How to Start a Car Dealership

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• How To Start a Car Dealership
• How To Start a Car Dealership FAQs
• Helpful Slideshows, Videos & Images
• Additional Resources in the Car Dealership Industry

 

How To Start a Car Dealership

Starting a car dealership can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful car dealership.

Importantly the most important step in starting a car dealership is to complete your business plan. To help you out, you should download Growthink’s Ultimate Car Dealership Business Plan Template here.

Download our Ultimate Car Dealership Business Plan Template here

How to Open a Car Dealership in 17 Steps

1. Decide Which Type of Car Dealership To Open
2. Choose the Name for Your Car Dealership
3. Develop Your Car Dealership Business Plan
4. Choose the Legal Structure for Your Car Dealership
5. Secure Startup Funding for Your Car Dealership (If Needed)
6. Secure a Location for Your Business
7. Register Your Car Dealership With the IRS
8. Open a Business Bank Account
9. Get a Business Credit Card
10. Get the Required Business Licenses and Permits
11. Get Business Insurance for Your Car Dealership
12. Buy or Lease the Right Car Dealership Business Equipment
13. Develop Your Car Dealership Marketing Materials
14. Purchase and Setup the Software Needed to Run Your Car Dealership
15. Get Inventory
16. Hire a Team
17. Open for Business

1. Decide Which Type of Car Dealership To Open

The first step in starting a car dealership is deciding whether to open an independent dealership or become part of a franchise.

An independent dealership will allow you to sell a wider range of vehicles since you won’t be signing any contracts with specific automakers. You will also have more flexibility in pricing your inventory since you don’t have to meet manufacturer requirements. On the downside, you won’t have access to special financing options that come directly through automakers, such as Ford Credit, for your customers and will be responsible for coming up with all your own marketing, branding, and other business materials.

A franchise will limit the brand of cars you can sell and you will have to meet specific franchise requirements and pay fees to join. You will, however, be able to offer your customers more financing options through the automakers and have the backing of a larger brand to help guide you.

Make sure to research both options completely to determine which is best for you. Also, remember that joining a franchise may influence what you can do in the following steps when it comes to marketing and other business decisions.

If you are looking to start a used car dealership, you can learn how to start a used car dealership.

2. Choose the Name for Your Car Dealership

The first step to starting a car dealership is to choose your business’ name.

This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your car dealership:

1. Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check
   to see if a suitable domain name is available.
2. Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
3. Think about marketing. Come up with a name that reflects the desired brand and/or focus of your car dealership.

3. Develop Your Car Dealership Business Plan

One of the most important steps in starting a car dealership is to develop your car dealership business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

To enhance your planning process, incorporating insights from a sample car dealership business plan can be beneficial. This can provide you with a clearer perspective on industry standards and effective strategies, helping to solidify your own business approach.

Your business plan should include the following sections:

1. Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your car dealership.
2. Company Overview – this section tells the reader about the history of your car dealership and what type of car dealership you operate. For example, do you only sell vehicles or do you also have a service department? Do you sell many different brands or specialize in just a few?
3. Industry Analysis – here you will document key information about the car dealership industry. Conduct market research and document how big the industry is and what trends are affecting it.
4. Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing vehicles or services like the ones you will offer?
5. Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
6. Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
• Product: Determine and document what products/services you will offer
• Prices: Document the prices of your products/services
• Place: Where will your business be located and how will that location help you increase sales?
• Promotions: What promotional methods will you use to attract customers to your car dealership? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
7. Operations Plan – here you will determine the key processes you will need to run your business operations. You will also determine your staffing needs. Finally, in this
   section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
8. Management Team – this section details the background of your company’s management team.
9. Financial Plan – finally, the financial plan answers questions including the following:
• What startup costs will you incur?
• How will your car dealership make money?
• What are your projected sales and expenses for the next five years?
• Do you need to raise funding to launch your business?

Finish Your Business Plan Today!

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Car Dealership Business Plan Template and complete your plan and financial model in hours.

4. Choose the Legal Structure for Your Car Dealership

Next you need to choose a legal structure for your car dealership and register it and your business name with the Secretary of State in each state where you operate your business.

Below are the five most common legal structures:

1) Sole Proprietorship

A sole proprietorship is a business entity in which the owner of the car dealership and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a car dealership together. The partners share in the profits and losses of the business.

The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a car dealership include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a car dealership is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.

Once you register your car dealership, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

5. Secure Startup Funding for Your Car Dealership (If Needed)

In developing your car dealership plan, you might have determined that you need to raise funding to launch your business.

If so, the main sources of funding for a car dealership to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a car dealership that they believe has high potential for growth.

6. Secure a Location for Your Business

A big step in opening your own car dealership is finding the perfect location for your business. The ideal spot will be visible from the road, have plenty of parking for customers and your inventory, and be in a high-traffic area. Make sure there is enough space to include a reception area, office spaces, and a service department if you plan to add one.

