Starting a car dealership involves an extensive number of legal considerations and decisions. Compared to most businesses selling vehicles, in particular, come with some very specific laws within Australia. These, on top of the process of starting a new business, means it’s easy to get confused about what processes you may need to consider. Here’s our guide to making sense of how to get the business started.
Table of Contents
1. Register your business
To operate within Australia, you will first need to register for an Australian Business Number (ABN). This number is what the government uses to identify your business, and is important for processes like tax and invoicing.
You will likely also want to register a business name. It’s important to stand out from the crowd where you can.
2. Business structure and goals
Generally, new businesses will take the form of a sole trader, partnership or company. How your business is structured will affect how you will take on debt, distribute profits and pay tax.
Most importantly, consider what your business will be. Will it be in dealing with mass-produced road vehicles, niche supercars or even vehicles for construction sites? Deciding what will help orientate the following decisions of location and sources that we discuss below.
Further, here you should consider the size of the company and how (or whether) you will employee people. Contemplate forming company policies, employment contracts and a business model to structure your enterprise. Having both a legal framework, as well as a clear goal for your business, will provide a strong base for it to grow on.
3. Finding the right location
As with any retail-like business, location is important to draw in customers. However, within a car dealership, you face the obvious issue of space. Finding the right location that will accommodate your stock, whilst remaining convenient is tricky. That being said, depending on what type of vehicles you are dealing in will also affect this. It is likely that customers will be more willing to travel to your business if it caters to a niche, say with supercars, as opposed to a second-hand car dealer.
Similarly, consider your competition. While you may want to avoid areas where you are competing with several other dealers, these areas may also provide an opportunity to steal new customers from existing dealers. This is why a strong business plan is needed as a foundation for the rest of your decisions.
For a car dealership, you will require a commercial lease of the property, rather than a retail lease.
4. Sourcing the vehicles
This is the biggest decision within this process as it will dictate your entire business moving forward. The main options that we will discuss are:
- Through franchising
- Through financing
A third option does exist: to purchase outright provided you already have the funds. However, unless you are multi-millionaire, this is wholly unlikely so we will avoid it.
We will get further in-depth within each option, but it is important to discuss any and all queries you may have with your lawyer and accountant. In particular, you will need to consider what suits your business best. It may be easier to finance a business model with low risk, low reward structure, compared to one with a higher risk.
Franchising
This is generally the easiest way for you to source vehicles without going into debt. However, it is also the hardest to gain. Many large car brands allow for applications for franchising requests, but to be successful in these requests a considerable amount of planning is needed. You’ll need to show them that you have an idea, that the demand exists, and that you can run the business. Hence, extensive experience and evidence are likely required for this to work.
Likewise, the profits you gain from any sales will be significantly less than if you source the cars yourself. While the percentage of profits that are returned to the franchisor will depend on your individual agreement with them, it will impact the amount you make.
Of note, franchising won’t pay for everything. You will still need to finance the business to keep the lights on. It will just be significantly less than if you need to purchase the vehicles outright.
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Financing
Purchasing the vehicles outright to be resold is a great way to retain substantially more control over your business than with a franchise, but comes with its own caveats. These caveats, however, depend on how you raise these funds.
If you decide to raise capital by selling stakes in your car dealership, you will avoid a lot of the issues associated with debt. The issue here, however, will be that you relinquish some of your power and funds to your investors. Very similar to the franchising situation, there will be people to answer within this scenario. However, where franchising will limit your vehicles to the franchisors supply range, through this method you will retain the ability to select your products.
If you decide to finance your vehicle purchases through a loan you will have to deal with the issue of significant debt. It is also likely that the lender will take with it a Purchase Money Security Interest over the vehicles you purchase with that loan. What this means is that in the event you fail to repay your loan, all the cars you have purchased with the loan will be seized by the loaner. So there is significant pressure in this scenario to generate profits as to not default on any repayments.
Conclusion
Ultimately, starting a car dealership is an exciting opportunity. The automotive industry is expansive and can prove successful for new entrants. However, entering the market can prove challenging without a strong business model and plan ahead. Consider every option available and seek as much consultation as possible throughout the process and you’ll stand the best chance of succeeding.
