How To Open a Convenience Store
While online shopping has eaten into the market share of most brick-and-mortar retailers, convenience stores have continued to thrive and have even seen increased sales over the past few years. Because of their continued profitability, opening a convenience store still presents an excellent opportunity for those would-be entrepreneurs willing to take the risk.
Convenience stores generated $532 billion in sales in 2020, and the industry appears primed for continued growth. Despite the COVID-19 pandemic wreaking havoc on the retail sector, the National Association of Convenience Stores says that 59% of the more than 150,000 convenience stores operating in the United States saw increased sales in 2020.
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Creating a Business Plan
Writing a good business plan is an important step that should be taken by anyone who is looking to start a new business, including opening a convenience store. That is because the business plan will both provide a blueprint for your first few years of operation and is often required by lenders and outside investors.
Before you begin writing your business plan, you should research other convenience stores operating in the area. That information is often available from organizations like the National Association of Convenience Stores and the U.S. Bureau of Labor Statistics. If you are having trouble finding information, the U.S. Small Business Administration may be able to help.
A convenience store business plan should contain the following elements:
- A description of the store that includes your business goals and objectives
- A section identifying your market and the consumers you will be targeting that explains how your store will be different than competitors operating in the area
- A description of the services and products that you will be offering and hours of operation
- Whether the store will need licenses or permits to sell such things as alcohol, tobacco products, or lottery tickets
- A financial plan that lays out the startup costs for the store, as well as projected income and cash flow statements
- An outline of the store's business and management structure
- Marketing and sales strategy for the store that includes information on how you will attract customers and identify their needs
- An executive summary of your plan that runs no more than two pages and is written to attract the interest of lenders and potential investors
Choosing a Business Name
The name you choose for your convenience store should give customers a clear idea of the items your business is selling and help it stand out from the competition. Many store owners choose names that include their first or last name, the street or neighborhood where they are located, or names that use alteration or rhyme.
After choosing your name, you need to ensure that it is available for use in your state and that it does not infringe on another business's established trademark. This is especially important if you plan to operate your convenience store as a corporation or limited liability company. The state will require that you register using a unique name.
Fortunately, in most states, the agency you register with has an online tool that will let you search its database of names already in use by a corporation or LLC. Additionally, you will need to check whether another business is doing business as (DBA) that name. Often companies will use DBAs to run some aspect of their business under a different name.
Your state may not let you use your preferred business name if it is close to an already used name and would confuse customers. Check your state rules before trying to register a name that is similar to one already being used.
Finally, even if your business name has not been registered in your state, you will want to make sure an out-of-state business has not registered a nationwide trademark with the U.S. Patent and Trademark Office. If the name is already trademarked, using it could constitute a trademark violation. Therefore, it is good to consult an attorney if your name is similar to one already trademarked.
Choosing a Business Structure
There is no one way to structure a convenience store business. Nearly all convenience store owners structure their businesses as sole proprietorships, partnerships, limited liability companies (LLCs), or corporations, and each has its advantages and disadvantages, as explained below:
- Sole Proprietorships are businesses with a single owner that is personally liable for all of the business's debts and obligations, one reason many convenience store owners choose a different entity. On the plus side, the company is not treated as separate from the owners for tax purposes, which means the business itself does not pay taxes, and the owner will declare any income or losses on their personal return.
- Partnerships are businesses owned by two or more persons who run the business together and are each personally liable for the business's debts and obligations. Like sole proprietorships, partnerships are treated as pass-through entities for tax purposes, and the partners claim any income or losses from the business on their individual income tax returns. Unlike LLCs and corporations, partnerships do not need to register with the state and are not required to follow corporate formalities. A partnership agreement is essential to protect yourself in any partnership, even if you know and trust your business partner.
- LLC owners are not individually liable for their businesses so long as they are correctly registered with the state and follow the rules for operating as an LLC. For tax purposes, LLCs are treated as pass-through entities like sole proprietorships and partnerships where the business pays no tax, and all of its income and losses are included on the owners' personal returns. This is often the preferred entity type for convenience store owners, but there are requirements to maintain status as an LLC. Failure to follow all state requirements can result in the LLC failing to protect your personal assets.
- Corporations may be structured as C-corporations or S-corporations. With both types of a corporation, the owners are protected from personal liability for the business's debts. S-corporations are treated as pass-through entities for tax purposes. Still, C-corporations must pay the corporate income tax on their income, and their owners are also taxed on the amounts they receive as dividends. States also have numerous requirements to form C-corporations and S-corporations.
Funding Your Business
Unlike some small businesses, there can be significant startup costs associated with opening a convenience store. In some cases, it can cost up to $50,000 to lease store space, remodel its interior, and purchase the necessary equipment. You may also need to dip into that amount for some of your ongoing expenses like paying rent and buying inventory until your store earns enough to cover them for the first few months.
