How to Start a Retail Business: A Step-by-Step Guide

Updated on January 31, 2020
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If you’re thinking about starting a business in the retail industry, you’re in good company. Although local retailers don’t get the same level of attention as nationwide brands do, small retail businesses actually make up the vast majority of all U.S. retail businesses: Researchers found that small retailers (with 50 or fewer employees) made up 98.6% of all retail businesses in 2019. To break into this vibrant industry and open a store of your own, you first need to understand how to start a retail business.   

In many ways, starting a retail business is similar to starting a business in any other field: You’ll need to write a business plan, register your business, lock down funding, and complete a few other unglamorous (but necessary) logistical processes to ensure that your business starts out on the right foot. But as the future owner of a retail store, you’ll also need to find a physical location, create relationships with vendors, and tailor your budget for costs specific to your business. Here, we’ll guide you through all those steps required to start a retail business, as well as offer you additional resources that can help you on your startup journey. 

how to start a retail business

How to Start a Retail Business in 8 Steps

These steps will have you running your retail business in no time. Let’s get started.

Step 1: Write a Business Plan

We don’t doubt that you have an amazing idea for a retail store, but an idea alone isn’t enough to turn a dream into a reality. By writing a business plan, you’re providing yourself (and, potentially, future lenders and other stakeholders) a physical roadmap detailing every step you’ll take to open and run your retail business.  

Start by answering essential questions about your business model. What kinds of products are you selling? Will you open a brick-and-mortar location, an ecommerce store, or will you take an omnichannel selling approach? Who is your target market, and how will you market to them? How will you set your store apart from your competition?

You’ll also need to dig into details related to your processes. Who are your vendors? How will you store your inventory? How much staff will you need, and what will your hiring process look like? What will your startup costs be? How much money will you need to launch? How long will it take for you to break even, and how long will it take for you to make a profit?

But keep in mind that your preliminary business plan is exactly that—preliminary. You can always return to your business plan to make changes, updates, and additions as you gain experience with starting and running your business. 

Create a Business Budget

Along the same lines, you should also create a business budget, to the best of your ability, well before you’ve opened your doors. At this stage, you should be paying especially close attention to your startup costs

In addition to standard startup costs like equipment, business insurance, and payroll, if you’re opening a brick-and-mortar retail store, you’ll have to cover some specific costs. Some of those costs might include a down payment, potential renovations, and monthly rent and utilities for your store. You’ll also be responsible for the costs involved in purchasing your merchandise, shipping and delivery costs, and storing excess inventory. And don’t forget about the tools and software you’ll need to run your business, including a POS system, an accounting software, and a security system to monitor shoplifting and theft. 

Step 2: Register Your Business

With your business plan and budget in hand, you can now move onto making your retail business official.

Come up With a Business Name

If you haven’t already, you’ll first need to come up with a business name. Choose a name that reflects your business’s purpose and brand identity, allows you room to grow, and, perhaps most importantly, is actually available for use. Once you’ve landed on you dream business name, run your moniker through a Google search to make sure another entrepreneur isn’t already doing business under that name. Then, check for trademark filings in the U.S. Patent and Trademark Office, and conduct a Secretary of State business search to make sure there isn’t another business in your area with your potential name. 

Once you’ve established that your name is free and clear, buy your domain name and create social media accounts with your name. That way, you can build a business website and launch your marketing strategy ASAP.

If you’re a little overwhelmed by this process, check out our comprehensive guide on how to come up with a business name. In addition to offering you some advice about what makes a great business name, we’ll provide you with some fun exercises to get your creativity going.

Determine Your Legal Structure and Register Your Business

In order to register your business, you’ll first need to decide on your business’s legal structure. Your business structure determines how you’re taxed, the degree of legal protection you’re afforded, your business’s ownership structure, and your ability to receive business funding (in addition to allowing you to register your business in the first place). 

LLCs are among the most common types of business structures, since they’re easy to register and operate. LLCs also allow the business owner to decide whether they’d like to be taxed as an individual or a corporation; and, importantly, they provide the business owner with personal liability protection in the event that the business is sued.           

