How to Start a Used Car Business | Growth mindset (2024)

• How to Start a Used Car Business
• Frequently Asked Questions About Starting a Used Car Business
• Useful videos
• Additional industry resources for used car dealers

How to Start a Used Car Business

Starting a used car business can be very profitable. With good planning, execution and hard work you can achieve great success. Below you will learn how to successfully start a used car dealership.

More importantly, a crucial step in starting a used car dealership is finalizing your business plan. To help you,download Growthink's ultimate used car dealer business plan template here.

16 Steps to Starting a Used Car Business

1. Select the name of your used car company
2. Develop your used car dealership business plan
3. Choose the legal structure for your used car business
4. Secure start-up financing for your used car business (if necessary)
5. Secure a location for your business
6. Register your used car business with the IRS
7. Open a business bank account
8. Buy a business credit card
9. Obtain necessary business licenses and permits
10. Get business insurance for your used car business
11. Start building your used car inventory
12. Buy or lease the right used car dealership equipment
13. Develop marketing materials for your used car business
14. Purchase and configure the software needed to run your used car business
15. Start building your team
16. Open for business

1. Choose the name of your used car company

The first step in starting a used car business is choosing your business name.

This is a very important choice as your business name is your brand and will last the life of your business. Ideally, you should choose a name that is meaningful and memorable. Here are some tips for choosing a name for your own dealership:

1. Make sure the name is available.Check your desired name against trademark databases and your state's list of registered business names to see if it is available. Also check whether a suitable domain name is available.
2. Keep it simple.The best names are usually names that are easy to remember, pronounce and spell.
3. Think about marketing.Come up with a name that reflects the desired brand and/or focus of your used car business.

2. Develop your used car dealership business plan

One of the most important steps to getting started as a used car dealer is developing yourbusiness plan for used car dealer. The process of creating your plan ensures that you fully understand your market and business strategy. The plan also gives you a roadmap to follow and, if necessary, present to funding sources to raise capital for your business.

To improve your planning process through insights from asample business plan for a used car dealercan be useful. This can give you a clearer perspective on industry standards and effective strategies, helping you strengthen your own business approach.

Your business plan should include the following components:

1. Managementsamenvatting– this section should summarize your entire business plan so that readers can quickly understand the key details of your used car business.
2. Corporate overview– this section tells the reader about the history of your used car business and what type of used car business you run. For example, do you only offer sales of used cars or do you also have a service department?
3. Brancheanalyse– here you document important information about the used car industry. Conduct market research and document how big the industry is and what trends are impacting it.
4. Klantanalyse– in this section you document who your ideal or target customers are and their demographics. For example, how old are they? What is the income level? What do they consider important when buying used cars?
5. Competitive analysis– here you document the main direct and indirect competitors you face and how you can build competitive advantages.
6. Marketing plan– your marketing plan should focus on the 4Ps: product, price, promotions and place.
   • Product: Determine and document which products/services you want to offer
   • Prices: Document the prices of your products/services
   • Place: Where will your business be located and how will that location help you increase sales?
   • campaigns: What promotional methods will you use to attract customers to your used car business? For example, you can choose to use pay-per-click public advertising
     relationships, search engine optimization and/or social media marketing.
7. Operational plan– here you determine the most important processes you need for your daily business operations. You also determine your personnel needs. Finally, in this section of your plan you will create a projected growth timeline that shows the milestones you hope to achieve in the coming years.
8. The management team– this section describes the background of your company's management team.
9. Financial plan– finally, the financial plan answers questions, including the following:

• What start-up costs do you want?
• How will your used car business make money?
• What are your expected sales and expenses for the next five years?
• Do you need financing to start your business?

3. Choose the legal structure for your used car business

Then, choose a legal structure for your used car business and register it and your company name with the Secretary of State in each state where you operate your dealership.
Below are the five most common legal structures:

1) Sole proprietorship

A sole proprietorship is a business in which the owner of the used car company and the company are the same legal entity. The owner of a sole proprietorship is responsible for all debts and obligations of the business. No formalities are required to set up a sole proprietorship and it is easy to set up and run. The biggest advantage of a sole proprietorship is that it is easy and cheap to set up. The biggest disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure 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 and severally liable for the debts of the company and that disagreements between partners are difficult to resolve.

