Starting and maintaining a successful motor trade business: The definitive guide

So, you want to start a motor trade business? You’ve come to the right place!
 
In this definitive go-to guide, we cover what you need to know to get your new motor company up and running and into the fast lane!
 
We look at some of the basics around setting up a company in the UK: what are the different structures, and where can you find funding? We explain some of the key laws that you need to follow to keep trading and we explore how you might grow your motor business through clever marketing.
 
Whether you’re planning on selling cars from your own driveway or have visions of setting up a motoring empire, this is the go-to guide you need to get started.
 

Contents

 
How to get your motor business into gear with robust research
 
What business structure works best for you?
 
How a great business plan can put you in the fast lane
 
How to make money work for you
 
Understanding legal matters
 
How to buy cars that will sell
 
Making sales and taking payments
 
How to win customers and boost your business
 
Top tips for growing your motor trade business
 A motor trade business owner talking to two employee's in a car workshop

How to get your motor business into gear with robust research

It might be tempting to jump feet-first into your new business idea. But there’s a lot of groundwork to carry out first that will be crucial to your future success. Make sure you learn everything you can about your local market and the vehicles you’ll sell.
 
You may already have a good deal of motoring know-how, but do you know what customers are looking for? Take a look at the Society of Motor Manufacturers and Traders’ (SMMT) vehicle data to see the latest trends.
 
For example, in Q3 of 2020, sales of used electric and plug-in hybrid cars rose faster than petrol and diesel models, but still accounted for less than 3% of all used transactions. So, this is definitely a trend to watch.
 
The SMMT also issues new vehicle registration data, export reports, and forecasts, among many other statistics. The website is a vital resource for your budding business. 
 
Then look at your market. If you’re planning on selling a range of everyday cars, you need to research your local area. What kind of vehicles do people buy? If you’re in a rural area, then 4x4s might be popular; if you’re in a city, it will be easier to shift superminis. What’s on the horizon that could change people’s driving habits? If there’s a congestion zone looming, investigate low-emission, hybrid or electric vehicles.
 
Don’t forget to size up the competition! Is there room for another garage or showroom near where you live, or would you be better off finding customers if you set up shop in the next town?
 
If you want to specialise, perhaps in classics or electric vehicles, then you can expect your customers to come from further afield. Still, you need to know that there’s a market for your business, and that the field of competitors is not too crowded.
 
All this research helps you clarify your thoughts – and will be vital when it comes to putting together a business plan.
 

What business structure works best for you?

Not all traders are the same! The legal structure of your company is important: it determines key issues such as personal liability and taxes. So, do you want to set up as a sole trader, an independent company, or a franchise? Each model has its pros and cons, which we’ll outline in brief below.
 
A sole trader is the simplest legal structure. Essentially, it means that you are the business – even if you employ other people. That gives you the freedom to make your own decisions and keep your profits for yourself, but also means you have unlimited personal liability for debts. You’ll file a self-assessment tax return each year.
 
A partnership is when two people go into business together, sharing expertise, responsibilities and profits. Again, you’ll file self-assessment tax returns, and will each have unlimited liability.
 
If your sole trader business or partnership takes off, you will probably want to set up a limited company. Ownership is divided up into shares and sold to shareholders, though it’s possible for one person to own 100% of these.

Shareholders have only limited liability for the company’s debts. The company will be run by one or more directors, who can be the same as the owners. The company will pay corporation tax, which is separate from the personal taxes you will pay.
 
Many motor trade businesses are franchises. This is a business model, not a legal structure: a sole trader, a partnership or a limited company can operate as a franchise. It means you pay a larger business for a licence to run a branch, following their business model and using their branding. It’s less risky but you’ll have to abide by the rules of your franchise agreement.
 A new car in a showroom

How a great business plan can put you in the fast lane

A business plan is the blueprint for your company’s success. It guides you in setting up and expanding your company, attracting new talent – and, perhaps most importantly, in obtaining loans to get started and to grow.
 
Many car traders start off by buying a cheap car, doing it up in their spare time, and selling it on. Their progression to becoming a full-time motor trade business is gradual, and it takes a while before they can give up any day job.
 
Others want to start off with a splash. That means they must find the capital to invest in business essentials such as cars, premises, IT and phone systems, and marketing.
 
Either way, at some point early on in your motor trading career, you must put together a business plan to demonstrate that you’ve got a viable business idea, and you know how to make it work. It will guide you, help you attract great employees, and is essential for obtaining loans.
 
First and foremost, your business plan will need to provide a clear picture of what your products and services will be. Are you selling new or used cars, or a mixture? Any marque or type? Will you offer repairs, part-exchange, valeting, car hire or leasing, or storage and recovery services? What about your after-sales service?
 