That said, there are lots of business entities to choose from—all of which we overview in detail in our guide to types of business entities. Additionally, we’d highly recommend consulting a business attorney or accountant to guide you personally through this crucial step.

Once you’ve landed on a business entity type, you can go ahead and register your business through your state’s Secretary of State website. After that, head over to the IRS website to apply for an EIN (employer identification number) online. Your EIN is a bit like your business’s social security number, and it’ll help the government identify you for tax purposes. You might also need an EIN to apply for a business loan down the line. 

Obtain Licenses, Permits, and Business Insurance

Check your Secretary of State website to find out about your retail business’s licensing, permitting, and zoning requirements. Some states require a universal state license, for example, while others require licenses and permits at an industry level. You may also need to acquire local permits and licenses, so consult your county or city clerk’s website for their particular requirements, too. The SBA is an excellent resource for licensing and permitting information at both the federal and local level. As a retail business, you’ll likely need to obtain multiple licenses related to your field, including a resale certificate, seller’s permit, and/or a certificate of occupancy. 

Here again, we’d strongly recommend working with an attorney, accountant, or small business specialist to ensure that you’re fulfilling all federal and local licensing requirements—if you’re operating your business illegally you could end up running into legal hot water, whether that’s paying a hefty fine or even facing jail time.   

Be sure to purchase business insurance, too. As a retailer, you should consider general liability insurance, a business owner’s policy, and/or business crime insurance; and as an employer, you’re likely required by law to carry workers comp insurance, health insurance, and unemployment insurance for your staff. Take a look at our guide to small business insurance for more information about the types of coverage you need.   

how to start a retail business

Step 3: Find a Physical Location and Build an Online Store

If your retail business will include a physical store, finding the right location is arguably the most important aspect of this process. Your location can make or break the success of your business: If you’re located in a heavily trafficked area, then your marketing efforts are practically built-in. If it’s in a tough-to-find location, or if parking is limited, then your bottom line will likely suffer.

The moral of the story here? Location, location, location. But the right location for your business depends largely upon who your target market is and where they hang out. If you’re opening an upscale boutique, for example, you probably want to choose a neighborhood that skews less toward students and cash-strapped millennials, and more toward people with some discretionary income to burn. 

Of course, you’ll also have to keep in mind how much space you need for display areas, a back office and/or break room for your staff, dressing rooms, and an inventory storage area. Your location will also depend largely upon how much room you have in your budget for renovations, remodels, updates, a down payment, and your monthly rent and utility bills. That may mean opting for your second or third choice location—it’s more important to protect your budget, especially before you’ve begun to bring in any sales.       

Build an Ecommerce Store

Even if you always dreamed of a brick-and-mortar store with in-person transactions, we also recommend opening an online store to give your retail business as much exposure as possible. In 2018, 69% of Americans say they purchased something online, and millennials do the majority of their shopping online. You don’t want to miss out on that huge contingent of potential customers.

Luckily, building and managing an online store is incredibly easy with an ecommerce platform. We’d recommend Shopify if you want an infinitely customizable, standalone store that you build and manage entirely on your own; but if you’re looking for something a little simpler, we’d recommend trying Squarespace or Wix, both of which are business website platforms with ecommerce functionalities. And if you just want to dip your toe into the ecommerce world, try opening a store on an online marketplace like Etsy, Amazon, or eBay. These popular marketplaces will provide you with plenty of built-in traffic and handy seller tools, but you won’t have as much control over your branding, customer relationships, or fulfillment process as you would with your own ecommerce store.      

Step 4: Establish Relationships With Vendors and Suppliers

Beyond your store’s location, working with trustworthy vendors and suppliers is arguably the most crucial aspect of your business’s success—and your vendors might become your most valuable partners. Beyond providing you with the correct merchandise at a fair price and on a timely basis, a great vendor can present you with new merchandise, determine which products will sell best, and cut costs for you.

