How to Start a Car Dealership

Are you interested in opening your own car dealership? Click here for our complete guide on how to start a car dealership.

There’s nothing quite like the joy of driving off of a car dealership lot with a brand new car. For some, the joy is in selling the vehicle to make the customer happy.

If this statement relates to you, your goal might be to start a car dealership. Although the process isn’t easy, going through it can lead to a high return and many smiling faces.

Learn how to start your own car dealership here.

Create a Business Plan

To start a car dealership, you’ll need a clear plan that maps out the specifics of the business you want to build. The most important topics to consider for this plan include:

  • Startup and ongoing costs
  • Target market
  • Product pricing
  • Business name

Below, we’ll take a look at each of these factors.

Startup and Ongoing Costs

In most states, you’ll need proper licensing, a surety bond, and business experience to be successful in the car dealership industry. As an auto dealer, you’ll need to file a surety bond, but you might need these as well:

  • DMV bonds
  • Used car dealer bonds
  • Wholesale car dealer bonds
  • RV bonds
  • Motorcycle dealer bonds

In addition to paying for bonds, you’ll need different types of licenses and insurances. You can get a quote for different insurance policies to see how much you’ll have to pay.

Keep in mind that some of these startup costs will end up being ongoing costs for your business to run.

Target Market

A car dealer will run advertisements for local customers to create a target market. However, an auto dealership generates a lot of business through referrals from the salesforce.

When you open a car dealership, you’ll want to find customers who have good credit. Without reliable borrowers, the dealership will have a hard time selling vehicles and making real money.

Product Pricing

The obvious answer on product pricing involves pricing vehicles at a rate that can compare with dealerships in the area.

To make money, you’ll have to sell vehicles above the dealer’s invoice price and offering maintenance. Last year, dealerships wrote more than 265 million repair orders that totaled more than $111 billion.

It is best to understand the various laws and regulations surrounding the sale of vehicles to ensure your business makes money.

Business Name

Perhaps the most challenging part of a business plan is coming up with a name that will stick. When you register your business name, you’ll have to check business records, trademark records, social media platforms, and more.

If you plan on making a website, (you should), don’t forget to check web domain availability.

Form a Legal Entity

The next step to start a business in the auto industry is to decide on a business structure. The most common options include:

  • Sole proprietorship
  • Partnership
  • Limited liability company (LLC)
  • Corporation

Do your research on each method to decide which benefits you the most. For example, establishing an LLC or corporation can protect you from being personally liable if your dealership were to get sued.

Tax Registration

Before you can officially start a company and open a business, you’ll need to register for state and federal taxes. To do this, you’ll apply for an EIN through the IRS website or by mail.

The tax registration process for your business will depend on the business structure that you choose.

Open a Business Bank Account

Using a business bank account and business credit card can help you protect your personal assets. When you mix personal and business accounts, your personal assets are at risk if your car dealership gets sued.

Opening up a credit card account specifically can also help build your business credit. This means you’ll benefit from lower interest rates and higher lines of credit down the line.

Opening a bank account specifically for your business will also make tax filing and accounting easier.

Business Accounting Set-Up

If you plan to understand the financial performance of your car dealership once you open your doors, you’ll need to record expenses and all sources of income. Without a business account set up, this won’t be possible.

This is something that car dealership owners can do on their own if they believe they can keep accurate and detailed accounts. If not, hiring an accountant is the better option.

Obtain Permits and Licenses

You’ll need to obtain the correct permits and licenses if you don’t want to deal with hefty fines. Without these legalities, your business might also be shut down.

You’ll have different state and local business licensing requirements. Because of this, the applications vary from state to state.

Opt for Business Insurance

To operate a car dealership under the law, you’ll also need business insurance. Depending on the state you operate in, you’ll have business insurance requirements. However, you might want additional policies to protect your business.

The best place to start is by obtaining General Liability Insurance. These common insurance policies cover protect basic small business needs.

In almost every state, businesses with employees must also opt for Workers’ Compensation Insurance.

Build Your Brand

Building your brand from the ground up will take time, but it will help you be perceived better by the public. If you want to stand out from the competitors, you’ll need strong brand management.

Once you begin building a brand, you can start promoting and marketing it to bring in customers. Don’t forget to create a great logo that shows what your brand is all about.

Create a Website for Your Car Dealership

If you followed one of the above steps, you should have checked for an available domain name for your business. Getting started on your website right away can help prove your legitness and find any errors before you open.

Start a Car Dealership in Your State Now

If your goal is to start a car dealership in your state, the best advice we can give is in this guide. You will have to complete your own additional research to figure out the regulations for businesses in your area.

The first place to start is with a general business plan. Once you get funding for your ideas, you can follow through with the rest of the steps.

For more helpful business advice, check out the other posts on our blog.

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