The passion for starting your own business is something that many people can relate to. Being the boss over something you’re passionate about that helps your community is invigorating.
If you have a passion for BMWs and the desire to start and run a successful business, you should consider starting a used car dealership. Channel your passion into your full-time job and develop your skills as a business owner at the same time.
Read on to learn five essential tips for starting a used car dealership. With the right knowledge and preparation, you’ll shift into the role of a business owner without any bumps in the road.
1. Set Up Your First Steps
The first steps to starting your used car business may seem obvious, but don’t let them get overlooked. First, you’ll need to choose a location for your business. This may be where you live or in a separate city.
Look around a few areas to see what land is for sale or if there are any businesses that are closing. Compare the costs of starting with a couple of fresh acres or using an existing building.
Next, you’ll have to choose a name for your dealership. This may need to follow guidelines provided by BMW, so reach out to a corporate representative to talk further about the specifics. They may have a procedure set in place to help new dealership owners.
After you’ve chosen your dealership’s name, you’ll need to secure a domain name that will be your business’ permanent web address. Be aware that there are upfront fees to claiming the domain name, even if you don’t immediately start building the website. You may also have to pay a yearly fee to maintain ownership of your domain, depending on which company you register with.
Last, you’ll have to think of the logistics. What is your target market? Think of the age range of the people in the area where you’ll set up your dealership. Who is already there and would want a BMW and who do you want to win over? Start with your practical market and make a plan that will grow your business from there.
Don’t worry if this all sounds like a new language to you. Take these steps slowly to get used to the process. You can also consider taking a few business classes or earning a diploma to make you a more successful business manager.
2. Determine Your Breakeven Point
That will help you figure out the initial costs of starting your business and compare it to when you’ll break even. The average used car dealership sells 87 cars per month, but it’s safe to bet that your dealership will sell a little less to nearly equal the amount per month in your first year. You’ll need time to market your business and make it a familiar place that people are willing to trust.
Be prepared for your dealership to not break even the first month. As time goes on, you’ll see a gradual return on your initial investment. Talk with a CPA or calculate your breakeven point to determine what numbers you need to pull to make your first profit.
3. Get Your Business in Order
Before you start construction or open your front doors, you’ll need to obtain a dealer’s business license to legally make a profit off of selling cars that aren’t titled in your name. Your local DMV will help you figure out how to get this license where you live. You’ll have to meet certain requirements, which may include things like:
- Providing proof of business insurance
- Passing a background check
- Registering your business
- Signing up for a pre-licensing seminar
You should also apply for an Employer ID, also known as a Federal Tax Identification number. It’s how the IRS recognizes your dealership as a business and processes your taxes accordingly. The good news is that it’s free to apply and once you’re approved, you’ll get that number immediately.
After you have your Employer ID, you can register for taxes with a local CPA. They’ll fill you in on any other loose ends that need to be tied up in order for you to be compliant with tax laws. Discuss whether or not your business should be a Limited Liability Corporation (LLC) or an S corporation (S Corp), which may provide better tax breaks depending on where you live.
The next local office you’ll have to call is your city’s business license department. Talk about how you should get your business license and contact the city’s zoning department to double-check that the land you’ll use for your dealership is zoned for that purpose.
It’s crucial to then get the insurance your dealership will need to succeed. You’ll need comprehensive general liability insurance to sign your eventual lease and any client contracts. It’s also what will protect you from lawsuits related to customer injuries or damages.
Once you have everything lined up, open a business bank account specifically for your dealership. This will make filing your taxes and reporting your income much simpler. Stick with the bank you trust for your personal finances or ask around to see which banks offer a better solution to your needs.
4. Review the Law
One of the most important things you can do for your used car dealership is review the laws that your business must abide by. Specifically, used car dealerships of any brand fall under the Federal Trade Commission’s (FTC’s) Used Car Rule. It states that any car dealers who move five cars or more off the lot each year have to follow each guideline and regulation in order to remain open.
Use care dealerships also have to maintain and display the Buyer’s Guide, as explained in the Used Car Rule. The guide explains any warranties attached to the car and where to get information on possible future recalls.
If your dealership does not comply with either of these laws, it’s liable for large fines that meet or exceed $43,000. Check your state laws to see if your state is the one to reinforce these laws and if they have any additional rules you should be aware of as the dealership owner.
Ask for Help
Starting any kind of used car dealership isn’t something you can do overnight. There may be steps that are new to you, but don’t feel like you have to do everything alone. BMW representatives, your CPA and your state offices are there to help with any questions you may have. Asking for help along the way will help your dealership open up sooner and stay on the path to success.