To find the right space, consider:

• Driving around to find the right areas while looking for “for lease” signs
• Contacting a commercial real estate agent
• Doing commercial real estate searches online
• Telling others about your needs and seeing if someone in your network has a connection that can help you find the right space

7. Register Your Car Dealership With the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.

8. Open a Business Bank Account

It is important to establish a bank account in your car dealership’s name. This process is fairly simple and involves the following steps:

1. Identify and contact the bank you want to use
2. Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
3. Complete the bank’s application form and provide all relevant information
4. Meet with a banker to discuss your business needs and establish a relationship with them

9. Get a Business Credit Card

You should get a business credit card for your car dealership to help you separate personal and business expenses.

You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.

10. Get the Required Business Licenses and Permits

Every state, county and city has different business license and permit requirements.

Nearly all states, counties and/or cities have license requirements including:

• General Business License – You will need to obtain a general business license in order to operate your dealership. This can be done through the Secretary of State’s office in your state.
• Sales Tax License – In order to collect sales tax on the vehicles you sell, you will need to obtain a sales tax license from your state’s tax collecting agency.
• Franchise License – If you wish to sell vehicles from a particular manufacturer as part of a franchise agreement, you will need to obtain a franchise license from that manufacturer.
• New Vehicle Dealer’s License – In order to sell new vehicles, you will need to obtain a new vehicle dealer license from your state’s motor vehicle department.
• Used Vehicle Dealer’s License – In order to sell new vehicles, you will need to obtain a new vehicle dealer license from your state’s motor vehicle department.

Depending on where you operate your car dealership, you will have to obtain the necessary state, county and/or city licenses.

11. Get Business Insurance for Your Car Dealership

Some common types of insurance to consider include:

• General Liability Insurance – This will protect your dealership from any third-party claims of bodily injury or property damage.
• Commercial Property Insurance – Commercial property insurance protects your dealership’s building, as well as any contents inside of it.
• Business Interruption Insurance – his insurance protects your dealership in the event that it is unable to operate due to a covered event, such as a fire.
• Workers’ Compensation Insurance – If you have employees, you will need this type of insurance to protect them in case of a work-related injury or illness.
• Dealer’s Open Lot Insurance – This type of policy will protect any vehicles that are on your dealership’s property.
• Garage Keeper’s Insurance – If you offer any type of repair or maintenance service, you will need this insurance to protect against any damage that may occur to a customer’s vehicle while it is in your care.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.

12. Buy or Lease the Right Car Dealership Business Equipment

A car dealership needs some basic office equipment to operate, including computers, printers, phones, fax machines, and general office supplies. You should also plan to have some reception furniture and a break area for your employees. Some car dealerships also offer customers vending areas or free refreshments.

If you plan to offer vehicle services, you will also need to buy a range of mechanic tools and stock your service bays with diagnostic tools, car lifts, and any other equipment needed to service your customer’s vehicles.

13. Develop Your Car Dealership Marketing Materials

Marketing materials will be required to attract and retain customers to your car dealership.

The key marketing materials you will need are as follows:

1. Logo – Spend some time developing a good logo for your car dealership. Your logo will be printed on company stationery, business cards, marketing materials, and may even
   be seen when users load your products. The right logo can increase customer trust and awareness of your brand.
2. Website – Likewise, a professional car dealership website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you. If you plan to showcase your inventory online, you will need to update your website regularly.
3. Social Media Accounts – Establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your car dealership. Social media platforms are also great places to run promotions and advertise new vehicles.

14. Purchase and Setup the Software Needed to Run Your Car Dealership

Car dealerships need software to manage their inventory, customers, and finances. Some common software programs used in car dealerships include AutoTrader, Microsoft Dynamics AX, and Salesforce.

Research the software that best suits your needs, purchase it, and set it up.

15. Get Inventory

Next, you need to make sure you have cars to sell. If you are part of a franchise, you may already have a system set up with your franchisee and certain requirements for the vehicles you need to order. If you are an independent car dealership, you can start collecting inventory by going to auctions and contacting private sellers.

16. Hire Employees

A good car dealership requires a good team to run it. You will need salespeople to sell the cars, managers to keep track of inventory and finances, and mechanics to keep the cars in top condition. Hiring the right employees is essential to the success of your dealership.

To find candidates, post ads on online job boards and in local newspapers. You can also reach out to automotive schools and ask them to recommend graduates who might be a good fit for your business.

When interviewing candidates, be sure to ask about their experience in the automotive industry and their customer service skills. You should also give them a sales test to see how they would do in a real-world selling situation.

17. Open for Business

You are now ready to open your own dealership. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you with how to start a car business.

 

 

 

How To Start a Car Dealership FAQs

 

Additional Resources in the Car Dealership Industry

For additional information on the car dealership market, consider these industry resources:

• Detroit Free Pres: www.freep.com
• Edmunds.com: www.edmunds.com
• National Automobile Dealers Association: www.nada.org