How to Start a Car Dealership Business in 4 Steps
Like other businesses, the automotive industry took a massive blow to its sales and income due to the COVID-19 pandemic. 2020's sales were down by 0.3 percent (from 14.8 to 14.5 million vehicles), according to a report from CNBC. Despite the drop in sales, automotive analysts and executives are still optimistic that American vehicle sales will regain a sense of normalcy in 2021 and eventually, strong consumer demand will happen.
So if you're thinking about venturing into the car dealership business, now would be a good time to do so.
Plan for your car dealership business today withyour checklist.
STEP ONE: Plan Your Business
A clear plan is the first step in any business venture. This maps out the specifics of your car dealership, as well as helps you discover some unknown variables.
During the planning phase of your business, consider answering the following:
Who is your target market?
What are the potential ongoing costs?
What will your business name be?
How much can you charge customers?
Here are some answers to the questions above:
In terms of costs involved in opening a car dealership, you'll need proper licensing, surety bonds, and business experience to succeed in the industry. Automotive dealers must file a surety bond new york with their state's Department of Motor Vehicles (DMV) to get their auto dealer license, which enables them to sell vehicles in their state.
These are the type of bonds you may need, depending on the type of dealership you want to run:
RV bonds
DMV bonds
Wholesale car dealer bonds
Used car dealer bonds
Motorcycle dealer bonds
The amount of the required bond can vary based on state requirements. For instance, in Texas, you must secure a $50,000 Motor Vehicle Surety Bond for dealers. In Idaho, is $40,000 for wholesale dealers and $20,000 for retail dealers.
Who is your target market?
Family, friends, neighbors and members of the community are often the "target market" of a dealership. Maybe you want to focus on businesses meeting COVID-19 requirements, from car disinfection to installation ofan acrylic shield for car use.
Credit standing, however, is crucial in narrowing down your target audience. Dealerships often have a difficult time selling to people with poor credit, but if you want to specialize in hard money loans, you can accommodate more customers.
STEP TWO: Form a Legal Entity
The most common business structure types are limited liability company (LLC), partnership, sole proprietorship and corporation. Establishing a legal business entity such as a corporation or an LLC protects you from being held liable if your car dealership faces a lawsuit.
You can start an LLC yourself and pay the minimal state costs or hire an LLC service for an additional fee.
If the entity is being formed as a partnership, it needs a formalized and signed operating agreement. This agreement spells out ownership percentages, what happens if a member dies, who are the managing partners, how the company valuation is calculated, and how ownership interests might be sold or transferred. For this, a car dealership lawyer is essential. No matter how close you are with your partner, things can always go sideways and your interest needs to be protected with formalized rules.
STEP THREE: Register Your Taxes
Register for different federal and state taxes before you open your dealership. Start by applying for an Employer Identification Number (EIN) from the IRS. You can get the EIN for FREE through the IRS website via mail, or by fax.
Also, the business structure that you use determines how your business will be taxed. There are also specific state taxes that may apply to your business so learn about them first.
STEP FOUR: Set Up the Accounting and Obtain the Necessary Permits
Accounting is critical in recording your sources of income. It helps you understand the financial performance of your business. So keep your finances organized by maintaining detailed and accurate accounts. This will also simplify your annual tax filing.
Also, don't forget your licenses and permits. Failure to acquire the necessary permits may result in hefty fines or the closure of your business.
OTHER CAR DEALERSHIP FAQs
How does a typical day at a car dealership?
Daily activities at car dealerships include negotiating deals, checking invoices, talking to customers and managing a workforce. Car dealerships practice a strong sales culture so interpersonal communication skills are important.
What are the skills and experiences needed to build a successful car dealership?
While there are no special skills required by the state, business owners must possess practical skills demanded by the industry. First, they need to have a strong sales background, as well as good management skills. Some car dealers have worked as a mechanic in the past, which gives them a better understanding of the service side of the dealership.
What is your car dealership's potential?
Small dealerships are often used car dealerships. These dealership types often buy used vehicles at auctions and increase the car's prices to sell to consumers. This business is highly profitable and does not require a lot of inventory or overhead.
A college diploma or what degree you earn in high school can help you start a business, but the factors mentioned above are crucial to starting a successful car dealership. By following the suggestions above, you can establish a car dealership despite today's trying economy. Good luck!