A car dealership is one of the costliest business ventures to start. It is a business that requires a substantial volume of capital, with a high-risk level. But, if you are deeply passionate about automobiles, then, it is an ideal business for you to venture into. Typically, the cost of starting a car dealership is between 1 million dollars to 10 million dollars. This cost varies based on the type of car dealership, the size of the dealership (the number of cars you intend to start with), your location, specific bonds, and insurance cost. This cost covers the car purchasing cost, physical amenities, business registration, property, and inventory. This article (and video) explains in detail what you need to start a car dealership and how much to budget specifically for when starting a car dealership. This is because it is safer to properly plan and budget before setting out to start a car dealership to prevent unnecessary last-minute surprises.
How Do I Start a Car Dealership?
- Perform a comprehensive market research.
- Plan your business and identify your niche.
- Identify the type of car dealership you want to venture in.
- Have an entrepreneur mindset.
- Form a legal entity.
- Build an inventory.
- Study car dealership regulations.
- Register your business.
- Obtain appropriate permits and licenses.
- Register for taxes.
- Get business insurance.
- Get the appropriate licensing and permits.
- Choose a centralized location for your business.
- Open a business bank account & credit card.
- Set up a proper business accounting.
- Set up buying policies.
- Define your brand.
- You might also need to have an online presence.
What are the Types of Dealerships?
There are 2 types of car dealership and they are:
- The first type of dealership is used cars dealership: This is quite affordable to set up, it can be run on a smaller scale, even from your home. You buy used cars at an advantageous price and then you re-sell at a good price with a promising profit. Also, you need to locate your car dealership in a location where your target customers can easily access. This type of car dealership is not limited to one automobile brand.
- The second type of car dealership is a new car dealership franchise: It is an expensive type of dealership to set up, and it is to be operated on a large scale. This type of car dealership is known as franchised dealerships.
Before a dealer can sell a particular brand of car, the manufacturer of the automobile will have to offer a franchise opportunity to the proposed car dealer. Some examples of these automobile manufactures include Toyota, Ford, Tesla, etc. This type of car dealership can be limited because some manufacturers’ regulations and policies do not permit a car dealer to sell other manufacturers’ brands.
Startup Cost for a Car Dealership
Before venturing into any business, you need to properly budget for your startup expenses. These costs will vary from country to country and location. Some startup cost includes:
- Beginning Inventory Acquisition: This cost is the largest cost involved in a car dealership. This cost depends on the type of car brands you intend to sell. This cost usually ranges from $30,000 dollars to $100,000 dollars.
- Business Registration and License Fees: This involves forming your business entity, which could either be a partnership, LLC, or corporation. After this, you are to apply for a business license. Typically, this costs about $750.
- Business Insurance: You need to get necessary insurance for your car dealership to protect your business. Each state has its own licensing peculiarities and pricing. So, you need to find out the cost of licensing in your state. It ranges from $50,000 dollars to $150,000 dollars.
- Dealers License Fees: This license authorizes you to sell a particular type of automobile in your country/state. Typically, this cost ranges between $100 dollars to $500 dollars based on your state`s fee.
- Auto Dealer Bond: This is an important part of a licensing process. It is known as a surety bond. It is used to provide safety for your consumers and their interests. There are 2 factors that determine the cost of an auto dealer bond, it includes the bond amount you want to purchase and the applicant’s credit score and statement of account. A $25,000 surety bond, whose applicant has an incredibly good credit score, his/her payment will range from $250 to $750 dollars.
- Office materials such as paper, pen, stapling machine, etc., will cost between $500 to $1,000 dollars, and equipment such as phones, computers, fax machines, printers, etc., costs about $4,000.
Running or Operational Costs
- Location and rental fees for displaying automobiles and business offices in a good and centralized location: It is not compulsory to have a commercial office or “car lot” because there are some brand dealers that allow car dealers to operate their car dealership business from a residence. For rental properties, on an average it costs between $0.40 cents to $4.00 per square footage. But this cost is not constant because it varies from state to state, and location too.
- Payment of salaries of employees, and bills: This cost depends on the number of employees you have, and the type of bills you incur monthly. Typically, a car dealer will have to hire a sales associate, accountant, mechanic, salesperson, bookkeeper and more importantly an accountant to effectively run the business. You can budget about $60,000 dollars to cater for this cost for the first 3 months of running your business.
- Advertising: It is important to create appropriate brand awareness for your car dealership. You can advertise your products using different media such as social media, billboards, newspapers, etc. This should cost about $1000 dollars monthly.
- Miscellaneous: furniture, internet, website, etc., cost about $1,000 to $10,000 depending on various factors.
Need help determining how much funding you need to start your car dealership? Contact the business planning and funding experts at www.QTBizSolutions.com.