3) Limited Liability Company (LLC)

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 liable for the debts and obligations of the business. The benefits of an LLC for a used car business include management flexibility, pass-through taxation (avoiding double taxation as explained below), and limited personal liability. Disadvantages of an LLC include unavailability in some states and self-employment taxes.

4) C company

A C Corporation is a business entity that is separate from its owners. It has its own tax number and can have shareholders. The main advantage of a C Corporation for a used car business is that it provides limited liability to the owners. This means that the owners are not personally responsible for the debts and obligations of the company. The downside is that C corporations are subject to double taxation. This means that the company pays tax on its profits and the shareholders also pay tax on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides limited liability protection to its owners and allows them to transfer their business income to their personal tax returns, thus avoiding double taxation. There are several restrictions on S Corporations, including the number of shareholders they can have.

After you register your used car business, your state will send you your official "Articles of Incorporation." You must use this, among other things, when creating your bank account (see below). We recommend that you consult an attorney to determine which legal structure is most appropriate for your business.

4. Secure start-up financing for your used car business (if necessary)

As you developed your business plan for a used car dealership, you may have decided that you need financing to start your business.

If so, the main sources of financing for a used car business 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 companies. Angel investors will typically invest in a used car company that they believe has great growth potential.

5. Secure a location for your business

Having the right physical location can be important for your used car business. You'll need plenty of space to display your inventory, as well as office space for your team. It is also important to find a location that attracts customers.

Consider the following to find the right chair:

• Driving around to find the right areas while looking for 'for rent' signs
• Contact a commercial real estate agent
• Search for commercial properties online
• Tell others about your needs and see if anyone in your network has a connection who can help you find the right space

6. Register your used car business with the IRS

Next, you will need to have full business registration with the Internal Revenue Service (IRS), which will result in the IRS issuing an Employer Identification Number (EIN).

Most banks require an EIN to open an account. Additionally, to hire employees, you must use an EIN because this is how the IRS keeps track of your payroll taxes.

Keep in mind that if you are a sole proprietorship with no employees, you generally do not need an EIN. Instead, you use your Social Security number (instead of your EIN) as your taxpayer identification number.

7. Open a business bank account

It is important that you open a bank account in your company name. This process is quite simple and involves the following steps:

1. Identify and contact the bank you want to use
2. Collect and present the necessary documents (usually including your company's articles of association, driver's license or passport and proof of address)
3. Complete the bank's application form and enter all relevant information
4. Meet with a banker to discuss your business needs and build a relationship with them

8. Get a business credit card

You should get a used car credit card to help you separate personal and business expenses.

You can apply for a business credit card from your bank or a credit card company.

When you apply 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 run. You will also need to provide some information about yourself, including your name, CPR number, and date of birth.

Once you're approved for a business credit card, you can use it to make purchases for your business. You can also use it to build good credit, which can be very important in securing loans and obtaining lines of credit for your business in the future.

9. Obtain necessary business licenses and permits

Each state, county and city has different business licensing and permitting requirements.

Nearly all states, provinces, and/or cities have licensing requirements, including:

• General Business License– You need a license to run almost any type of business, including a license to sell cars. Check your local guidelines for licensing requirements.
• Consent of the seller- A seller's permit is required to sell vehicles. The requirements for obtaining a seller's license vary from state to state.
• Dealer license- It is important to obtain a car dealer license if you plan to buy or sell more than five cars per year. These licensing requirements also vary depending on your state.

Depending on where you start your used car business, you will need to obtain the necessary permits from the state, county, and/or city.

10. Get business insurance for your used car business

Business insurance policies to consider for your used car business include:

• General liability insurance– You should obtain general liability insurance to protect your business from potential lawsuits. This type of insurance covers damages that may arise as a result of your company's activities.
• Professional liability insurance– In addition to general liability insurance, you must also take out professional liability insurance. This type of insurance protects your business against potential lawsuits that may arise as a result of damage that has occurred on your premises.
• Commercial property insurance– You must obtain commercial property insurance if you own a used car dealership. With this type of insurance, you protect your business against possible damage that may occur to your property as a result of your business activities.
• Workers Compensation Insurance– You must obtain workers' compensation insurance if you have employees who work for your used car dealership. This type of insurance protects your business from potential lawsuits that may arise as a result of injuries your employees sustain while working for your company.
• Product liability insurance– You must obtain product liability insurance if you sell used cars that are under warranty. This type of insurance protects your business against potential lawsuits that may arise from damage to a customer's vehicle due to a vehicle defect.
• Garage owner insurance– This type of insurance protects your business from potential lawsuits that may arise from damage to a customer's vehicle while it is in your care.
• Dealer's open kavelverzekering– This type of insurance protects your business if a vehicle is damaged while being driven by an employee or during a test drive by a customer.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that meet those needs.

11. Start building your used car inventory

The most common way to build inventory for a used car business is to participate in auctions where used cars are sold. Simply register with your local auction houses to receive notifications when new auctions take place.

You can also find used cars for sale through online classifieds and social media. Make sure you research the vehicles and their value, including how much you can make by selling them, before purchasing them.

12. Buy or lease the right used car dealership equipment

A used car business needs a lot of equipment to operate successfully. Some of the most important devices include computers, printers, and a fax machine. It is also useful to have a cash register, as well as racks or shelves to store the cars. Also make sure you have a phone system that can handle multiple calls.

In addition, you may need office furniture and supplies for your team, as well as reception furniture for your clients. Many used car dealers offer sales areas or free refreshments such as coffee to waiting customers.

13. Develop marketing materials for your used car business

Marketing materials are needed to attract and retain customers for your used car business.

The main marketing materials you will need are as follows:

1. Logo- Spend some time developing a good logo for your used car business. Your logo will be printed on company stationery, business cards, marketing materials, etc. The right logo can increase customer trust and awareness of your brand.
2. Internet side– Similarly, a professional used car website provides potential customers with information about the products and/or services you offer, your company history and contact information. It's important to remember that the appearance of your website affects how customers perceive you. Update your website regularly if you plan to showcase your inventory online.
3. Sociale media-accounts– Create social media accounts under your company name. Accounts on Facebook, Twitter, LinkedIn and/or other social media help customers and others find and interact with your used car business. Social media platforms are also great places to share new stocks and offers, showcase old customers, and bring in new ones.
4. Commercial material- Many used car companies place advertisem*nts in local newspapers and on TV and radio stations. Make sure you have your creative ready.

14. Purchase and install the software needed to run your used car business

A used car company needs software that allows them to 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.

15. Hire and train staff

Your used car business needs employees who can sell inventory, assist your customers with vehicle financing and maintenance.

The sales team must 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 guarantee customers' financing options. They should also be able to explain the different warranty and protection plans available.

Your service technicians must be Automatic Service Excellence (ASE) certified and able to perform basic maintenance and repairs on the cars in your warehouse.

To find the right candidates, consider posting job openings in local newspapers or online. You can also contact existing connections.

16. Open for business

You are now ready to open your used car business. If you've followed the steps above, you should be in a good position to build a successful business. Below you will find answers to frequently asked questions that may help you further.

Frequently Asked Questions About Starting a Used Car Business

Is It Difficult to Start a Used Car Business?

The answer is both yes and no. It all depends on how you go about it and what your goals are.

If you just want to make money quickly, that can be quite difficult. There is a lot of competition and you have to be able to stand out from the crowd. But if you are serious about starting a used car business and are willing to put in the effort, it can be a very successful venture. Your biggest challenges to get started will likely be building your inventory and securing a location. By following the steps outlined above, you can get started.

How can I start a used car business without experience?

The first step is to conduct industry and market research. Learn about different aspects of the business, such as the types of cars in high demand, how other used car dealers determine their prices, and how much you need to spend on inventory, licensing, employee wages, and other costs before you start making money. Finding an experienced mentor in the used car industry can also help you gain useful insights.

What type of used car business is the most profitable?

The most profitable type of used car business depends on your location, target market and other factors. 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 specific price range, specializing in just one brand, or focusing on a specific customer base (such as starters or experienced collectors).

See Also

How much do car dealers earn?|Online Autodealed

How Much Does It Cost to Start a Used Car Business?

