How to become an FFL dealer

Pick a business model first

“FFL dealer” covers businesses that have very little in common. The four most common models:

Transfer dealer. You receive firearms that customers bought online or from out-of-state sellers, run the Form 4473 and background check, and charge a flat fee. It is often home-based, part-time and low-overhead. The downside is that transfer fees alone rarely add up to a living.

Online and special-order dealer. You sell from distributor inventory without stocking much yourself, through your own website or marketplaces. Margins on firearms are thin, so this works best with a niche and low overhead.

Retail storefront. A gun shop with inventory, ammunition, accessories and walk-in traffic. It needs the most capital, the most insurance and a zoning-approved commercial space. It is also the model where accessories, ammunition and services carry the margins that firearms alone do not.

Gunsmith. Repair, cleaning, fitting, sights, trigger work. A Type 01 covers gunsmithing, but if you plan to build or refinish for sale, check whether you need a Type 07.

Plenty of dealers combine these, commonly a gunsmith who also does transfers or a small shop with an online store. Decide which one is the core, because it drives where you locate, what insurance you buy and how you answer questions in the qualification interview.

Set up the business before you apply

Do these before you file with ATF, not after:

1. Confirm zoning for your premises. For a home business, look up your local home occupation rules. See the requirements guide for how to approach the zoning office.
2. Form the business entity if you want an LLC or corporation. The license will be issued to that entity, and changing it later means a new application.
3. Get an EIN from the IRS if you are forming an entity.
4. Register for sales tax with your state.
5. Get a local business license if your city or county requires one.
6. Open a business bank account. Most banks are fine with firearms businesses, but ask about their policy up front instead of finding out after a few deposits.

What it costs to get started

For a home-based transfer or special-order dealer, a realistic first year looks something like this:

A retail store adds rent, build-out, display cases, a point-of-sale system, commercial security and above all inventory. Even a modest opening inventory of firearms runs into the tens of thousands of dollars.

Distributors

Once you have the license, you can open accounts with firearms wholesalers. Well-known national distributors include Lipsey’s, Davidson’s, RSR Group, Sports South, Zanders, Chattanooga Shooting Supplies and Bill Hicks & Co. There are also many regional distributors, and some manufacturers sell to dealers directly.

To open an account you will typically provide:

• a signed copy of your FFL (not the original; licensees give suppliers a copy bearing an original signature);
• your sales tax certificate or resale certificate;
• business contact information and sometimes a credit application.

Some distributors want a storefront or minimum purchase volumes, and some will ship to home-based dealers without any issue. Apply to several. Allocated products, meaning popular firearms with limited supply, generally go to dealers with a purchase history, so new accounts start with whatever is in stock.

How dealers actually make money

Firearm margins are often lower than people expect, commonly single digits to the low teens as a percentage on popular models, especially when customers are comparing online prices. Dealers who last usually make money elsewhere:

• Transfer fees. Most dealers charge somewhere between $20 and $75 per firearm, more for NFA transfers.
• Ammunition and accessories, which carry better margins than guns.
• Gunsmithing and services, such as mounting optics, cleaning and repairs.
• Consignment, taking a percentage when you sell a customer’s firearm.
• Training, if you or a partner are an instructor.
• NFA items, especially suppressors, where customers want a dealer who explains the process well.

Recordkeeping is the job

Every dealer maintains, at minimum:

• An acquisition and disposition record, the “bound book,” on paper or in approved electronic software. Acquisitions go in by the close of the next business day, and dispositions within seven days.
• Form 4473 for every sale or transfer to a non-licensee, along with the background check.
• Multiple sales reports on ATF Form 3310.4 when the same person acquires two or more handguns within five consecutive business days. Dealers in Arizona, California, New Mexico and Texas also report multiple sales of certain semi-automatic rifles.
• Theft and loss reports to ATF and local police within 48 hours of discovering a missing firearm.

Background checks go through the FBI’s NICS system or, in some states, a state agency. After licensing you can enroll in NICS E-Check to run checks online.

Most compliance problems ATF finds in inspections are recordkeeping errors: 4473s with missing information, bound book entries that don’t match inventory, or firearms that can’t be accounted for. A monthly habit of reconciling your book against what is on hand prevents most of it.

Inspections

ATF can conduct a compliance inspection without a warrant once in any 12-month period. How often inspections actually happen depends on staffing in your area, and many dealers go several years between routine inspections. You will not get much warning, so keep records inspection-ready at all times rather than cleaning them up when a letter arrives.

Selling beyond your premises

You can conduct business at gun shows and events in the state where your licensed premises are located. Out-of-state shows are limited to displaying and taking orders; the actual transfer has to go through a licensee in that state.

Online sales are fine, but the transfer still happens in person. A buyer who is not a licensee completes the 4473 and background check at a dealer’s premises, either yours or a dealer in their home state if you ship to one. Handguns can only be transferred to residents of the state where the dealer is located.

The ATF interview is also a business conversation

When the Industry Operations Investigator visits for the qualification inspection, they will walk through regulations with you, but they will also ask how the business will work. Have straightforward answers about your hours, your suppliers, how customers will find you and what you will charge. People who show up without answers tend to leave with more questions from ATF. The application guide covers what the interview includes.