Any entrepreneurial endeavor takes time, resources, and investment. And opening a car dealership is no small task. After learning the laws and steps you need to follow, you then need to consider how much money you need to open a dealership.
Depending on what type of car dealership you are planning to open, costs will vary. There are two types of car dealerships to choose from.
New car dealership franchises are more costly to set up and operate on a larger scale. By law, all new cars must be sold through a franchised dealership. The initial investment cost for establishing a franchise dealership can range from $30,000 to $500,000 for the franchise fee.
Used car dealerships operate on a lower scale and require less capital and lower operating costs. Since independent used car dealers are not limited to selling one car brand, there are no fees being paid to manufacturers. A used dealership can be started with a limited inventory of cars and then you can expand as business grows.
When considering how to acquire inventory, you might think to look online for “salvage cars for sale near me”. Then you can participate in major salvage and insurance vehicle auctions and save thousands while purchasing and shipping vehicles through one portal.
Business formation fees
A business owner must form and business entity and register for a business license with the state department of revenue. Legal fees for forming a business entity (LLC, partnership, corporation, etc.) vary among states. Also keep in mind that the business license application fee depends on the type of entity formed.
Startup expenses can vary based on state and region within a state. For example, a dealer establishing a store in a rural area will pay less per square foot of property than in a metropolitan location. Expected start up costs include, but are not limited to: rental property for vehicle display, beginning inventory, office electronics (phones, printers, computers), advertising, business liability insurance, and employees (three months’ initial salary per person).
Processing payments can seem complicated in the early stages of operation. Simplify the process with automated check writing. Online check software automates payments and improves the bottom line and bookkeeping. You can print, copy, and mail tax forms securely through outsourced printing services.
Outsourcing experts to handle printing and mailing needs lowers overhead costs, and comes with the benefit of personalized marketing and branding on materials. Online check software has the added benefit of increased security thanks to MICR, built-in security threads, watermarks, and special fibers.
Dealer license and surety bonds
Regardless of which type of car dealership you open, you need to obtain a few more things before opening for business. In every state, it’s required to have a dealer license for each type of vehicle sold, whether they’re new or used cars, trucks, motorcycles, or recreational vehicles. Costs vary by state, but the average costs for each dealer license is $100 to $200.
A surety bond protects consumers during the course of business and protects them from any potential losses due to the fault of the dealer. The cost of a surety bond depends on the dealer’s personal credit score, and can range from one to fifteen percent of the entire bond amount.
Lastly, cars cannot be driven off a dealership lot for test drives without a dealer license plate. The average cost of a dealer plate is $90 per plate.