Opening a small business car dealership involves more than just putting some cars in a lot and slapping For Sale signs on the windshields. Before you actually commit to it, you need to formulate a business plan that determines if the actual feasibility of this effort is even worth it. In that planning, you’ll need to also decide whether or not to focus on new or used cars. You might even choose to sell both, although that can make your business more complicated. Once you’ve done that, knowing the keys to starting a car dealership as a small business can pave the way to your financial future.
Table of Contents
1. Arrange Your Financing
Your initial business costs are likely to include:
- A business license
- Buying or renting a lot and office for your dealership
- Purchasing an inventory of vehicles
- Paying staff until you have enough revenue coming in
To cover all that, you need enough money before your dealership is bringing in enough revenue. You’ll usually have three options for financing:
- Self-Financing: If you have enough money of your own, you might be able to pour it all into your business without taking on any debt or involving other investors. The risk is all yours, but then again, so is all the reward.
- Bringing Investors Onboard: If you don’t have enough money by yourself, an investor might join you to help finance the business. That can mean the opportunity to actually get your dream off the ground, but it also means splitting the profits and potentially even the control.
- Taking Out Loans: Going into debt to finance a business can be a risky move. It might give you the chance to get started, but if the business fails, then you’ll be personally responsible for paying back the money that you borrow. Your personal credit score and rating can take a huge hit if things go south.
2. Picking a Location
Choosing where your car dealership is going to be is one of the biggest individual decisions you will make, and you need to consider the following factors:
- Visibility: Corner lots might not always be possible, but they do tend to get the most attention. However, they might also cost more.
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- Convenience: Your location needs to be convenient for customers to get in and out of. The easier it is for them to visit, the more of them will do it.
- Parking: The more cars you can put on your lot, the more you can sell. Empty spaces might look bad, but you also need them for employees and visiting customers.
- Zoning: Not all lots are allowed to be car dealerships, and even if they are, you might need permission before making physical changes.
3. Fill Your Inventory
Even if your initial allotment of vehicles isn’t exactly what you want, you need some kind of volume to fill your lot until you can start getting the makes and models you actually want. Fortunately, according to Chron, there are many places to get cars, trucks, vans, and SUVs from:
- Talk to professional colleagues, friends, and family who might have vehicles they’d like to sell.
- Contact vehicle owners listing sales in local publications or online.
- Go to auctions to buy vehicles being sold off.
Keep in mind that with every vehicle you buy, there will be more than just the sales price to pay. There will also be tag and title fees. You might also have to determine how much it will be for car shipping cost if you have vehicles brought in from outside your area.
4. Proper Dealer Licensing
Specific rules for car dealerships vary from one state to the next, but most require a vehicle dealer’s license in order to operate. This is often done through the state government’s motor vehicle administration. You’ll probably have to meet specific criteria in terms of your building size, location, operating hours, and signage.
You might also need to post a surety bond, as determined by the state. Failing to do so can mean operating illegally. Also, you’ll need to familiarize yourself with regulations regarding deceptive advertising and obey any state-specific Lemon Laws regarding selling substandard vehicles.
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You also need to collect sales tax on any vehicle you sell. That means remitting those taxes per a payment schedule your state lays out. A tax permit is necessary before you start doing business.
Of course, this all starts with filing your business structure and license to start with. The particular structure you organize as this will determine your tax structure and liability protections.
5. Hiring Staff
The size and scope of your staff will vary based on your unique operation. However, there are three crucial positions you might need to fill:
- Sales Professionals: A truly small business might be just you handling everything, including sales, but a lot with enough vehicles might have several sales reps working in rotations.
- Receptionist: Whether it’s just a small trailer or an actual brick-and-mortar structure, your small business car dealership is likely to have an office. Someone needs to be there to greet customers, vendors, and others who visit, email, or call.
- Mechanic: Having someone on your own staff who can fix up and verify the condition of vehicles gives you the peace of mind that you’re not selling lemons.
There may be other roles to fill as well, such as financing and marketing experts. It is possible that a highly trained receptionist can handle some financing and marketing roles, or that you may be able to fill those roles as the chief CEO of the company.
Drive Your Way to Success
Once you’ve decided between new or used vehicles, arranged the financing you need for both your lot and your inventory, chosen your location, filled it with potential sales, met all the regulatory requirements, and hired your staff, then it’s time to actually open. Craft a thorough marketing plan to bring customers in and keep them coming back and refer their friends and families to your establishment. Then, plan your grand opening ceremony and enjoy the fruits of your labor.