How to Open a Hardware Store in 8 Steps

Starting a hardware store can be a great way to share your passion for building, crafts and construction with your local community. As DIY home projects continue to rise, so does the hardware industry, with sales continuing to grow in recent years.

Here’s what you need to know about how to open a hardware store, including options for hardware store financing.

1. Pick the type of store

Your first step to open a hardware store should be deciding if you want to run a franchise or an independent company.

Hardware store franchise

Buying a franchise allows you to open a business under an established brand without the hassle of starting a business from scratch. Franchises usually offer managerial and promotional support along the way, although you’ll have limited control over your operations.

Here are some general expenses associated with buying a franchise:

• Franchise fee: You can expect to pay an upfront franchising fee when you open your new store. The Federal Trade Commission (FTC) sets the minimum franchise fee at above $500, although average initial fees generally range from $25,000 to $50,000.
• Royalty fees: As your hardware store turns a profit, most companies will charge ongoing royalty fees. These fees are typically collected on a monthly basis and generally range from 4% to 12% or more of your revenue, based on the type of business.
• Cash down payment: Franchise companies typically require a cash down payment of around 20% to 30%, with options to refinance the remaining balance.
• Out-of-pocket expenses: You’ll be responsible for covering the costs of equipment, rent, utilities, supplies and other expenses needed to open and run your franchise.

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 $350,000 and must pay a $5,000 franchise fee (this fee can be waived for U.S. veterans).

Independent hardware store

Running an independent hardware store means you get to call the shots and grow the business as you see fit. Here are some things to consider first:

• No fees: You won’t need to pay to use a brand name or for ongoing royalty fees. Ultimately, this means a stronger bottom line.
• Complete autonomy: You can take charge and make upper level decisions without needing to check in with the franchise headquarters.
• Limited support: With an independent business, you won’t be able to rely on a well-established brand name to help spread the word. However, having a solid team in place can help make your local business a success.

You can also consider opening an independent online hardware store to reach a wider market.

2. Create a business plan

Writing a detailed business plan can help outline the steps you need to take to transform an idea into a profitable business. You may also need to supply a business plan when applying for small business financing. As your business grows, you can adjust your plan to meet its needs.

Here are some ideas to include in your business plan:

• Executive summary: Describe what services you will provide and expected plans for growth.
• Market analysis: Present research behind the industry’s latest trends and competition.
• Company management structure: Plan how you’ll run the company, including what business owner title you want for yourself.
• Marketing and sales: Outline how you plan to establish your brand, market your store and increase sales.
• Projected financial outlook: Make projections on your anticipated business cash flow and how you expect it to grow over the coming years.

3. Take care of legal requirements

There are a few legal steps you need to take to get your hardware business up and running. While the exact requirements will vary by state and type of business, here’s a general idea of what you need to start a business:

• Pick your business entity: Your business entity determines your liability protections and tax requirements. Small hardware shops might want to structure their business as a sole proprietorship or partnership, whereas others might want the liability protection that comes with a limited liability company (LLC).
• Get an EIN: Depending on your type of business, you may need to get an employer identification number (EIN). Having an EIN can help if you need to hire employees, and some banks require it for certain accounts, such as business credit cards.
• Obtain permits and licenses: Check with your local and state laws to see business licenses and permits you need to open a hardware store.
• Open a business bank account: Keeping your personal and business accounts separate can make life easier when tax season rolls around. Look for banks with small business solutions, such as business checking accounts, savings, credit cards and loans.
• Invest in software: Start off on the right foot by getting organized with accounting software.
• Prepare for taxes: Keep track of your qualified business deductions such as supplies, rent, payroll, utilities, internet, mileage and more. Use our small business tax preparation checklist to help minimize some of the stress of filing your business taxes.

4. Buy insurance for your hardware store

Depending on where you open your hardware store, there may be some small business insurance requirements to consider.

