How To Start A Car Dealership Business?

If you have a passion for automobiles then a car dealership business will be a perfect business idea for you. You must have a clear plan for the business then you have to identify your market and target the customer. Moreover, you have to form a legal entity for your car dealership business. Other steps are opening a bank account, registering for tax, obtaining necessary permits and licenses, and getting insurance for your business.

Key Takeaways

• A car dealership business requires a surety bond, proper licensing, and business experience to compete with other owners
• You will need a license to start a car dealership business and depending on the state where you live the requirements can vary
• You must check your state’s business records before registering a business name for your business
• If you want to open a car dealership business then you must have a business bank account and credit card

7 Steps To Start A Car Dealership Business

1. Plan the Business

2. From a Legal Entity

3. Register for Taxes

4. Open a Business Bank Account & Credit Card

5. Obtain Necessary Permits and Licenses

6. Get Business Insurance

7. Legal Provisions

Step 1: Plan The Business

A competitive business plan will help you get to market faster. Moreover, a business plan will help you gain clarity, focus, and confidence. It will make sure your business becomes successful. There are many ways you can compile a business plan. It’s not necessary to make a huge business plan. You can start planning a part of the business at a time. You can start with writing down the business goals first, then you can write down the strategies and action steps and your business plan become real. There are few questions that will help you make an actionable business plan –

1. What are the costs of this business?

2. Who is your customer?

3. How much you can charge your customer?

4. What will you name your business?

5. What are my objectives, strategies, and action plans?

A car dealership business requires a surety bond, proper licensing, and business experience to compete with other owners. There are different types of bonds available and depending on your car dealership business you may require:

1. DMV bonds

2. Used car dealer bonds

3. Wholesale car dealer bonds

4. RV bonds

5. Motorcycle dealer bonds

You also need a license to start a car dealership business. What type of license you need depends on the state where you want to open the business. There are several categories of dealer licenses available for different states. They are:

1. New car dealer

2. Used car dealer (retailers)

3. Wholesaler licensing

4. Rebuilder licensing

5. Reconditioner licensing

The cost to open a car dealership business depends on what type of dealership, bonds, and insurance are needed to open the business. It might require several thousand dollars per year to operate a car dealership business.

You also have to pick a business name for your car dealership business. This is a very important part of a business because choosing a unique business name can boost the growth of your business. While registering a business name makes sure you check the below things:

1. State’s business records

2. Federal and state trademark records

3. Social media platforms

4. Web domain availability

Step 2: From A Legal Entity

There are different types of business structures available. The most common structure types are:

1. Sole proprietorship

2. Partnership

3. Limited liability Company (LLC)

4. Corporation

If you create a legal business entity like LLC or corporation then they will protect you from being held personally liable if your car dealership is issued. You can easily start an LLC by paying the minimal state LLC costs or hire a Business Formation Service for a small additional fee.

Step 3: Register For Taxes

Once you form your business structure/legal entity then you have to register for taxes. You have to register for a variety of state and federal taxes before you can open your business. In order to register for taxes, you have to apply for an EIN.

EIN stands for Employer Identification Number. It is also known as Federal Employer Identification Number (FEIN), or Federal Tax Identification Number (FTIN). It’s like a social security number for your business. It helps the government identify businesses for tax reporting. 

Step 4: Open A Business Bank Account & Credit Card

If you want to open a car dealership business then you must have a business bank account and credit card. Having a dedicated business banking and credit account is essential for personal asset protection. If you mix your personal and business accounts then your personal assets will be at risk like your home, car, etc. Getting a credit card helps you separate personal and business expenses. This is also very important because it builds your company’s credit history. Later, you can use credit history to raise money and investment later on.

Step 5: Obtain Necessary Permits And Licenses

This is a must requirement to start your car dealership business. You have to obtain your auto dealer license, without it you can’t operate your dealership business. The license fee for an auto dealer license varies depending on the state. In some states, you need to pay additional fees for dealer plates and licensed salespersons. If you want to get an auto dealer license then you have to obtain the motor vehicle dealer bond first. This bond guarantees your business’s compliance with state regulations.

Step 6: Get Business Insurance

For a business, insurance is very important. Along with licenses and permits, insurance is required to operate your business safely and lawfully. Business insurance protects your company’s financial wellbeing in case there is an accident or in the event of a covered loss. There are various types of insurance policies available for different types of businesses. If you are not sure which insurance to take then you can begin with General Liability Insurance. This is a very common coverage for small businesses. You will also need Workers’ Compensation Insurance if your business has employees. Many states in the USA require the business owner to carry Workers’ Compensation Coverage.

Step 7: Legal Provisions

You have to make sure that your car dealership business abides by the Federal Used Car Rule, as well as the Consumer Rights and Safety laws. There are used car dealership lemon laws that you also have to follow if you want to run a car dealership business. You have to provide full disclosure on all known mechanical issues with the cars your dealership sells as well as the full and limited warranties that you offer.

References:

1. https://www.startingbusiness.com/blog/start-business-car-dealership
2. https://articles.bplans.com/5-things-to-consider-when-opening-a-car-dealership/

Last Updated on November 2, 2022 by Magalie D.