You’ll also need to look at your key objectives; your skills and experience; your target market and customers; the competition; your sales and marketing plans; your operational plans; and your financials. You should consider your strengths and weaknesses, and how you’ll tackle any challenges.
 
If you feel more comfortable with cars than with business terms, don’t worry! There’s help there. Your bank will tell you what you need to provide, or you can take a look at the government guidance for businesses. You can get business advice through your local job centre, too.
 

How to make money work for you

To set up your motor trade business and keep it flourishing, you must be able to handle money and keep on top of admin. Here’s an overview of some of the key elements: loans, account-keeping, and taxes.
 
Your first big financial step is likely to be obtaining a loan. Your bank is a good place to start, though you might well have to offer security, which could mean losing personal assets such as your house if your business fails. Start-up loans backed by the government could be a less risky alternative.
 
In both cases, you’ll need to provide your business plan plus clear financial projections. As well as funding, you’re likely to be given business mentoring or advice, which can be of huge help if you’re just starting out.
 
Good account-keeping is essential for every business. As a minimum, you need to be keeping spreadsheets of income and expenditure, backed up by copies of receipts and invoices. It’s easiest, though, to use an online accountancy tool or pay for accountancy software.
 
And as soon as your business starts to expand, one of the first things you should do is either employ an accountant or outsource your record-keeping to a specialist.
 
You’ll need to register and pay for taxes. These depend on the type of business you’re running, so make sure you are aware of your obligations.

As well as those mentioned above, you will need to pay business rates to your local council if you occupy commercial premises; and VAT if your turnover is more than a certain amount (currently £85,000 per year, after any exemptions).
 A model car on a pile of coins

Understanding legal matters

As a responsible business owner, you need to be aware of motor industry regulations, standards and best practices. This will keep you on the right side of the law, improve your reputation in the local community, and help your business to thrive.
 
Start off by getting motor trade insurance. This provides cover for many aspects of your motor trade business, including public liability. Importantly, it enables you to allow customers to take your vehicles on test drives.
 
Trade licence plates are another essential: they save you the hassle and money of taxing and registering every car in your possession. You need to apply to the DVLA for these, providing a copy of your motor trade insurance. A year’s licence currently costs £165.
 
When it comes to advertising and selling, Business Companion offers a great guide to car traders and consumer laws. These laws include the Consumer Rights Act 2015, which governs the buying and selling of any goods in the UK.

One of the key protections it provides for buyers is the right to return goods, including vehicles, for a full refund within 30 days of purchase. If you’re suspected of illegal selling or advertising activity, your council’s trading standards team will investigate.
 
You’ll also need to abide by the codes of practice operated by the Motor Ombudsman, such as the New Car Code, the Vehicle Warranty Products Code, and the Service and Repair Code. The Ombudsman will handle any complaints made against you relating to these codes.
 
Finally, any customer data is protected by the GDPR, so make sure your business is compliant – particularly if you want to stay in contact with your customers through email marketing.
 

How to buy used cars that will sell

For motoring enthusiasts, getting your stock is the most fun part! However, don’t get carried away at auctions – choose wisely, keeping your business objectives and your profit margins front of mind.
 
Most car dealers get their used cars from auction houses. These are the best places to find a bargain and buy in bulk – but you’ll need to know what you’re doing. So, check terms, conditions and background details before making your bids. If you’re new to the trade, attend a few auctions just to see how they work before buying up lots of stock.
 
eBay and similar online auction sites are good alternatives for smaller traders, as are car trading websites. You might also work with other garages. Some accept vehicles for part-exchange, which they’ll then sell on to you.
 
When it comes to deciding what stock to buy, we’ve covered some of the basics above. Other factors to consider are:
 
  • The condition of the car. Do you want to invest time and effort into doing up a cheap car and making a sizable profit? Or are you keen to have a faster turnover? You can check out the MOT history of any car before purchase.
  • The documentation. Does it have a full-service history? It may fetch more if so. And don’t even consider a car that has no VC5 certificate – it’s likely to be stolen.
  • The time of year. You won’t shift many convertibles in winter!
 
Remember: stick to the objectives you laid out in your business plan, and make sure each car you buy is one you can sell and that will give you the profit margin you need.
 
Over time, you’ll get a sharper sense of what your customers want and will get an eye for cars at auction. But when you’re starting out, a cautious approach is wise. Don’t forget to consider how much space you’ve got to store all these vehicles safely and securely, too.
 A motor trade business with used cars for sale on its forecourt

Making sales and taking payments

Whether you’re operating your motor trade business online, from your driveway, or from a fully-fledged showroom, you need to have some basic sales knowledge and skills. This includes improving the car’s appeal and taking payments.
 
