Risks of Operating a Pawn Shop

Pawn shops provide a lucrative form of income and are important in many communities as they sell low cost items and allow people to get a little extra cash by pawning their goods. Both pawnbroking and pawn shops have been around for hundreds, if not thousands of years.

As a pawn shop owner, it is your choice of what you’re willing to accept, including the types of jewelry, musical instruments and even power tools. There’s also a delicate balance to consider between what items you can make money off of and a fair price to offer the customer. That said, before opening up your own pawn shop, there are some very real business risks you need to be aware of.

Loss of Market Value

When you buy items from others, especially gold and other precious metals, you typically base your offer on the current market value.  For example, you consider how much a precious metal is currently selling for per ounce, weigh the item and offer the fairest price you can that still enables you to profit from the item when you resell it. One significant risk of doing this is a fluctuating market, particularly with fluctuating prices of precious metals.

Inability to Resell Items

Another financial risk you face with a pawn shop is not being able to resell an item. Unless you have an online presence, for the most part, you place the items you buy in your pawn shop and hope someone else buys them. Unfortunately, not everything will sell, which leads you to loss on the unsold item.

General Liabilities

As with all types of businesses, you also need to consider liabilities. For example, if a customer comes into your store and trips over a large musical instrument near the doorway, you can be held liable. Because you cannot prevent these types of incidents in every case, business insurance is crucial for this type of risk.

Legal Implications

Depending on where you live, you have certain rules and regulations to abide by. Most likely, your city decides whether or not you can run a pawn shop there. You also need to consider other legalities, like getting a proper business license, permit, insurance and anything else required. Some pawn shops are required to have certain types of security, as well as things like fireproof safes. Zoning approval and getting your permits approved must be done before you open business, or you will be facing large fines and maybe even forced to close your store. Lastly, because there is a risk of receiving stolen items, pawn shops must be diligent with keeping proper records of goods received, and complying with the requirements of reporting certain items with serial numbers to law enforcement.


As a pawn shop, others, who may not have the best intentions, know you have a good deal of expensive merchandise in your store. Criminals are aware of the expensive musical instruments, televisions and DVD players, camera equipment and of course jewelry, you have in your store. They also know you carry cash on site. Make sure you have excellent surveillance equipment, a solid security system and a way to protect your business if there is a theft or vandalism. Be sure to have crime insurance as well in case of an incident of burglary or theft.

Owning a pawn shop is a great business to run as long as you consider these risks beforehand. Always have business insurance, including general liability, worker’s compensation, crime and property insurance. It’s best to speak with your insurance agent to make sure you have the right types and coverage amounts to ensure your business is protected.