The cost of starting a used car business depends 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 plan to hire employees . However, you can expect to spend at least several thousand dollars on equipment and several hundred dollars on licenses and permits. Additionally, you'll need to consider the costs of leasing or purchasing a property for your dealer, as well as any advertising and marketing costs.

The main costs to consider include:

• Rental or purchase of buildings and renovation
• Equipment and professional installation
• Store inventory and office equipment and supplies
• Licensing
• Down payment binding

What are the operating costs of a used car company?

Ongoing costs for a used car business include the costs of maintaining inventory, such as paying for storage, repairs and cleaning; the personnel costs (if you choose to employ personnel); and the costs of marketing and advertising. You also need to consider the cost of property taxes and insurance for your dealership.

The main ongoing costs to consider include:

• Purchase of shares
• Bearing repair/service
• Salaries
• Marketing
• Lease for building and/or equipment
• Maintenance of equipment and buildings

What are the main costs in the used car industry?

Purchases are the largest cost item for a car dealer and represent more than 84% of turnover. In addition to buying used cars at auctions and through trade-ins, used car dealers also need to repair and restore these vehicles.

Wages are also a major expense, but increased automation of inventory management and online cataloging has resulted in minimal wage increases.

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 budgets on Internet advertising.

How does a used car company make money?

A used car company 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 and market conditions. Some used car dealers also make money by offering car service and repairs.

Is Owning a Used Car Business Profitable?

Yes, owning a used car business can be profitable. However, the amount of profit you make depends on a number of factors, such as your inventory, fixed costs and sales prices.

Additionally, the profitability of your business can fluctuate from month to month or year to year depending on changes in the market. Navigating these fluctuations is the key to making money for used car dealership owners.

Why do used car companies fail?

There are a number of reasons why used car businesses fail. Some common reasons for failure include poor planning, insufficient capital, excessive inventory, and the inability to adapt to changes in the market. In addition, many used car dealers go out of business due to competition from larger companies or because they are unable to generate enough sales to cover their expenses.

How big is the used car industry?

IBISWorld reports that the used car industry has seen a net decline over the past five years due to the coronavirus, with an average annual rate of -1.6%. Next year, the 129,553 companies in the sector are expected to generate a combined turnover of $99.1 billion.

What are the major segments of the used car industry?

Used cars account for more than half of the sector's turnover. This does not include vans, minivans and trucks.

The rest of the sector's revenue is generated from other used vehicles, spare parts and repair services, as well as financing and insurance.

What external factors influence the used car dealership industry?

A number of factors influence the performance of the used car industry. These drivers include:

• Disposable income per inhabitant– When consumers have more money to spend, they are more willing to spend money on expensive, everyday items, such as used cars.
• Price of new cars- Buying a used car is a more affordable alternative to buying a new car.
• Total household debt- Consumers are increasingly less likely to invest in non-discretionary goods such as cars when debt levels are high.
• The average age of the fleet– As the average age of fleets increases, it means greater pent-up demand for vehicles.
• The world price of crude oil- High gasoline prices tend to reduce sales of new and used cars.

Who are the main competitors in the used car industry?

The used car dealer industry is highly fragmented, with dealers without employees representing more than 80.0% of businesses. As a result, the sector exhibits a low concentration of market share, with the four largest operators accounting for an estimated 19.3% of the sector's turnover. In fact, only one company has a significant market share in the used car trade: CarMax, with a 17.9% market share, leads the sector, while America's CarMart, Carvana Co. and Enterprise Car Sales each have only a fraction of the market.

What are the key customer segments in the used car dealership industry?

The largest customer segment (37.5%) in the used car dealership industry consists of consumers with good credit. Other segments include Subprime, Nonprime, Super Prime and Deep Subprime customers.

Where can I download a PDF business plan for a used car dealership?

You can download ourUsed car dealer business plan pdftemplate here. This is a business plan template that you can use in PDF format.

Useful videos

Facts about used cars

Development of a successful used car dealer

Success story of starting car dealers

Examples of selling used cars

Additional industry resources for used car dealers

For additional information about the used car dealership industry, check out these industry resources:

• National Alliance of Buy Here Pay Here For Handlerswww.bhphinfo.com
• National Association of Automobile Dealerswww.nada.org
• National Association of Independent Auto Dealerswww.niada.com
• Used car newswww.usedcarnews.com

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