There are a few considerations to keep in mind as you’re searching for vendors. First, of course, they need to work within the supplier budget you’ve established. The quality of their merchandise is crucial, too. And do some research on vendor reputations—you need to work with a supplier who is guaranteed to deliver your agreed-upon items, on time and in good condition, every time you place an order. Remember that you’ll be working closely with your vendors, so their service team must be reliable, personable, and easy to contact in case you run into any issues.   

It’s also recommended that you establish relationships with several vendors. Even if your vendor of choice is stable, reliable, and cost-efficient, you need to have a contingency plan in place—without merchandise to sell, you won’t have a business to run. Beyond that safety net, working with several vendors ensures that you’re providing your customers with a fresh and exciting mix of merchandise.

Step 5: Hire Staff

Most likely, you’ll need at least one employee on the floor as soon as you open your doors—that way, you can focus on larger-scale processes while your staff takes care of ringing up your customers. If you’ve never hired an employee before, take a look at our guide on how to hire great employees who’ll stick with you for the long run. And when you’re hiring for a retail position, make sure to interview as much for their attitude as you are for their experience. While you can train your employees to use your POS system and manage your inventory, you can’t teach them to be kinder, friendlier, or more trustworthy than they innately are. Obviously, the latter are incredibly important traits in a great sales clerk.

And in advance of hiring your first team member, make sure you understand your state-regulated employer requirements. As we mentioned, your state might require that you buy certain types of insurance for your staff. But you’ll probably need to undergo a few more steps, like registering with your state to withhold state income taxes from employee wages, reporting new hires, and verifying your potential new hire’s employment eligibility.         

Step 6: Find the Right POS System

Other than your vendors, of course, your POS system just might become your retail business’s best friend. It’ll certainly become your employees’ best friend—assuming you choose an intuitive, easy-to-use model, of which there are tons on the market right now.  

As a quick reminder, a point of sale system combines hardware and software that enables your business to accept and process all kinds of payments. Most POS software is loaded with valuable back-end capabilities, like inventory management, employee management, CRM tools, sales reports, and vendor tracking.

If you’re opening a brick-and-mortar location, you’ll obviously need a POS system whose hardware can accept in-person payments at your checkout desk, including cash, checks, contactless payments, and both chip and swipe cards. In addition, you’ll need a barcode scanner, receipt printer, and cash drawer. 

But to give yourself even more flexibility, you should look into a POS system that allows on-the-go payments, too. For example, Square (and most other POS systems) has mobile card readers that plug into your phone or iPad so you can accept payments from virtually anywhere, whether that’s at a pop-up shop, crafts fair, or trunk show. Clover also has a fully equipped, handheld POS system device so you or your staff can ring up your customers from anywhere in your store. 

Bottom line? You have options—a lot of them. To help you navigate the selection process, consult our guide on the best retail POS systems.        

how to start a retail business

Step 7: Organize Your Finances

No matter what kind of business they’re opening, we (and probably your accountant) recommend that all business owners open a business bank account and apply for a business credit card as soon as they’re registered. 

Both of these steps are important for separating your business and personal finances. And that’s important not only for keeping your finances organized—for which you and/or your accountant will thank you for when tax season rolls around—but this separation can also protect your personal assets on the off chance your business runs into legal trouble. Depending on your business structure, you might actually be legally required to maintain that separation. Luckily, both of these steps are super simple. 

And at this stage—if not throughout the entire startup process—you should also be considering your options if you need startup funding. 

Open a Business Bank Account

If you’re happy with your current bank, it makes the most sense to open a business bank account there. It’s logistically easier for you to maintain all your finances with the same institution. Beyond that, lots of banks offer discounts and other incentives for their consumer clients opening business accounts. That said, it’s worth looking into our recommendations on the best business bank accounts to compare your options.  

Keep in mind that most banks (barring online-only banks, of course) require that you visit a branch in person to open a business account, whether you’re a pre-existing customer or not. For the sake of efficiency, gather all the documents you need to open a business bank account ahead of time.

