Starting a Consignment Business
by ChristineL, Former Moderator
- Created: March 23, 2010, 11:56 pm
- Updated: June 13, 2011, 1:49 pm
Are you thinking about starting a resale consignment shop? Read on for a quick overview of the consignment business and steps to take to start your own shop.
What Is a Consignment Business?
Consignment is a resale business involving three parties - the owner of goods or items (consignor), the seller (consignee), and the buyer (customer). Typically, a consignee owns a resale shop that sells items for multiple consignors. When a buyer purchases an item in the shop, both the consignee and the consignor receive a portion of the profit.
Consignment Items. The most common consignment items include clothing, art, and antiques. However, many consignment shops sell cars, computers, electronics, crafts, musical instruments, and toys, as well. Consignment items can be old or new.
Ownership. As the consignee, you do not have legal ownership the items in your shop.
Instead, the consignor retains ownership of an item until you make the sale. When an item sells, you earn a commission on the sale and the consignor keeps the rest of the payment. If you do not sell the item by the agreed sales deadline, you must return it to the consignor or negotiate a new contract with the consignor.
Other Shops. People often confuse consignment businesses with charity, thrift, and pawnshops. The key difference lies in who owns the item. In charity and thrift shops, the consignor hands over all ownership rights to the consignee as a charitable donation. In pawnshops, the consignor surrenders all rights to the item, but can reclaim it if he or she purchases it back at the new price determined by the pawnshop.
Start-up costs for consignment businesses are often less than that of thrift and pawnshops. As the consignee, you do not own the items you sell so there is no overhead for purchasing inventory. In addition, you are not obligated to sell the items in your shop. If you cannot find buyers, your agreement with the consignor allows you to return the item.
How Do I Start a Consignment Business?
Starting a consignment business is similar to starting any business. Follow these 7 steps to start:
1. Do Your Research. Research should be the first task on every business owner's list. Even an online search can give you information on the consignment market and its profitability in your area. Ask yourself: what am I interested in? Understanding your interests focuses your research. Visit Business.gov Business Data and Statistics for free data on consumers, industries, and economics.
2. Write a Business Plan. After you research, start writing a business plan. Your business plan includes your busines-s mission, goals, operations plan and projected financials.
3. Choose a Location. If you choose to open a shop, you need to find a location for your business. An online consignment shop like EBay is another option. If you are interested in starting an online consignment shop, follow the steps on how to start an online business on Business.gov.
4. Locate Inventory. You can start to gather inventory by asking friends and family for consignment items. Joining local and national consignment organizations like the National Association of Resale and Thrift Shops* can also connect you with potential consignors.
5. Draft a Consignment Agreement Template. A consignment agreement substantiates your relationship with the consignor. This agreement should specify pricing and insurance obligations, payment details, and the consignment period. You can find free templates online or consult a lawyer to help draft a contract.
6. Register Your Business. You must register your consignment shop like any other business. The registration process includes registering for a business name, licenses and permits, and taxes. Learn how to register your business at Business.gov.
7. Market and Advertise. Advertise your business online and through traditional media. Learn more about how to market your business at Business.gov.
Which Laws Should I Be Aware of?
If you plan to start a consignment shop, make sure you understand the Uniform Commercial Code (UCC). The UCC governs commercial transactions in each state. This set of uniform business laws also protects consignors from consignment abuse and bankruptcy. According to the UCC, consignors have the right to (1) file the UCC-1 form, (2) ask the consignee to post a store sign indicating consignment, and (3) prove to creditors that items are consigned. For example, the UCC-1 form gives the consignors legal claim over their property. In many states, they become a secured creditor when the consignment becomes bankrupt.
Consignment laws do vary between states. Check with your state government's business agency to see which laws apply to you.
- Becoming a Reseller- A'Getting Starte' 101 for Small Business Owners
- Free and Low-Cost Training and Assistance
- National Association of Resale and Thrift Shops*
*Links to a non-government website
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