How to Become A Car Trader

How to become a car dealer  

Research the Market

Before you even think about investing in your new business, you need to do your research. Find out which type of cars are selling and for how much by looking at car adverts or car price evaluation sites. You also need to consider who your audience is and decide which market you want to focus on, including brand and models.

For an in-depth overview of the market, including trends for the future such as the volume in sales of zero emission cars and hybrids, have a look at The Society of Motor Manufacturers and Traders (SMMT) website www.smmt.co.uk.

Make a Clear Business Plan

After you have researched the market, it’s time to put in place a detailed business plan. This involves calculating your costs compared to how much you may sell the car for to see if the business would be viable and lead to a profit.

When looking at your costs, make sure to include the following into your car trader business plan:

  • Possible advertising and marketing costs
  • Valet or aesthetic improvements
  • Repairs that may be needed, refurbishing or upgrading
  • Storage costs
  • Legal regulations

Putting down all your costs can also help you to see if you need to raise any finance. Remember that it may take a while to sell a car, so you don’t want to be left with cash flow issues which could hinder further investment.

Notify Your Local Council

To keep your costs down, selling cars from home may be the best route to go down initially. It’s important to check with your local council to see how many vehicles you’ll be able to park on the main road at one time and that you can legally sell from home. Also, be aware of some restrictions if you decide to sell from home such as how you can advertise your vehicles. You cannot put up signage on the car windows or in your house or alter your premises to accommodate more vehicles.

Your motor trade policy may also impose restrictions on the amount of vehicles you can store at one address.

Getting Motor Trade Insurance and Trade Plates

You will need to get motor trade insurance to cover you when collecting and driving cars to avoid having to insure them individually. Third party road risk car dealer insurance is the legal minimum and will cover you against damage to third-party vehicles. Fully comprehensive will also give yourself and your vehicles protection from harm or damage.

Car dealership insurance will allow you to add vehicles to the Motor Insurance Database (MID), which is a central record of all insured motor vehicles in the UK.  It’s essential to make timely updates using EasyMID. There can sometimes be a minimum MID threshold, so check with your insurance broker.

Car dealership insurance also generally comes with a variety of add-ons, depending on the size, scope and whether you are running the business full-time or part-time, with or without employees.

Here is a brief overview of additional insurance cover you may need or your dealership:

  • Public liability and employers’ liability
  • Insurance cover for office/business equipment kept at home and money kept on site
  • Cover for stock at out buildings, barns or other local locations
  • Product liability
  • Business interruption
  • Carriage of vehicles

You’ll also have to get your trade plates as well before you start selling. These are available through the DVLA and allow you to carry out your business without registering and taxing every vehicle temporarily in your possession.

Become a Sole Trader

Once you’ve sold your first car, you should register as a sole trader. You will need to inform the HMRC to avoid fines and make sure you are registered for self-assessment tax. As your business grows, you may want to set up as a company rather than operate as a sole trader. Establishing yourself as a limited company can give you more security and enable you to grow but does have restrictions, so get some professional advice before making the change.

Read our Quick Guide to Buying and Selling Cars for help on where to buy, how to avoid stolen vehicles and clinching a successful sale.

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