Get a Business Credit Card

The majority of credit card companies allow business customers to apply for a business credit card online—which makes this step even easier than opening a business bank account. And if your business is too new to have any financial information to speak of, you can provide your personal financial information on your application; the card company simply wants to know that you’re financially solvent enough to pay your bills on time. If you’re approved, you’ll receive your card in the mail in about a week or two. Use it for your business’s smaller, daily expenses, and be mindful of only using it for business-related purchases to maintain that financial separation we talked about.

Consider Your Funding Options

Most entrepreneurs need a little (or a lot of) financial help to get their businesses off the ground. That may be especially true of retailers and brick-and-mortar business owners, who have a few extra startup costs to contend with. 

You may be tempted to approach your bank for a loan, but in truth, it’s very difficult for new businesses to be approved for traditional, debt-based business loans. Lenders need many years’ worth of evidence of a business’s financial solvency, which brand-new businesses just don’t have.

But with that said, there are lots of alternative funding channels for startups to explore. If it’s available to you, you can consider using a portion of your personal savings to start your retail business. Otherwise, you can look into taking out a personal loan for business purposes, as personal loans are a little easier to qualify for than business loans. You can also approach your friends and family for loans, if you’re comfortable doing so.

As your business becomes more established, starts to bring in revenue, and as your credit score strengthens, you can expand your search into business loans from online lenders, who tend to have less stringent approval requirements than banks do. Short-term loans, equipment loans, invoice financing, and business lines of credit are among the more accessible forms of debt-based, business startup funding. It’s also worth looking into SBA microloans, which the government agency created to make startup business funding more accessible for women, veterans, and minorities.   

Finally, don’t forget to sign up for a good accounting software, which will streamline, automate, and organize your business’s finances. Take a look at our guide to the best business accounting software for a full list of our recommendations. 

Step 8: Market Your Retail Business

Developing a small business marketing strategy provides you with an opportunity to get a little creative—and, more importantly, to get the word out about your retail business. The best marketing strategies, especially for brick-and-mortar stores, use a combination of SEO, social media, email marketing, paid online marketing strategies (if their budget allows for it), and analog marketing efforts. 

At the very start of your venture, your time is best spent building a business website and creating social media accounts. For the former, we like Squarespace and Wix, which provide users with tons of customizable, professionally designed templates and built-in SEO tools. And for the latter, focus on creating diverse, high-quality content, posting regularly, and responding promptly to your followers’ comments and DMs—both the positive and the negative. 

But as a brick-and-mortar store owner, you should contribute some time and effort to in-person marketing tactics, as well. Get active in your local retailer community, network with your fellow business owners, and participate in crafts fairs and other events showcasing local businesses. You can even consider partnering up with a local business whose target market is similar to yours and putting on an event together, or hosting pop-up shops or trunk shows in each other’s locations. And don’t underestimate the power of a good sales incentive—like BOGO deals, giveaways, and free trial periods—to draw even more customers into your store.

Ultimately, the most effective marketing strategy is that which best speaks to your particular demographic. So if you haven’t already, take some time to develop your brand identity. Establish your messaging, market positioning, and how your unique business can provide your customers with what they’re looking for—then create all your marketing materials to reflect those core values.        

How to Start a Retail Business: The Bottom Line

We hope we’ve provided you with some guidance about how to start a retail business. But as you complete the aforementioned steps, don’t get so lost in the weeds that you lose sight of why you’re opening your retail business in the first place—which, we can safely assume, is because you’re passionate about the products you’re selling, and you believe that you can provide the best possible service to your customers. If you’re fueled by that core belief, you might even enjoy the finer points involved in starting your retail business (who knew finding a POS system could be so fun?).

Contributing Writer at Fundera

Caroline Goldstein

Caroline is a former Fundera staff writer and current freelance writer, specializing in small business and finance. She has an MFA in fiction from New York University. She loves finding creative ways to help entrepreneurs grow.
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