How To Start A Car Repair Shop | The Complete Guide For Beginners
This is indeed a good business idea to start. But, before you even plan of starting such a business, you need to have a better knowledge of car repairing.
This business employs automobile mechanics who provide repairs and vehicle maintenance to consumers and businesses. The car repair shop might also offer services like custom installation of stereo and alarm systems, window tinting, and aftermarket upgrades.
How To Start A Car Repair Shop
1. Plan Your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What Are The Costs Involved In Opening A Car Repair Shop?
Costs for starting a shop vary, but generally include:
- Business license: $50 to $100.
- ASE certifications: $36 registration fee, one time, plus $39 per certification, except L1, L2, and L3 certs which are $78.
- Insurance: $4,000/yr.
- Mechanic’s hydraulic lift: $3,700.
- Diagnostic machine: $5,000 to $10,000.
- Shop rental fees: $1,500 to $15,000/mo.
- Mechanic’s toolset with specialty tools: $15,000.
- Total Cost: $50,000+
What Are The Ongoing Expenses For A Car Repair Shop?
Ongoing expenses for the business include shop rental (unless the business owner owns the shop building), insurance, and labor costs.
Mechanics can be paid anywhere from $25 flat rate per hour up to $100 per hour.
Insurance can cost shop owners $4,000 per year.
Overhead and supply costs vary but may cost a shop between $10,000 and $20,000 per month, depending on the size of the shop.
Who Is The Target Market?
Clients for auto repair businesses are unique in that they all have one thing in common: a broken or serviceable vehicle. The best types of customers are those with a service contract. Ongoing service contracts ensure a steady income for the shop and reduce cash flow problems both in the short and long-term.
The worst type of customers may be one-time customers who take advantage of special discounts. These types of customers are price shoppers and may actually cost the shop money.
How Does A Car Repair Shop Make Money?
An auto body shop or car repair shop makes money by charging a flat fee or hourly rate for service. In some shops, owners set routine maintenance fees, charging a set price for simple maintenance like an oil change. In other shops, all work is based on parts and labor costs.
How Much Can You Charge Customers?
Labor rates vary depending on how the shop is set up. At a dealership, mechanics are paid differently than at an independent shop. One of the main factors in labor rates is location. Mechanics usually earn more in cities and areas where vehicles are more expensive to maintain (usually this means a high concentration of high-end or luxury vehicles).
An independent shop usually charges customers between $70 and $100 per hour. Dealerships charge between $80 and $150 per hour.
Some shops charge customers a flat fee for services, like routine maintenance (e.g. oil changes, brake changes, and tune-ups).
How Much Profit Can A Car Repair Shop Make?
According to US News, mechanics make between $30,000 and $50,000 per year. So, a one-man shop could expect to make around this much. The owner of a larger shop can easily make $100,000+ per year by managing a small team of mechanics.
This article gives a percentage breakdown of costs vs. revenue. Of course, the exact percentage may vary depending on where your shop is located, whether or not you’ve specialized in some aspect of automotive repair, and the general market demand for your services.
How Can You Make Your Business More Profitable?
Making the business more profitable isn’t easy. Owning a shop is hard work. Pulling in extra income is usually a matter of specialization. Converting a general auto repair shop into a transmission specialist, for example, would help increase profits due to the fact that the shop can charge customers more for specialized work. This is especially true if your shop is the only specialty shop in the area.
What Will You Name Your Business?
Choosing the right name for your business is very important. That alone needs thorough planning because you need to relax your mind before you can get the right name for your business.
2. Form A Legal Entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your car repair shop is sued. There are many business structures to choose from including Corporations, LLCs, and DBAs.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
3. Register For Taxes
You will need to register for a variety of state and federal taxes before you can open for business. In order to register for taxes, you will need to apply for an EIN. It’s really easy and free!
4. Open A Business Bank Account & Credit Card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open A Business Bank Account
- This separates your personal assets from your company’s assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get A Business Credit Card
- This helps you separate personal and business expenses by putting your business’ expenses all in one place.
- It also builds your company’s credit history, which can be useful to raise money and investment later on.
5. Set Up Business Accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
6. Obtain Necessary Permits And Licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
All car repair shops must comply with federal and state-level environmental regulations. A checklist for compliance with federal environmental regulations can be found here.
In most states, it is necessary to obtain a car repair shop license. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Certificate Of Occupancy
A car repair shop business is generally run out of a “garage,” a retail location uniquely equipped to store and repair cars. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
If You Plan To Lease A Garage:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a Car Repair business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
If You Plan To Purchase Or Build A Location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your Car Repair business will be in compliance and able to obtain a CO.
7. Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, worker’s compensation insurance may be a legal requirement in your state.
8. Define Your Brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How To Promote & Market A Car Repair Shop
Finding new customers is usually done by word of mouth but mechanics also network with other businesses that might need their services. For example, a shop might partner with a local taxi company or limousine service to offer regular repairs and maintenance.
How To Keep Customers Coming Back
An auto repair shop can differentiate itself by offering services most shops don’t offer. For example, a shop might position itself as the only shop in the area offering custom installations of stereo and alarm equipment. A repair shop can also differentiate itself by narrowing its focus and specializing in specific makes and models.
For example, an auto repair shop that specializes in Hondas or Toyotas would set itself apart from a general mechanic’s shop. Auto body repair is another specialization.
9. Establish Your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.