By Brian Sullivan on June 10, 2021

How to Open a Tobacco Shop in 7 Steps

Are you opening a tobacco shop?

The tobacco industry is one of the most highly regulated markets in the world. Failure to comply with new and evolving tobacco regulations can spell disaster for your new business. Additionally, from an operational standpoint, opening a new tobacco shop can come with a unique set of challenges and roadblocks.

So what’s the best way to secure a successful future for your new business?

In this article, we’ve outlined the seven mission-critical steps you need to follow to open a tobacco shop. Use this article as a starting point as you develop your business plan, attract prospects, and reel in paying customers.

How to Open a New Tobacco Shop in 7 Easy Steps 

As an industry-leading point of sale system provider, we know a thing or two about helping business owners and managers chart their path to the stars. In fact, our point of sale software is purpose-built to help retailers manage and grow their business.

We’re routinely ranked as one of the top point of sale vendors and have worked alongside more than 10,000 customers nationwide.

 

Beyond investing in a best-in-class point of sale system from outset, follow these seven simple steps to opening a new tobacco shop.

1. Write Your Business Plan 

“Failing to plan is planning to fail”-- the well-known idiom is especially relevant when it comes to opening a new business. Crafting a detailed and thorough business plan for your tobacco shop will enable you to clearly visualize your business’s creation, development, and future performance.

Business plans are also used to attract other partners on board, such as financial investors or business partners. Your business plan should include an executive summary, goal development, business details, marketing strategy, and much more. Use The Best Business Plan Checklist for New Owners as a guide for shaping your smoke shop business plan.

2. Create a Budget and Financial Plan

Just like an overarching business plan, a financial plan is a practical budgetary guide for your new business. Essential financial plan elements include a break-even analysis, profit and loss, and cash flow projections, market viability, and industry ratios to start. A section addressing all possible financial risks your particular business may face is also a practical addition to include.

Unforeseen costs can be detrimental to your business’ profitability after your tobacco shop has opened. Budgeting for operational investments is crucial to staying ahead of surprise costs. Your point of sale system is a prime example of a cost to consider when researching how to open a tobacco shop. If you don’t choose an industry-leading tobacco POS system right from the start, you may end up with a few unexpected costs.

3. Apply for Necessary Licensing and Permits 

Applying and getting approved for licensing and permits is one of the most critical steps when opening a tobacco shop. Improper licensing and permits can inhibit your shop’s opening, affect construction, and delay your whole timeline. Receiving your approved licenses and permits also prevents unnecessary costs for your tobacco shop.

Strict federal restrictions are governing the sale of tobacco substances. Due to these regulations, your tobacco shop must comply with all applicable local and state permits, as well as licensing requirements for your new store. Additionally, there may be specific permit requirements associated with selling age-restricted products in your area.

4. Make Sure You Understand Tobacco Product Taxes 

In the US, tobacco excise taxes are levied on each item sold for both the producer and the wholesaler. These costs drive up the retail cost of goods for customers. Tobacco businesses have a particular excise tax called “the sin tax” to consider, in addition to state sales taxes. Yearly sin taxes for tobacco products in the US easily exceed $13 billion in a given year. This tax also adds at least $1 per pack of cigarette products.

The tobacco products you sell affect your product tax rates. In some states, e-cigarettes and vapor products are subject to a 40% tax rate, and chewing tobacco could be $.55 per ounce based on the wholesale price. Other products subject to specific tax rates include tobacco liquids, granulated tobacco, dry snuff tobacco, and more. In addition to paying those taxes, in many states, you need to submit a monthly tax return whether or not you have any taxable transactions. 

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5. Register Your Business

Choosing a unique business name that attracts customers can be a tricky task. Other than doing market research, try testing out some branding ideas with consumers in your target demographic. Besides creating a unique and buzzworthy name, you should also confirm that the business name is available on the platforms you need, such as your website domain and social handles.

Once you decide on a name, the next step is to register your business with state and federal agencies. As a business owner, you have several options for registering and getting your tobacco shop business entity set up. Your shop can be registered under a “Doing Business As” (DBA) trade name versus a brand name with an LLC. The option that is best suited for your business depends on many factors, such as your partnership status, state regulations, and local tax laws. 

6. Get Business Insurance 

All businesses should carry several types of business insurance to protect their business from risk. When researching how to open a tobacco shop, you don’t want to make the same mistake that many business owners make, which is forgoing insurance. For tobacco shops, there are additional risks to consider when opting in for insurance.

The basic insurance policies to first consider, include:

  • Commercial Property insurance
  • Product Liability insurance
  • Business Owner Policy (BOP)
  • Workers Compensation Insurance
  • Crime Insurance
  • Business Interruption Insurance
  • Employment Practices Liability insurance (EPLI)

Tobacco shops specifically have a higher-than-average risk for fire-related incidents. The increased risk is due to the presence and sale of flammable substances such as butane-based lighter fluid and pre-filled lighters. Another consideration is if your tobacco shop will also be a smokers’ cafe. If your customers are spending time smoking your products inside and outside your property, there is always a risk of an accident happening followed by a lawsuit.

7. Find a Profitable Location 

When it comes to real estate, “location, location, location” usually trumps most other factors. When searching for a property, it’s essential to consider what people are looking for, which places would be most convenient for them, and where you can easily attract new customers.

If you have a tobacco shop that doubles as a smokers’ cafe, then it’s essential to have enough space to accommodate your customers comfortably. Or, if you’re looking to become a quick pit stop for busy customers, you might consider a busy, walkable location that is low on space. For a list of location goals to consider, start by analyzing the walkability score, ease of access, budget-friendly rental space, local laws, and permit accessibility.

Use a POS System as the Foundation of Your Business Plan

If you follow this guide and do your due diligence, you’ll be opening a profitable business in no time at all. With all of these new business opening steps floating around in your head, you’re probably wondering if there is anything else to be done. 

As a final but vital step, make sure to consider the valuable addition of an inclusive, integrated POS software system into your business plan.

Here at POS Nation, we take pride in offering valuable resources to new business owners to help them land on their feet. As a new member of this industry, you can download our free resource: The Tobacco Point of Sale System Buyers' Guide.

Are you interested in learning how POS Nation can help you increase tobacco, cigar, and vape sales? Schedule a free POS software demo today!

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Whether you decide to do business with POS Nation or select another provider, knowing what questions to ask can help you get past the sales pitch, and to a solution that works for your business

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