What should I check before buying a pawn shop?

A pawn shop is not an ordinary retail store. Part of what sits in the vault belongs to customers who have borrowed against it and may come back for it. The rest is the shop’s own stock. A buyer who cannot tell the two apart cannot read the business. The checks below start there. They sit alongside the general steps in BDC’s due diligence guide.

The loan book and pledged goods

Ask for the list of open loans and walk the vault with it. Every pledged item should match a ledger entry, and every entry should match an item. Ask how the shop decides when a loan is overdue, how it contacts customers and what happens to unclaimed goods. Gaps between the ledger and the shelves are the first thing to raise with the seller and your accountant.

Forfeited and purchased stock

Separate the stock the shop owns from the goods it holds for customers. For owned stock, ask how it was acquired, how it is priced and how long items have sat. Check the inventory records against what you can count. Ask who tests gold, stones and electronics, and what the shop does when an item turns out to be wrong.

Records, security and cash

• How each item is described, tagged and traced to the person who brought it in
• What records the shop keeps of items taken in and sold, and how long it keeps them
• Alarm, camera and vault arrangements, and who holds keys and codes
• How cash is counted, banked and reconciled each day
• Any past claims, disputes or complaints, and how they ended

The licence and the paperwork

Whether the seller’s licence transfers, and what you must hold before you may open, is a legal question. Put it to your lawyer before you commit. Also ask the lawyer how obligations to customers whose goods are held will pass to you, and read what happens to customers’ garments when a dry cleaner is sold for a similar problem in another trade.