Starting your own dealership can be daunting! Buying wholesale, marking up for retail. New or used? How will you navigate auctions? Will you sell online? What are your state’s regulations?
With so many variables, having a clear, comprehensive business plan is essential. Our team of experts at Bargain Business Plan has put together 6 of their best tips for writing a dealership business plan.
Read on to make sure your dealership is registered properly, legally compliant, and well planned out.
Before You Begin
There are a few steps to complete before you’re ready to open your dealership business. Laying out your business plan is one of them, but we’ve compiled this quick list to check off.
- What will you name your business? Check if your chosen business name is available as a web domain. Then, take steps to secure it before anyone else does.
- Have you formed a legal entity? Establishing an LLC protects your personal assets and prevents you from being personally liable if your business is sued.
- Have you registered your business with the IRS? You can’t open until you’re registered for state and federal taxes. Obtaining an EIN number is free and easy!
- Have you opened a business bank account? What about a credit card? Both are essential for personal asset protection.
- Have you obtained the necessary permits and licences? Without these, you face hefty fines and may even be shut down. You can find state specific licensing information here.
- Do you have business insurance? Not only is it highly recommended, it may be a requirement in some states if you have employees.
Now you’re ready! Here are 6 tips for your dealership business plan!
A well-laid plan is critical for success as a business owner. Your dealership business plan will act as a roadmap for your business and can help you navigate potential “detours.”
Consider the costs involved in opening a car dealership
Most states have strict rules and regulations for car dealerships. And meeting all these demands can be expensive! To list, you’ll need a surety bond, business experience and proper licencing to be competitive in the industry.
A surety bond is usually required before an auto dealer can get a state dealer’s licence. Surety bonds are a kind of insurance, which work to protect the state and consumers from auto fraud. You can file a bond with the DMV of your state of residence, which will allow you to sell vehicles within that state.
Depending on what kind of dealership you’re interested in, there are several bonds you may need. Here is a general list:
- Wholesale Car Dealer
- Used Car Dealer
- Department of Motor Vehicle
- Recreational Vehicle
- Motorcycle Dealer
You’ll have to pay a bond premium unique to your situation. This can make it difficult to estimate the exact costs of starting a dealership. Generally, prices are based on:
- Your credit score and financial credentials
- If you choose to finance the premium
- The dollar amount of the bond you need
Aside from bond premiums, you will need to pay licensing fees. License requirements vary depending on the state and county you intend to open your dealership in.
Categories of dealer licences for most states include:
- New car dealer
- Wholesale licencing
- Used car retail dealer
- Reconditioned licensing
- Rebuild licensing
2. Consider the ongoing expenses
Depending on what kind of dealership you plan to open (New, Used, RV, Motorcycle, etc.) dealer costs vary a lot. This all depends on what kind of insurances and specific bonds you need. It also varies by state!
It’s entirely possible to run a dealership for several thousand a year. Or, for a franchise operation, operating costs can run upwards of $14 million.
Detailing this information in your dealership business plan will you prepare for ongoing expenses, monthly overhead, and forecast your cost potential.
3. Establish your target market
We’re all familiar with local advertising from car dealerships. They range from clever to pretty cheesy.
Despite all those commercials, you might be surprised to know that most business is generated by referrals. Word of mouth through family, friends, and neighbors creates your “target market” as a dealership. Establishing a great customer service model is key.
You should also decide if you’re going to cater to customers with good or bad credit. Will you offer in-house financing? How will you help customers apply for outsourced loans?
Good credit customers usually have the ability to qualify for vehicle loans. This means you don’t have to provide in-house financing.
Some dealerships specialize in selling to customers with poor credit. They offer “buy here, pay here” plans that allow individuals with poor credit to buy cars.
4. Determine your predicted revenue and profits
It’s simple. Dealerships make money by completing routine maintenance on sold vehicles and by selling above dealer invoice prices. Commision is usually bundled into the sales price of a vehicle for customers. Maintenance is paid by the hour or as a flat fee per service.
Similarly to operating costs, your profit is entirely dependent on your wholesale pricing and the cost of your inventory. Additional factors include the cost of overhead, bonds and insurance. You should expect to make between 2- 3% of the sticker price on vehicles you sell.
5. Decide how much you’ll charge your customers
Most dealers base their prices on MSRP or manufacturer’s suggested retail price. However, it isn’t uncommon to discount a vehicle to entice buyers.
Dealers can get incentives from manufacturers to discount to dealer invoice price. Consumers rarely see the cost/profit for manufacturers, so pricing isn’t transparent.
6. How can you make your dealership more profitable?
Do some research. It isn’t easy making a dealership a profitable venture.
Determine what the market in your area is. If you live somewhere mainly rural, it may not be a good idea to invest your money in luxury inventory.
Specialising is a great way to increase your profits. Look into Honda and similar makers. Additionally, find ways to make your customer service exemplary. Good customer service goes a long way in getting you repeat business and referrals.
To Sum Everything Up
The steps typically taken to start a dealership are:
- Get a surety bond in accordance with your state’s specifications. Usually based on your intended type of dealership.
- Purchase liability insurance for your vehicles (inventory).
- Obtain an EIN (sales tax number).
- Get your business’s location established.
- Be sure your dealership’s signage meets your state’s location and signage type regulations.
- Pay any state and city specific fees.
- Obtain dealer’s tags from your county courthouse.
- If you plan on being a salesperson within your business, obtain a license to sell vehicles.
- Write a professional dealership business plan!
Get your Dealership Off to a Great Start with a Professional
The New-Vehicle Industry was worth more than 1 trillion dollars last year. That’s a game that a lot of people want a piece of!
At Bargain Business, we know the value of a well-planned business model. We also have the skill to put your model to paper in a way that will attract investors and interest customers.
Our goal is to keep your business successful in the long-term. If you’re ready to launch your car dealership, contact us today!