Starting a used car business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn how to start a used car dealership successfully.
Importantly, a critical step in starting a used car dealership business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Used Car Dealership Business Plan Template here.
Download our Ultimate Used Car Dealership Business Plan Template here
The first step to starting a used car business 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 own dealership:
One of the most important steps in going into business as a used car dealer is to develop your used 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 used 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:
Finish Your Business Plan Today!
If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Used Car Dealership Business Plan Template and complete your plan and financial model in hours.
Next you need to choose a legal structure for your used car business and register it and your business name with the Secretary of State in each state where you operate your dealership.
Below are the five most common legal structures:
A sole proprietorship is a business entity in which the owner of the used car business 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.
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 used car business 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.
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 used car business 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.
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 used car business 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.
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 used car business, 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.
In developing your used car dealership business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a used car business 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 used car business that they believe has high potential for growth.
Having the right physical location can be important for your used car business is important. You will need enough lot space to showcase your inventory, as well as office space for your team. Finding a location that will bring in customers is also key.
To find the right space, consider:
Next, you need complete business registration 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.
Finish Your Business Plan Today!
If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Used Car Dealership Business Plan Template and complete your plan and financial model in hours.
It is important to establish a bank account in your business name. This process is fairly simple and involves the following steps:
You should get a business credit card for your used car business 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 good credit which could be very important in securing loans and getting credit lines for your business in the future.
Every state, county and city has different business license and permit requirements.
Nearly all states, counties and/or cities have license requirements including:
Depending on where you launch your used car business, you will have to obtain the necessary state, county and/or city licenses.
Business insurance policies that you should consider for your used car business include:
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Used Car Dealership Business Plan Template and complete your business plan and financial model in hours.
The most common way to build inventory for a used business is to attend auctions where used cars are being sold. Just register with your local auction houses to receive notifications when new auctions are happening.
You can also find used cars for sale through online classifieds and social media. Just be sure to research the vehicles and their value, including how much you could make from selling them, before you buy.
A used car business needs a lot of equipment in order to run successfully. Some of the most important pieces of equipment are computers, printers, and a fax machine. It’s also helpful to have a cash register, as well as racks or shelves to store the cars. Be sure to also have a phone system able to handle multiple calls.
Additionally, you might need office furniture and supplies for your team, as well as reception furniture for your customers. Many used car dealers offer vending areas or free refreshments such as coffee to waiting customers.
Marketing materials will be required to attract and retain customers to your used car business.
The key marketing materials you will need are as follows:
A used car business needs software that can help them manage their inventory, track sales and purchases, and manage customer information. Some popular software options for used car businesses include Microsoft Dynamics GP, QuickBooks, and CarLotz Manager.
Your used car business will need employees who can sell inventory, help your customers with financing, and service vehicles.
The sales team should be knowledgeable about cars and able to provide excellent customer service. They will be responsible for helping customers find the right car for their needs and negotiating a fair price.
A good finance team should be able to work with different lenders to secure financing options for customers. They will also need to be able to explain the different warranty and protection plans available.
Your service technicians should be Automatic Service Excellence (ASE) certified and able to perform basic maintenance and repairs on the cars in your inventory.
To find the right candidates, consider posting job openings in local newspapers or online. You might also reach out to existing connections.
You are now ready to open your used car business. 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.
Don’t you wish there was a faster, easier way to finish your business plan?
With Growthink’s Ultimate Used Car Dealership Business Plan Template you can finish your plan in just 8 hours or less!
Click here to finish your business plan today.
The answer is both yes and no. It all depends on how you approach it and what your goals are.
If you're just looking to make a quick buck, then yes, it can be quite difficult. There's a lot of competition out there and you need to be able to stand out from the crowd. However, if you're serious about starting a used car business and you're willing to put in the work, then it can be a very successful venture. Your biggest challenges to begin will most likely be building your inventory and securing a location. Following the steps outlined above will help you get started.
The first step is to do industry and market research. Learn about the different aspects of the business, such as the types of cars that are in demand, how other used car dealerships are setting their prices, and how much you will need to spend on inventory, licensing, employee salaries, and other costs before you start making money. Finding an experienced mentor in the used car industry could also help you gain some helpful insights.
The most profitable type of used car business will vary depending on your location, target market, and other factors. However, some tips to help you choose a profitable niche include focusing on a specific type of vehicle (such as luxury cars or SUVs), targeting a particular price range, specializing in just one brand, or catering to a specific customer base (such as first-time buyers or experienced collectors).
The cost of starting a used car business will depend on a number of factors, such as the size and location of your dealership, the number of vehicles you plan to stock, and whether you intend to hire any staff. However, you can expect to spend at least several thousand dollars on inventory and several hundred dollars on licensing and permits. Additionally, you'll need to factor in the cost of leasing or purchasing a property for your dealership, as well as any advertising and marketing expenses.
Key costs to keep in mind include:
Ongoing expenses for a used car business include the cost of maintaining inventory, such as paying for storage, repairs, and cleaning; the cost of staffing (if you choose to hire employees); and the cost of marketing and advertising. You will also need to factor in the cost of property taxes and insurance for your dealership.
Key ongoing expenses to keep in mind include:
Purchases are the greatest expense for a car dealership owner and account for over 84% of revenue. In addition to purchasing used cars at auction and from customer trade-ins, used car dealers must also repair and recondition these vehicles.
Wages are also a major expense, but increased automation with regard to inventory management and online cataloging has resulted in minimal wage growth.
Marketing costs can be significant for a successful car dealership. According to the National Independent Auto Dealers Association, car dealers spend 33.6% of their marketing budget on internet advertising.
A used car business makes money by selling vehicles for more than the cost of acquiring and maintaining the inventory. The profit margin on each sale will vary depending on the make and model of the vehicle, as well as market conditions. Some used car dealerships also make money from offering vehicle services and repairs.
Yes, owning a used car business can be profitable. However, the amount of profit you make will depend on a number of factors, such as your inventory, overhead costs, and selling prices.
Additionally, the profitability of your business may fluctuate from month to month or year to year depending on changes in the market. Navigating these fluctuations is key to making money for used car dealership owners.
There are a number of reasons why used car businesses fail. Some common causes of failure include poor planning, inadequate capital, overspending on inventory, and failing to adapt to changes in the market. Additionally, many used car dealerships are unsuccessful due to competition from larger businesses or because they are unable to generate enough sales to cover their expenses.
IBISWorld reports the Used Car Dealership industry has had a net decline over the past five years, due to the Coronavirus, at an average annual rate of -1.6%. Next year, the industry’s 129,553 businesses are forecast to see $99.1 billion in collective revenue.
Used cars account for over half of industry revenue. This excludes vans, minivans, and trucks.
The remainder of industry revenue is generated from other used vehicles, parts and repair services, and financing and insurance.
A number of factors affect the performance of the Used Car Dealership industry. These drivers include:
The Used Car Dealers industry is highly fragmented, with nonemploying dealerships representing more than 80.0% of establishments. As a result, the industry exhibits a low level of market share concentration, with the four largest operators accounting for an estimated 19.3% of industry revenue. In fact, just one company holds significant market share in the Used Car Dealership: CarMax, with a 17.9% marketshare leads the industry, while America’s CarMart, Carvana Co., and Enterprise Car Sales each command just a fraction of the market.
The largest customer segment (37.5%) in the used car dealer industry is consumers who have prime credit scores. Other segments include Subprime, Nonprime, Super prime, and Deep subprime customers.
You can download our used car dealership business plan PDF template here. This is a business plan template you can use in PDF format.