiast, I have see quite a few nice guns (HK SP89, HK91s, etc.) in pawn shops.

I do not plan on selling online at first, except maybe eBay and Gunbroker for certain items that won't sell well in the store. You are correct that no one is doing online firearm sales well. My previous company actually had me spend about 2 months working on a plan to start a major online firearms retail site that we were going to run as kind of a separate business from the pawn shops that they owned. However, even though it was a great idea, and they agreed that it was, they decided to put it on the back burner while focusing on expanding their brick and mortar pawn shops. I think the main reason for this was that not only was I the one that developed the plan for the website, meaning that I would need to put my attention into it, but I was also the only one in the company with the ability to travel and the broad enough and deep enough understanding of our pawn shops to handle acquisitions. At the time, they couldn't really acquire stores without me being available to handle the transitions.

I had consulted with a website developer that uses Magento, and had put together a detailed scope document for them going over all of the features we wanted on the website. We did research on some of the leading online firearms retailers currently out there such as BudsGunShop.com and even Gunbroker.com, ranking them on different criteria. We then identified areas being ignored by them completely, and create a Blue Ocean Strategy based on this. I had a full e-commerce plan in place, and was just waiting on the board of directors to vote to have the developer begin work on the site. That's when they decided to postpone the plan due to some acquisitions being available. They chose to focus on what they were already doing instead of pursuing this new venture.

The site would have revolutionized the online firearms market. It was going to be simple to navigate, even for people who are not internet savvy. It was going to have a very flexible search function that would make it easy to find what you're looking for, no matter if you were an avid gun buyer looking for a specific gun, or new to firearms all together and trying to find the gun that would be right for you. It was going to have multiple pictures of the guns, video reviews of guns, educational write-ups and videos, and other information that you don't see on current retail firearms sites.

There was a good amount of capital that was going to be required. The developer was going to be using Magento, which has a lot of great features. But they were also going to be building a good number of custom modules specifically for our site. They were also going to handle our SEO campaign both while building the site and after its launch. We had planned a very healthy marketing budget to really get the site exposure quickly. The company already had a warehouse and office space that we were going to use, and we were already setup with all of the best firearms distributors and manufacturers. There would have needed to be quite a bit of merchandise kept in stock, but part of the plan included linking the website with our 2 main distributors' websites to provide updated inventory lists of what they had in stock. This would allow us to offer everything they have in stock, without having to have it in our warehouse at the time.

To do this well, it would probably take about $500,000 in capital to begin. That would cover website development, a healthy marketing budget, operating expenses, and enough inventory to get started. I'd still love to do this, but right now my capital is going into opening this new store.

As for the store that does $2 million in firearm sales, it's basically a full gun shop within a pawn shop. About 60% of the firearms are new, the rest used. The used firearms are a combination of pawn forfeitures, guns that are just bought outright, and guns being traded in. Almost all of the accessories and of course all of the ammo is new. That $2 million in sales equates to about $500k in gross profit for just firearm and accessory sales.

 

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[MNentre]

Good luck getting everything started, it seems like you are well on your way.

Brad Rixmann is a great guy, I've had the chance to meet with him before. He's a smart guy and has a very good plan in place with Pawn America.

I'd highly recommend reading this article quick http://www.gunbroker.com/user/docs/pawn_america_cs.pdf

It discusses how he uses an online gun broker to sell his guns because he markets to a larger audience. Also, he said when dealing with guns and jewelry he doesn't want to scare off customers (read: old ladies) who are trying on rings right next to a guy holding a gun.

 

[Pawn_Guy]

Good luck getting everything started, it seems like you are well on your way.

Brad Rixmann is a great guy, I've had the chance to meet with him before. He's a smart guy and has a very good plan in place with Pawn America.

I'd highly recommend reading this article quick http://www.gunbroker.com/user/docs/pawn_america_cs.pdf

It discusses how he uses an online gun broker to sell his guns because he markets to a larger audience. Also, he said when dealing with guns and jewelry he doesn't want to scare off customers (read: old ladies) who are trying on rings right next to a guy holding a gun.

That's a good read. I noticed on his site that he has a video explaining why they don't sell guns. I've always been well aware of the issue between jewelry sales and gun sales. I understand the reasoning behind not having guns for sale in the store, but it won't be the direction that I go. My floor plan is laid out in a way that keeps the firearms and the jewelry on opposite sides of the store, and that will be true for any future stores I open. A large part of my business will revolve around guns and gun accessories though, and I would be crippling myself greatly by only pawning/buying guns, and then selling them online. Not only does my family's old store do $2 million in annual gun sales, a large portion of the pawn income is from pawned guns. Not selling guns would drastically reduce the number of guns pawned in that store, thus also reducing the pawn income.

I sent his corporate office an email requesting that they forward it to Brad. If he's willing to meet with me, show me his stores, and exchange thoughts and ideas with me, then I plan to make the 10 hour drive up to see him while I still have the time.