• Worker’s comp: Most states require employers to have worker’s compensation insurance in case employees get injured on the job. Even if not required, it’s generally a good idea to get coverage since your employees will likely handle heavy tools and equipment in your hardware store.
• Unemployment insurance: The federal government requires most businesses with employees to pay for unemployment insurance through taxes.
• Disability coverage: Several states, including New York and California, mandate that employers provide short-term disability coverage.
• Health insurance: If your hardware store has 50 or more employees, you will need to provide health insurance to avoid steep penalties.
• Commercial property insurance: While this may not be required, it can help cover any damage to the property, equipment and inventory.
• General liability insurance: Depending on your state, you may be required to carry general liability insurance. This can provide coverage if any customers get hurt on the property and may be necessary to receive some business permits and property leases.
• Business interruption insurance: Having business interruption insurance can help cover any income lost during temporary shutdowns.

5. Get business financing

Unless you have considerable savings set aside, you’ll likely need capital to open your hardware store. A small business loan can cover a range of business expenses like marketing, commercial real estate or equipment. You can apply for small business financing through your local bank or with an online lender.

Here are some options to help fund your hardware store:

• Equipment financing. An equipment loan can be used to purchase essential equipment needed for your hardware store. Just be aware that if you default on the loan, the lender can seize the equipment. You can also consider an equipment lease if you need specific equipment for a short period.
• Commercial real estate. A commercial loan can help you purchase commercial property or renovate your current space. Loan amounts can be as high as $5 million or more. Note that the loan-to-value (LTV) ratio is typically capped at 75% to 80%, meaning you’ll need to cover the rest.
• Term loan. A business term loan can provide between $2,000 to $1.5 million or more to help pay for everyday expenses or larger investments. But these can be hard to get for new businesses — many term loans have minimum time-in-business requirements.
• Inventory financing: Inventory finance loans can generally provide between $2,000 to $1.5 million to help you purchase the inventory you need for your hardware store. Since the inventory can be used as collateral to reduce lender risk, you typically don’t need to provide additional business or personal assets.
• Crowdfunding: You can launch a crowdfunding campaign to receive donations from friends, family and the general public. While crowdfunding is typically free to use, most platforms deduct a fee for their services. Crowdfunding works best if you have a strong social media following and are ready to invest significant time in broadcasting your campaign.

6. Purchase inventory

Your next step should be creating an inventory plan that can keep up with market demand. You’ll also need to establish relationships with hardware suppliers and wholesalers. Research local vendors to build a network of reliable partners. While offering competitive prices can help you stand out, you want to ensure you offer high-quality goods.

Here are some more tips to keeping on top of inventory demands:

• Analyze consumer trends: Keep on eye on what your local community needs and what competitors are doing to keep up with the demand.
• Consider seasonal and/or niche services: You can make your hardware store unique by offering seasonal or niche services, such as providing free key cutting for local college students.
• Invest in inventory management software: Using software to keep on top of stock levels can ensure you don’t run out of popular items. Some popular options include Quickbooks, InventoryCloud, Netsuite and Zoho Inventory.

7. Hire employees

Unless you want to open a small mom-and-pop shop, you’ll likely need employees to help keep your business running smoothly. Here are some general tips for finding good employees:

• Decide how many employees you need. You may feel more comfortable starting off with a few staff members and bringing on more help as your business expands.
• Learn about 1099 vs. W-2 employees. There are legal requirements you have to follow when hiring workers. Research the differences between 1099 works versus W-2 employees to avoid any penalties.
• Create job postings and share online. Spread the word by posting on local job boards or using a recruitment agency.
• Review resumes and cover letters. Narrow down potential candidates based on their experience working in retail, keeping an eye out for those who have a natural passion for tools, building and construction work.
• Schedule interviews. Make a list of interview questions to help you find the best employees for your new hardware store.
• Write a detailed staff handbook. Outline what candidates can expect, including company fringe benefits like paid time off, childcare subsidies and more.
• Send offer letters. Draft an offer letter template in advance so it’s ready to go once you find your ideal candidates.
• Foster a positive work culture. Make sure to keep work fun and stimulating by offering team building activities and focusing on diversity inclusion.
• Provide ongoing training opportunities. Help your employees grow by offering training and educational opportunities.

8. Plan your grand opening

Once everything’s in place and ready to go, you can start promoting your hardware store’s grand opening. Consider advertising on social media and reaching out to local media outlets to help spread the word to your local community. Offering special discounts or giveaways during the grand opening can attract more customers.

You can also offer free workshops for all ages, such as building birdhouses or painting mailboxes. While these activities require some extra investment, they can be a great way to draw in the entire family. Don’t forget to provide some light refreshments to encourage people to stay a while.