Starting a car dealership from the ground up is no small task, and it almost certainly will require a significant monetary investment to start out with. Individual cars are significant investments to on their own, let alone the additional costs involved with keeping a business afloat.
Initial Costs
The required minimum startup capital for a car dealership can be estimated to be anywhere from $100,000 to $1,000,000 depending on what kinds of cars you are selling and where you are selling them. Here are a few things to consider when going over the individual costs involved in several aspects of the business.
The starting inventory of a car dealership can be understandably costly, but it can depend on the kinds of cars you aim to sell. While you can get away with selling used cars with a relatively small inventory, a medium-scale used car business can expect to reasonably spend around $500,000 on its inventory. This cost can be expected to increase if you are dealing with new cars or wish to start with a larger inventory.
Curating Your Inventory
When deciding on your initial inventory, you should also try to make sure that you can turn a sufficient profit on the cars that you do buy. Used cars might be harder to pin down a price for since they usually sell for less than their MSRP, but you can still find competitive prices by scouting out competing sales lots and truck auctions. By no means do you have to start out as a large- or medium-sized business, but keeping track of what it would take to reach such goals is helpful nonetheless.
Navigating Bonds
When budgeting costs like employee pay or other monthly operating costs for a company that is just starting, you should always plan for the worst-case scenario. To this end, you should ideally try to start with enough money to run your business for six months in the event your business does not take off immediately. These are the sorts of figures you might run by hard money brokers in Texas if you plan to borrow money to finance your new car dealership, likely through equity or debt financing, so you have a better idea of what your month-to-month expenses will be.
There are a couple of kinds of bonds that might need to be purchased as well before you can get an auto dealer’s license, and how much these bonds cost is determined by several factors. The value of the bond and the credit history of the person who needs the bond are two key factors, but shopping around for better deals in this area would certainly not be out of the question if you cannot find one that is affordable for you.
There are different kinds of auto dealer bonds that are required depending on if the cars you are selling are new or used, as well. Even though they might not be strictly required, additional insurance costs should be factored in as well so you are not left without options in the event of a catastrophe.
Most people need cars to get around, so while opening a car dealership might be a big investment you will likely turn a profit if you are smart about how you price and where you supply your inventory. Even so, you absolutely need to make sure you account for the rules and regulations inherent to running a car dealership in your area since they will directly affect how much it costs to run your company.