 

[Rickson9]

FYI

Pawn shops are going upscale for affluent clients

 

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[Pawn_Guy]

FYI

Pawn shops are going upscale for affluent clients

That was an interesting read. Thank you.

 

[Atown512]

Our growth plan is to focus on making stores self sufficient as soon as possible, and then continuing on to open an additional store. Most pawn shops never grow past a single store because the owner doesn't know how to put systems in place to allow the store to function without him/her there constantly. Beginning with our first store, we will design and operate stores to function without an owner as soon as possible

Opening a pawn shop and then expanding is an opportunity I was looking into a while back. When I posted it here, I got a lot of negative feedback based on the argument that you can't run successful B&M pawn shops without being present at the business. I was told there is a lot of potential for employee theft and things of that nature. I was wondering if you could elaborate a little on how you plan to accomplish the above quote.

When I was looking into this, I planned to stay away from the "trashier" items you mentioned, and focus on firearms, jewelry, coins, and hopefully maintain a more "upscale" environment and acquire products that would appeal to the middle class customer. Any thoughts on this?

 

[Pawn_Guy]

Opening a pawn shop and then expanding is an opportunity I was looking into a while back. When I posted it here, I got a lot of negative feedback based on the argument that you can't run successful B&M pawn shops without being present at the business. I was told there is a lot of potential for employee theft and things of that nature. I was wondering if you could elaborate a little on how you plan to accomplish the above quote.

When I was looking into this, I planned to stay away from the "trashier" items you mentioned, and focus on firearms, jewelry, coins, and hopefully maintain a more "upscale" environment and acquire products that would appeal to the middle class customer. Any thoughts on this?

This is probably going to turn into a very long post, but I enjoy sharing my expertise with people who are truly interested.

People are correct that pawn shops are a difficult business to operate remotely. This is why there aren't nearly as many multi-location pawn shops as there are other B&M businesses. They are wrong when they say it can't be done though. You just have to know what you're doing, put systems in place, and have ways to check those systems.

Theft is a big issue, especially with items such as jewelry, and also with cash. Personally, the biggest advantage that I have in countering theft is my understanding of the software that we use for operating the business, Compupawn. This software has been around since the late '80s, and is the sole software system offered by Vertical Computer Systems out of Florida. It has obviously gone through many changed over the years, and is now a Windows based system in order to utilize things like ID scanners, web cams for taking pictures of merchandise, barcode scanners, etc. If someone wants to steal something, whether it's merchandise or money, and keep anyone from knowing it's gone, then they would have to use the computer system to cover their tracks. If they don't, then we'll know what is missing, The system keeps track of the amount of cash in each person's drawer and all sellable and pawned merchandise. The problem for would be theives is that there's no way to cover their tracks that I can't find.

Merchandise can't be deleted for any reason. Items written off as lost/stolen appear on nightly reports. We run nightly reports showing any item numbers that are transferred into another item number. If the item is sold then the cash, checks, or credit card amount will be off. There's just no way to hide it.

As for cash, there would have to be a buy, a pawn, or a return done to keep the cash drawer from being off. For this, a report is printed nightly on all returns, buys, and pawns done, and an employee checks to make sure those items actually do exist in the store. This keeps employees from doing ghost pawns or buys and pocketing the money. All buys and pawns are located to a spot in the back room so they can easily be found later. This is done both in the evening and in the morning by different people, which keeps the person doing this check from doing a ghost transaction either. Jewelry buys and pawns are kept in windowed envelopes so that the person can make sure the correct jewelry is in the envelope when doing this check.

The only merchandise that can really be easily stolen by an employee anyway is jewelry. The jewelry that is out for sale is all located to the showcase that it is kept in during the day. Each night a report is printed that states the number of jewelry pieces in each showcase. As the jewelry is being pulled from the showcases to be put in the safe, the number of pieces are quickly counted to make sure none are missing. If the count doens't match, then a quick detailed audit of that showcase is done to identify the missing piece. The number of jewelry pawns is also printed each week, and the number of jewelry pawns in the safe is checked. If there are any pieces missing, then the video footage is checked to find the thief. There is a surveillance camera pointing into the safe recording on a DVR with a month worth of storage space.

Since employees usually count their own cash drawers at night, thus allowing them to tell the computer they have an extra $100 bill if they've stolen one that day, the manager will randomly count someone's drawer for them each night. To make sure the manager isn't doing this to steal money from the safe, the manager and assistant manager take turns each night counting the extra cash in the safe.

All of the store's sellable and pawn inventory is checked quarterly, which is done quickly be using a handheld scanner to scan every item in the store and then print a list of any missing items. Keeping the store organized and clean makes this a simple task. Many pawn shops don't bother keeping their retail space organized, let alone their back rooms, which then makes this very difficult. As long as there isn't random merchandise laying around in places it shouldn't be, then auditing the store can be quick and easy.

In addition to all of these checks being done by employees of the store, someone is also sent around to each store randomly to do audits. With only a couple of locations this would be the owner(s). With a larger operation, such as 15-20 stores, there would be a dedicated employee for continually doing audits at all of the stores. This person would randomly come into the store and do things like audit the inventory, count the total amount of cash in the store, etc. This would ensure that the manager and assistant manager are being honest, and make sure that these checks are being done like they should.

