5 Things to Consider Before Opening a Dealership

Although not for everyone, opening and running a car dealership is a viable option for individuals who love cars and have a good sense of business. This can be especially true if you have been a sales manager or salesperson and already have a working knowledge of the car business. As an owner of a dealership, you will have some schedule flexibility, but you can expect to invest a good deal of time setting up the business and eventually running it on a day-to-day basis. 

Daily management of a car dealership will consist of invoicing, negotiating, coaching sales staff, and talking face-to-face with customers. This type of regimen calls for someone who can multitask and has excellent interpersonal and communication skills. The following are five things you should investigate and consider before taking the step to open a car dealership.

Know your customer sase

Your primary target base will be the local community made up of friends, family and sales referrals. A good customer will have fair to good credit in order to be able to finance their purchase. Individuals with poor credit are challenging for dealerships, but some will accept on-lot financing, allowing individuals to purchase and pay for the vehicle at the dealership without relying on a lender. It is also important to understand the demographics of the area where your dealership is located. Is the population younger, baby boomers or retirees? Is the dealership located in a working-class area or more affluent neighborhood? Answers to questions such as these will help to shape the sales outreach philosophy and strategies.

Understand the financials

Dealerships make money by acquiring cars at a wholesale price and selling them above that cost. The other revenue stream is from the service that the dealership will perform on the cars it sells. Early considerations when opening a dealership will be to calculate the initial costs, know your market value, and how long before you can break even on your initial investment. 

The source of your inventory is extremely important. Some dealerships contract with a particular manufacturer for new cars, however, the used car market must be addressed. An online car auction can be an excellent source for adding used vehicles to the inventory of a car dealership.

Plan your business startup

You need to consider what the name of your business will be. Once you have decided upon a name, do an internet search to see if the name is available as a web domain. This can impact what you decide to name the dealership. Secure the web domain name as soon as possible. It can significantly impact your marketing approach.

Form a legal business, such as an LLC. This is very important to do upfront. It will provide liability protection in situations such as protecting you if an employee gets sued. You should also be covered in the event that a potential customer crashes one of your cars during a test drive. This is especially true within the state of California as it has some of the strictest liability laws found in the nation. Consulting with an attorney or even a California auto accident lawyer would be a safe bet to ensure you are protected and covered in the case of such accidents.

You should also obtain the licenses and permits that are required by your region and state. Failure to do this can result in substantial fines or possibly prohibit the dealership from operating.

Open a business bank account and organize your accounts such that you can easily keep track of your profits and losses. This will include opening different accounts for different purposes such as a payroll account or even a general account. Set up your business accounting structure. You will need to track expenses and income to monitor the financial performance of the company and its tax implications.

Establish a web presence

This must be part of your overall sales and marketing strategy. Establishing a strong brand is important to how the public perceives your company. This will allow customers to learn about your dealership, your car inventory, and other services and promotions you offer. Social media should also be incorporated into your web marketing strategy.
Starting a dealership may be a lot of work, but this venture is definitely a rewarding one. Be sure to acquire your products from a source that still allows you to make a profit and that you are covered legally to prevent trouble down the line. One of the best resources to operate a successful business is a strong mentor, and there are local business resources to help entrepreneurs find quality mentors to help them through this venture.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.