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How to Open a Hardware Store in 7 Steps

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Opening a hardware store can be a lot of work but with the right plans and tools, it can be an exciting investment. With the rise of DIY home projects, the hardware industry is booming with a market size of $35 billion reported in 2021. Read on to learn how to open a hardware store in seven steps.

1. Decide whether to open a franchise or independent store

When opening a hardware store, the first question you need to answer is whether to operate as a franchise or an independent store. Buying a franchise permits you to open a business under an established brand name instead of starting from scratch. When you open a franchise, you will receive more managerial and promotional support, but the startup costs for buying a franchise are steep. Expect to pay a franchising fee upfront when you open the business. Many companies require a cash down payment and do not offer any financing options. There are also royalty fees that need to be paid in order to use the franchise brand name. These royalties can also increase when your sales go up. Keep in mind that the cost of equipment and supplies will normally come from your pocket, too. And you’ll have limited control over your operations when you franchise whereas an independent owner has more flexibility.

Of the major hardware and home improvement chains, True Value and Ace Hardware are franchises. The franchising process for Ace starts with market research, followed by an application. Once approved, you’ll need to order stock and set up the new store before opening. To franchise with Ace, you’ll need a liquid capital of $250,000 and must pay a $5,000 franchise fee.

2. Create a business plan

After deciding whether to buy a franchise or open an independent hardware store, you’ll want to write a business plan. This includes the details of each step you’ll take to transform an idea into a profitable business. As your business grows, you’ll adjust your plan to meet its needs.

Your business plan should include several sections, such as an executive summary that explains what your company is, the service you will provide and the expected plans for growth. You’ll also need to include the market analysis where you present the research behind your industry’s latest trends and competition. Other details to include in the business plan are company management structure, marketing strategy, a projected ​​financial outlook and any funding requests for potential investors or lenders.

3. Choose a legal business entity

Choosing a business entity is also an important early step in opening your hardware store. This is critical because it impacts both the liability protections — whether or not you are liable for the business’s debts — and tax requirements. Some business structures to choose from when opening your hardware store can include sole proprietorship (you are the only owner with complete control), partnership (you share the business with another owner), and limited liability company (LLC). Unlike sole proprietorship and partnership, an LLC provides personal liability protection so your personal assets are not usually at any risk if anything happens with the company.

4. Get business financing

Once you’ve decided what type of hardware store you want to open and you have a business plan developed, you’ll likely need capital to get started. A small business loan may be able to help as it can cover anything from property to equipment. You can get a small business loan either from your local bank or with an online lender.

There are several types of business financing options you can use when you open a hardware store, including:

  • Equipment financing. An equipment loan can help to purchase the equipment you need for your hardware store. You may also be able to lease the equipment if needed and return it at the end of the term. But, if you default on the loan, the lender can take any equipment you bought with the loan.
  • Commercial real estate. A commercial real estate loan can help to purchase commercial property or renovate your current space. Loan amounts can be as high as $5 million but your business must occupy more than 50% of the property to qualify. Keep in mind that there is usually a loan-to-value (LTV) ratio of anywhere from 60% to 80% so you’ll likely be paying the rest.
  • Term loan. A term loan can provide financial assistance of up to $600,000 on average (actual loan amounts can vary) to help pay for everyday expenses or larger investments with an option of long-term, monthly payments or short-term weekly (sometimes daily) payments.

5. Obtain licenses, permits and small business insurance

There may be licensing and permitting requirements to open a hardware store in your area, so you’ll need to check the local laws and pay the necessary fees if applicable. Depending on the area your business resides, there may be some small business insurance requirements to consider, too. Most states require employers to have worker’s compensation insurance and the federal government requires unemployment insurance if employees lose their jobs due to layoffs. Several states, including New York and California, mandate that employers provide short-term disability coverage as well. In addition, if your hardware store has 50 or more employees you will need to provide health insurance or you’ll be subject to a steep penalty.

Other types of small business insurance you may consider when opening a hardware store can include commercial property insurance to provide coverage for any damage to the property, equipment and inventory. You may or may not be required to get general liability insurance depending on your state. This type of insurance can provide coverage if any customers get hurt on the property and may be necessary to have to receive some business permits and property leases. Business interruption insurance can also be a good option as it helps cover any income that was lost during a temporary shutdown.

6. Apply for an EIN

When you open your own business, you may also need to apply for an Employer Identification Number (EIN) for taxes. This nine-digit number allows the IRS to track your business activity and is required for any employer who pays one or more employees. You can use your EIN to keep your business and personal accounts separate by obtaining a business bank account which can also help protect against fraud. You can apply for your EIN through the IRS for free.

7. Open a business bank account

When you open your hardware store, it’s important to separate business and personal expenses. To do so, you can open a business bank account. Some banks may not allow you to use personal accounts for any business transactions so having a business bank account is essential. And unlike personal accounts, a business bank account lets you order debit cards for your employees. Be mindful that business bank accounts may be quite strict when it comes to account balances and can also come with monthly fees.

 

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