Once in a blue moon I get a wild spur. I've really been contemplating starting a small scrap bullion operation. In my short tenure at the pawnshop I have learned quite a bit about gold and silver. I'd be curious to know exactly how much capital it would take to get a small operation going. Rental fees, licensing, security, equipment, and plenty of starting cash? I have a friend in Virginia that basically started a table top operation and has turned it into quite an operation. If I'm not mistaken he was pretty much clueless when he first dove in. Granted he was coming off of 2 years of oversees contracting work and had plenty of startup money... but I believe I could get this capital through an SBA loan or possibly from the family if need be. My question would be how much startup money are we talking about? I envision a very small store, with some professional (not obnoxious) marketing, and a slightly less profit margin than my competition. I have surveyed the area and I basically have one run down pawnshop and two jewelry stores to contend with and an isolated population of 75,000 people. We happen to live basically on a peninsula in Southern Maryland. The pawnshop that I worked at was close to an hour away. Also should I look at this as a sole proprietorship or should I enlist the assistance/partnership of others? I suppose I should be asking dealers/store owners these questions but I am very curious as to any response. Thank You Kindly, ~Jason
Man, I think the very first thing you need to consider is the personal risk factor involved in opening a small cash business. If you are large enough, you can afford a good security force. But when you are small, it's not economically feasible. Now I don;t care how bad or tough you consider yourself to be, you are at a great risk when handling liquid items like cash and gold. People are hurt or killed by people who want those things all the time. You are probably riskier than a liquor or convenience store because it will be assumed you have a large amount of cash on hand. I do know that instead of B&M stores, there are some dealers who follow the coin and jewelry show circuit in my area. I asked one gentleman how he dealt with the gold fluctuation. He told me he keeps a constant standing inventory. If he sells 5 ounces, he immediately buys 5 ounces from another dealer, just making a little bit on the transaction. Of course, if he can get walk up sellers, he will buy, because all those guys come in low enough for instant profit on those transactions. Honestly, it seems the guys that I know who are doing it are all retired and use this as a second income. Although brokers seem to have a lot of money, it seems to be tied up in inventory. Just sayin' Good luck with it, for sure ! Gary
Get a LLC ( limited liability corporation) listing first, even if it costs a lawyer in your state, to help protect your personal wealth from business loss. A friend has such a B-M shop and although it is relatively small time, he has a rotating reserve of $50,000 for day to day purchases and costs ( unfortunately, usually much less than that is needed) , and a line of credit for $150,000 he can immediately access ( at a relatively high interest rate ) if the "Whale" comes in wanting to sell St. Gaudens for spot.
Never start a business with a loan. If your business is established, money starts flowing, then start considering a loan if it's needed to grow the business to make more money.
I think that is good advice if your business plan starts with the phrase, "Once in a blue moon I get a wild spur." (See post #1) I do think loans are sometimes necessary for working capital or capital investment. To me, it has always been part of the risk. Just be reasonable in your expectations and don't borrow more than you can reasonably expect to pay back if things go south. I also think that starting an LLC is a good structure for such an operation, and eventhough it offers a lot of personal liability protection, don't expect to get a loan without a personal guarantee in the beginning.
That's why I said it like that. Different people get different advice. I mean, if someone said, "Hey, I created this iPhone app and it's crazy addictive, I know I can make money off of it. I don't have the money to expand it, create trademarks, patents, etc. Should I get a loan?" My advice would probably be, yes, get a small loan to get you started to protect such business, then let it build itself. So yeah, saying "Once in a blue moon, I get a wild spur"... I'm going to tell such person, don't get a loan to start such business, especially a risky one like precious metals. :thumb:
If this is what makes you happy, then by all means go for it. However, I sort of feel you are a bit "late to the party" here. This would have been a good business idea about 5+ years ago. A population of 75,000 people is not a lot to rely on. What happens when they have sold all of their PMs (if they have not already done so). A small local business near me has made a fortune in the PM scrap game, but they have been doing it for years. The man in charge admits that business is not what it used to be in the good old days and has had to resort to Internet and mailing PM kits. He told me he started out buying PM scrap at flea markets with little to no overhead. This is a guy who really got in early and built a lucrative career out of it. You may need to think of some new niche to capitalize with all the competition out there. Good luck. TC
I live in a small city of just under 40,000. We have quite a few pawn shops and one coin store and I know a guy who is seriously thinking of starting another. He does enough business buying and selling on craigslist and to people he's established relationships with that I think Bozeman can support two coin stores. It doesn't hurt that his parents own a few coin stores in two states that charge sales tax. I suppose much would depend on how wealthy your community is and if they like to buy and sell coins. It seems people here in Bozeman are wealthy enough and do like buying coins, so <40,000 people should be enough to support two coin shops. It could be that your community of 80,000 might too, but you'd have a better idea of that than I would. As far as getting a loan goes, I'm the kind of person that likes to keep debt to a minimum, but there are also advantages to leveraging your business using someone else's money. It helps you realize much better profits when times are good. However, you will also see much larger losses when times are not good. Do you have a college nearby that offers business degrees? If so, you might be able to tap into it for advice. Our university is always looking for local businesses for the students to work with to satisfy their degree requirements. They could help you write a business plan, brainstorm to identify all the fixed and variable costs that you'd encounter, calculate all the various financial ratios for a few different approaches, design a web site for you, etc.
I'm not against loans per say. But if you are starting a new business, it's going to be very tough convincing the banksters, who get to create the stuff out of thin air, to make you a loan based on your fine good looks, character, and strength of presence. They are going to want something of value they can take from you in case the plan doesn't work. This will be their terms. If you participate in ANY program that moves the risk to the government then you will add a level of complexity to your plan that can cause the business to fail before it starts. IMO, starting a business is best when you can keep the banksters and the government away from your decision making process. I would definately form a LLC as the others have said.
Thank you for the advice. The end goal would not be a scrap gold shop. I really think that an SBA loan would be the way to go in establishing a serious line of credit... but I'm naive in these affairs and have been accused of having my head in the sand before. I'm going to start doing some research and see what happens.
If I was in your shoes I would get the neccesary license and start buying scrap precious metals right out of your existing store. Send it to a refiner at first, then get into the expense needed to melt stuff. That way you have the business going and can then put more into it as you grow. Maybe pay for ADT or some other security out of whatever you make selling and buying.