A store manager is your biggest liability, because he/she can do the most damage before being caught. One major deterent here is that if they are the one stealing, then it will be obvious who it is. So unless the person plans to skip town because they know they'll be caught, then this is a good deterent. I also believe strongly in fair compensation for store managers. A good salary, good benefits (this would extend to employees as well), and profit sharing. A store the size of the first one that we're opening, doing about $1 million EBITDA, will have a manager that makes about $85,000 per year plus benefits. That's great pay for a job that doesn't require a college degree. Most people won't risk losing that to steal a few thousand dollars worth of merchandise.

Even with all of these checks, and others that I'm just not thinking of right now, the easiest way to stop employee theft is to have happy employees that feel they're being treated fairly. Fair pay, commission based bonuses, and good benefits do a lot. People are less likely to steal if they're risking a job they actually like. Also, when you have an expanding business, making sure employees know that good performance can be rewarded with promotions to management positions makes more employees want to stick around. As an owner, you have to listen to your emplyees if they have problems or concerns with their work environment. Make sure they are happy and feel appreciated. Too many owners ignore their employees, forgetting that they can make your life much easier or much harder.

Of course, theft isn't the only problem with having multiple pawn shops. You also have to make sure every store is loaning and buying at the right prices, selling at the right prices, and offering good customer service. You have to have systems in place to help stores know what prices to pay for and sell items at. You can keep and update lists of common merchandise such as game systems, DVD's and blu-rays, and gold. But you can't do this for every item that may be brought into the store. You've got to have guidelines that suggest they pay and sell at a certain percentage of the retail or pre-owned price. Then you also have to teach the ways to value the items in the first place. The internet has made this much easier than it used to be. They can Google an item to find the retail price if it's new enough. They can use eBay or Gunbroker to see what people are asking for the item and what it's actually selling at. An item can almost always be found someone online, showing either it's retail price or what it's selling for used. Teach employees guidelines on how to find and value the items on their own, and then have them get management approval on items over a certain amount, depending on how long they've been working for you. This gradually gives them more freedom as they gain experience at doing this. In really special circumstances they can call a more experienced manager at another store or the owner to get a second opinion. Most of the merchandise being brought in is basic stuff though, like game systems, laptops, TV's, guitars, guns, and average jewelry.

One of the more difficult things is large diamonds. Valuing these isn't hard once you know the size, color, and clarity. Determining these things is what can be difficult. For this reason it's a good idea to have an employee (most likely the manger) that is GIA certified in each store. As the owner it's worth it to pay for them to take this course. This will allow them to do a better job of grading a diamond, which will allow them to make a fair offer when buying or pawning them.

As for pricing jewelry, any pawn shop business with multiple locations should process all of their jewelry in one location. So any jewelry that is bought or forfeits out of pawn should be transported to central location to be refurbished, priced, and sent to a store to be sold. This allows the company to have one of two really good jewelers for reconditioning, and a couple of highly trained people to price the jewelry. It also gives the company more control over the mix of jewelry at each store based on what sells well at each store.

As for your comments about merchandise and the type of customers it attracts. That is exactly why I stay away from certain merchandise such as porn, cigarettes, lottery tickets, and old junk items. My family's old store was this way. It still attracted what most would consider the typical pawn shop customer, but it also attracted much more affluent customers. The jewelry department regularly sold items in the $2,000-$10,000 range. The gun department stocked high-dollar firearms and accessories such as Kimber, Nighthawk Custom, and Trijicon. When I decided to open my owner store, I went to a bank whose president was a long-time customer of our store. We had customers who were doctors, lawyers, business owners, and high ranking police officials. One of our regular customers owns a local company that has over 600 employees. So yes, you can attract more affluent customers by avoiding certain merchandise, offering good customer service, and having a nice store.

 

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[CommonCents]

Very informative post, thanks for sharing. I'm surprised there isn't a web SAAS that mines the web for item pricing/pawn guides. Is there functionality in the compupawn that can quickly list the item for sale online to ebay/craigslist etc?

I'm in Mn as well and a bit familiar with pawnamerica. I guess he does a huge amount of gold buying from consumers. They now have a TV show I think either sat or sunday mornings as well.

 

[Pawn_Guy]

Very informative post, thanks for sharing. I'm surprised there isn't a web SAAS that mines the web for item pricing/pawn guides. Is there functionality in the compupawn that can quickly list the item for sale online to ebay/craigslist etc?

I'm in Mn as well and a bit familiar with pawnamerica. I guess he does a huge amount of gold buying from consumers. They now have a TV show I think either sat or sunday mornings as well.

No, Compupawn doesn't have anything that allows you to list items for sale online through the system. The pawn industry has always been a little behind in terms of technology.

 

[dividedfork]

Good luck. Keep us posted. Who knows you may be on TV someday.

 

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