While some people can afford to pay the startup costs out of their pocket or have a business partner who can help put up the money, most new convenience stores will need to secure a loan or an outside investor to cover their startup costs. One popular source of startup cash is loans guaranteed by the U.S. Small Business Administration (SBA). Because the SBA assures the lender that it will pay back up to 85% of the loan, they are often available to borrowers viewed as credit risks by traditional lending institutions.
The SBA stepped in and offered guaranteed loans for convenience store owners because traditional banks were often hesitant to lend them cash. However, many online lenders have popped up in recent years, offering short-term loans to purchase inventory, provide working capital, or help with cash flow.
Finding a Space to Lease
Suppose you do not already own the commercial property where you plan to open your convenience store. In that case, it is usually recommended that you take advantage of the flexibility offered by leasing your commercial space. Leasing the space ensures that you will not be stuck with an empty building should your business fail and usually relieves you of the need to make any significant repairs to the building.
Most commercial real estate leases fall into one of four categories:
- Base rent or gross lease requires the tenant to pay a fixed amount each month for the retail space and determines how future rent increases will be calculated.
- Triple net lease requires the tenant to pay monthly rent plus maintenance costs, building insurance, and property taxes.
- Ground lease allows the tenant to develop a piece of property, but the building and any improvements revert to the owner at the lease's end.
- Capital lease is where the landlord agrees to transfer property ownership to the tenant after a long-term lease.
Most commercial leases will require you to put down a security deposit as well as the first and last month's rent.
Most commercial leases run for several years. That means it is usually a good idea to meet with a real estate attorney before signing any commercial lease to ensure the terms of the lease are fair and that the obligations of both parties have been laid out clearly.
Licenses and Permits
Some of the most popular products sold by convenience stores are usually among the most highly regulated. This means that if you plan on selling alcohol, tobacco, or lottery tickets, you will probably need to get a license or permit from the state or your local government—sometimes both.
In most states, you will likely need to get the following licenses and permits before opening your store:
- Liquor license or permit
- License for selling tobacco
- Lottery license
- Sales tax permit
- Health and safety permits
- Occupancy permit
- City or county business license
- Environmental and other fuel permits (if you are selling gasoline)
Depending on where you live, it can take weeks or even months to secure all required licenses and permits. So it is usually a good idea to begin the process of applying for them as soon as you have formed your business and found a suitable location.
Staffing Your Store
While some convenience store owners take the attitude that any warm body will do when it comes to staffing the store, spending a little bit of time seeking out and hiring qualified candidates can end up saving you time and money in the long term. Hiring qualified candidates ensures that your store is operated efficiently and that your customers will not be driven away by poor customer service.
Since candidates usually need to meet few qualifications to serve as convenience store clerks, it helps to look for friendly, optimistic employees who will make an effort to make sure your customers have a positive experience when visiting your store. Additionally, you should provide your employees with continuous training to help them understand their job responsibilities and all applicable health and safety requirements.
Many convenience stores have moved to online services to find the employees they need. However, it usually pays off to focus on potential employees recommended to you by word of mouth or who have stopped in to inquire about employment. This results in a smaller pool of applicants, but it helps find candidates who are in the area and already familiar with your shop.
Additionally, suppose you plan to hire employees under the age of 21 and plan on selling tobacco products or alcohol. In that case, you will need to follow the state rules and regulations regarding who is permitted to sell those items. In many cases, that means you can't have someone under 21 work shifts in the store by themselves.
Marketing Your Convenience Store
Many convenience store owners believe that customers will find them if they set up shop in an area with a lot of vehicle or foot traffic. That may work to generate some customers, but it always helps to have a marketing plan in place to make sure as many people as possible are aware of your store and what it offers.
One of the simplest ways to market your store is by being active on Facebook and encouraging people to follow your account. That can be done by offering them Facebook-only discounts and promotional items. The deals do not need to be large or the promotional items expensive. They only need to provide enough value that people will choose to follow your store's account.
Another relatively easy way to increase customer traffic is by offering a digital loyalty program that discounts when spending a specified amount at your shop. Several companies will help you set up and manage your digital loyalty program so that it can be run entirely on your customers' smartphones. As an additional benefit, loyalty programs will often let you collect additional information about who your customers are.
One final way to promote your store is by getting involved in the community and sponsoring a local event benefitting a charity or nonprofit. Most organizations will give you sponsorship credit on their t-shirts and other promotional materials in return for providing items like food or drinks for their event.
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Additional Questions About Opening a Convenience Store? An Attorney Can Help
Speaking with a local attorney who is familiar with the state and local laws governing convenience store operations early in the process of establishing your business is often a good idea. The lawyer can help you negotiate leases and business agreements and keep you informed of the rules and regulations you will need to follow while running your store. Additionally, an experienced attorney can help point out common problem areas and ensure that you have taken adequate steps to address them.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.