Once you’ve got your stock, you need to get it ready for resale. It’s far easier to sell cars which have passed their MOT, with all advisories sorted out too. If you’re buying vehicles in need of major repairs, you should have a plan for that work in place already, as well as the space, tools, and most importantly, the skills to carry it out.
 
All used cars, even ones in good condition, could do with a bit of a spruce up. So, consider refinishing the bodywork to cover any scratches and put any little issues right before advertising. Above all, give the car a thorough valeting inside and out.
 
Then it’s time to take photos: interior and exterior, with close-ups of certain features. It is worth investing in your photography, as this is what will catch the customer’s eye.
 
Finally, write all the relevant information accurately, and list the car on your website or Facebook page if you have one. Other good places to list your vehicles include eBay, Autotrader, specialist car magazines, or even local newspapers. Check out what the current car dealer stock trends are to make sure you are selling the right cars.
 
You need to consider in advance how you’ll take payment for your vehicles. You’ll need a merchant account to accept credit or debit card payments, for which you’ll pay small fees – your bank can advise. Of course, a card reader is also essential.
 
And can you offer to sell cars on finance? You’ll have to get an agreement in place with a specialist finance company in order to offer credit to your customers. This can be a great offer, especially for more expensive cars. 
 

How to win customers and boost your business

Your customers are the core of your company. So, what simple steps can you take to keep them happy, encourage them to return – and, best of all, recommend you to their friends and family? And how do you reach a wider audience through digital and traditional marketing?
 
Maybe you’re a natural at talking to people? Or perhaps you prefer cars! Either way, it pays to develop ‘soft skills’ to enable you to offer great customer service.

These include confidence, patience, likeability, and negotiation skills. You’ll need to be articulate, too – capable of explaining the features of each car clearly to customers who might have minimal motoring knowledge.
 
And, despite the reputation of used car salesmen, you need to be honest. You must treat these customers well: your success hinges on their satisfaction levels, particularly when you’re just starting out.
 
So, offer them a great after-sales service, and perhaps offers such as cheap extended warranties. You could even set up an e-newsletter with news and promotions – though remember your GDPR obligations.
 
However, word-of-mouth will only get you so far. So how do you market your motor trade business and get new customers?
 
We’d recommend starting with a name, a logo, a Facebook page and a website. Take out some social media ads targeted to your local area, featuring the latest cars you’ve got in stock.
 
You could step up your marketing plans by investing in graphic design for a great look for your brand; printing and delivering flyers; or taking out adverts on billboards or in the local media. But if you’ve reached this stage, you should consider hiring marketing experts. As your business grows, you can’t afford to be spread too thinly.
 A car salesman handing over the keys of a car to a customer

Top tips for growing your motor trade business

No matter how hard you have worked to get your company up and running, you can’t take your foot off the pedal now.

A company that rests on its laurels is one that’s likely to fail. So how do you get ahead of your competitors, stay up to date with new developments, and create exciting new opportunities for growth?
 
Here are a few tips to consider once you’ve got your business into gear:
 
1. Invest in staff. You can’t do it all. Perhaps a sales assistant can focus on customer-facing elements, while you handle the admin?
 
2. Take out further loans or other financing options. It’s scary – but nothing ventured, nothing gained! There are many different financing options, and some are low risk.
 
3. Invest in good accountancy, either in-house or outsourced. Not only will this keep you on the right side of the law, but it could save you money: accountants will know exactly what business expenses are allowable, reducing your tax bill.
 
4. Invest in marketing, either in-house or outsourced. Your marketing experts will come up with a strategy and plan that will help your company grow.
 
5. Keep training. If you know you’re weak in one area, or you spot a skills gap in your workforce, invest in continual professional development (CPD).
 
6. Once your business has grown, could you offer franchises of your brand? That can be a great move for your motor trade business.
 
7. What’s the next big thing in your industry? Electric cars, perhaps? Don’t get left in the slow lane! Start researching them now, perhaps even taking training in maintenance and repairs and upskilling any employees.
 
8. How can you add value to the service you provide to your customers? Whether it’s great after-sales or extended warranties, make sure you’ve got something to offer them that puts you above your competitors.
 
9. There’s a lot to take in. So consider joining a professional body such as the Retail Motor Industry Federation for ongoing training, resources and support.
 
 

Conclusion

So that’s our definitive guide to setting up a motor trade business. Is there anything you think we’ve missed?
 
Let us know in the comments below.
 
Starting any new business takes a certain amount of confidence, but with the right research under your belt, you’ll be the owner of a thriving motor trade business in no time.