Start a car repair shop by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your car repair shop. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 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 much can you charge customers?
- 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 tool set 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 steady income for the shop and reduce cash flow problems both in the short and long-term.
The worst type of customers may be the 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 cost.
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 such specialty shop in the area.
What will you name your business?
Choosing the right name is very important. If you don’t have a name in mind already, read our detailed guide on how to name a business or get some help brainstorming a name with our Car Repair Shop Business Name Generator.
Then, when registering a business name we recommend checking if the business name is available in your state, federally by doing a trademark search, searching the web, and making sure the name you choose is available as a web domain to secure it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 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, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 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!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 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.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
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.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
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.
STEP 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.
STEP 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.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
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 an 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 you business’ location to ensure your Car Repair business will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 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.
STEP 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.
Start A Car Repair Shop In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
This business is good for people who are mechanically-inclined. In most states, a license is required to work as a mechanic. Each vehicle manufacturer typically has proprietary processes and service protocols that a mechanic must follow. Because of this, specialized schooling is a practical necessity.
Business owners usually work long hours away from their families.
Want to know if you are cut out to be an entrepreneur?
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What happens during a typical day at a car repair shop?
Business owners usually have to check maintenance logs first thing in the morning, check upcoming appointments, and meet with shop managers about various stock or supply needs. If the owner also works in the shop, then a typical day will involve working on a variety of different vehicles.
A shop owner must also negotiate contracts with local businesses that provide revenue. For example, if a shop partners with a taxi company to provide maintenance services, then the owner would need to negotiate the contract and terms.
What are some skills and experiences that will help you build a successful car repair shop?
Mechanics need special training, usually Automotive Service Excellence (ASE) certification, in addition to general automotive education. Some high schools also provide Automotive Youth Educational System (AYES) programs for young people interested in a career in automotive repair.
Experience in an auto repair shop is helpful prior to starting your own shop.
What is the growth potential for a car repair shop?
A small auto repair shop can be run out of an individual’s garage in some states. While licensing is usually necessary, there are typically no restrictions on how the shop owner operates the business as long as all local codes and ordinances are obeyed.
A large operation it usually run out of a commercial shop, which is purpose-built for the business, including mechanical and hydraulic lifts, a commercial paint booth, professional tools, and diagnostic computers.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
How and when to build a team
Most auto repair shops start as a one-man shop or a small team of mechanics. It makes sense to hire employees when current workload exceeds the mechanics’ ability to service customers. This may happen immediately or after a few years. One of the first roles to fill should be customer service. While mechanics are vital to the success of an auto repair shop, it’s customer service that keeps customers coming in the door.