Business Overview

This business is needed because of the large demand for vehicle customization. Since all jobs are customized or fabricated on-site, the complexity of each job varies with the customer and request. The market for this business consists mostly of automotive enthusiasts.

Who is this business right for?

Custom car shops appeal to entrepreneurs who are automotive enthusiasts and love engineering and designing. As a custom car shop owner, you need to be willing to work long hours, manage a team of technicians, and love working with your hands. You also need to have a passion for the automotive enthusiast community, which tends to have its own unique culture apart from the general population.

What happens during a typical day at a custom car shop?

Custom car shops appeal to entrepreneurs who are automotive enthusiasts and love engineering and designing. As a custom car shop owner, you need to be willing to work long hours, manage a team of technicians, and love working with your hands. You also need to have a passion for the automotive enthusiast community, which tends to have its own unique culture apart from the general population.

If you have a team of mechanics, you also need to manage your crew. If your mechanics are on a flat rate flag system, you must set up jobs for them throughout the day.

What is the target market?

Custom vehicles appeal to the automotive enthusiast crowd, which is a subset of the general population. Most jobs are sold retail to customers. Some shops, however, do work with corporation or governments, offering fleet work for these organizations.

How does a custom car shop make money?

This business depends on consumers coming into the shop, requesting custom work on their vehicle. The shop is paid a fee for this service. Generally, the fees are variable and depend on the job being performed. Some fees are flat or fixed-rate, while others are variable and billed by the hour.

Customers pay the shop and the shop pays the mechanic for the work performed.

What is the growth potential for a custom car shop?

It is difficult to run a custom car shop out of a small location. Usually, a large warehouse (40’ x 80’-100’) with at least 8 service bays is required. This is because at least one bay will be needed for a paint booth, while two more are needed at prepping and staging areas for the mechanics to prepare a vehicle for paint (if you offer these services).

The remaining bays are for non-body work and maintenance work.

However, some custom shops do specialize in certain kinds of customizations (e.g. custom stereo installation). These shops can be run out of a large garage.

Custom car shops can expand to service more customers, even opening multiple locations should demand exceed the capabilities of the first shop.

Getting Started

What are some skills and experiences that will help you build a successful custom car shop?

ASE certifications are great to have for a business like this because it shows professionalism. However, you’ll also need extensive experience and training in the specific types of customizations your shop will perform.

Opening a custom car shop requires familiarity with building and rebuilding, repairing vehicles, and experience with customizing various makes and models. This experience is best developed working for an existing successful custom car shop. Customization of automobiles is also driven by trends. So, you need to keep your finger on the pulse of the market and follow the current trends.

It’s also important to pay attention to regulations, since modifications must comply with local, state, and federal law. Some customizations, like window tints, may be restricted or illegal and exhaust pipes need to comply with EPA regulations.

What are the costs involved in opening a custom car shop?

Costs for starting a custom car shop vary and generally depend on location. However, basic costs include:

  • Air compressor - range from $100 used to $2,000 new
  • Refrigerated evaporating system - $1,500 to $3,500
  • Jitter bugs, dual-action sanders - $200
  • Sanding blocks - $0.50 to $1 each
  • Masks and paint suits - $250
  • Cabinet (for solvents, paints, and cleaners) - $80 to $2,500
  • HVLP guns of different sizes - $500 to $1,000 each
  • Lift - $1,500 to $3,000 each (you will need between 3 and 5 of these)
  • Air tools (like impact, air nozzle, etc) - $60 to $200 each
  • Tools to stock boxes - $150 for basic 50 to 100-piece mechanic’s tool set; $40,000 for a 1,390-piece comprehensive set
  • Parts washer - $100 to $200
  • Diagnostic machine - $3,000 to $4,000
  • Rebuilding counters - $400
  • Woodworking tools - $200 for a basic set
  • Fiberglass tools - $100 for a basic set
  • Electrical tools for stereo and complete body wiring - $150 to $300

These are basic costs. Total costs may be higher, depending on the specific needs of your business.

What are the steps to start a custom car shop?

Once you're ready to start your custom car shop, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:

STEP 1: Plan your Business

A clear plan is essential for success as an entrepreneur. A few important topics to consider are:

  • What are the initial costs?
  • Who is your target market?
  • How long it will take you to break even?
  • What will you name your business?

Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.

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STEP 2. Form a legal entity

Establishing a legal business entity such as an LLC prevents you from being personally liable if your security guard company is sued. 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.

STEP 4. Open a business bank account

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 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.

STEP 7. Get Business Insurance

Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.

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.

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.

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Select your state below for an in-depth guide on completing each of these steps in your home state.

Where can I 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.

What are some insider tips for jump starting a custom car shop?

Getting started in this business is expensive. A few ways mechanics get around this is to start working in someone else’s shop, leasing space. You could also lease a smaller building and specialize in one or two different areas of custom work. Grow as finances allow.

Growing Your Business

How to promote & market a custom car shop

This type of business is heavily dependent on referrals. Most custom shops cater to automotive enthusiasts in a local community. Flyers and local ads may help but, ultimately, good service and quality work will help spread the word.

Recommended: Get started with local advertising for your business with a $300 credit from Yelp.

How to keep customers coming back

The most successful shops specialize in a market. For example, your shop might specialize in custom audio installations. You may not be able to do all types of audio installations when you first start out, but you could build out this specialty.

Other specialties include:

  • Wheel shop
  • Paint shop
  • Custom interiors
  • Custom alarms

How and when to build a team

While some shop owners are “one man shops,” this is a difficult business to do alone. Consider hiring a crew immediately. At minimum, you will want one mechanic to take over day-to-day service so you can run the shop and perform all managerial duties.

Legal Considerations

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a custom car shop. 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.

In addition, certain local licensing or regulatory requirements may apply. For more information about local licenses and permits:

Maintain Personal Asset Protection

Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.

Two of the simplest steps that will protect your business, and yourself, are to:

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.
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To learn more about maintaining your LLC's corporate veil, read our guide and protect your personal assets.

Services Contract

Custom car businesses should require clients to sign a services agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, and service level expectations. Here is a resource explaining the necessity of a “pre-build contract.”

Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your custom car business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.

Labor safety requirements

It is important to comply with all Occupational Safety and Health Administration requirements:

Many of the regulations for custom car shops are general. Employers must take steps to create a safe working environment and report employee injuries.

Certificate of Occupancy

A custom car shop is generally run out of a warehouse. 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 location:
    • 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 custom car shop.
    • 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 custom car shop will be in compliance and able to obtain a CO.

Car Modifications

Certain car modifications may be unlawful, depending on the regulations in each state. Here is a resource addressing the legality of certain modifications by state.

Earning Potential

How much can you charge customers?

Custom car shops charge customers market labor rates of at least $100 per hour or a flat rate for specific services. Clients typically pay for parts upfront and labor when the job is completed.

What are the ongoing expenses for a custom car shop?

Ongoing expenses after initial overhead include insurance, rent, and labor costs.

  • Rent - $1,500 to $15,000 per month, depending on location
  • Insurance - $4,000 per year
  • Labor - $20,000 to $45,000 per year, per employee
  • Supplies - Vary based on job

How much profit can a custom car shop make?

Shop owners typically make an average income of between $50,000 and $100,000 per year. The shop itself may bring in several hundred thousand or a million dollars in revenue.

How can you make your business more profitable?

Custom car shops can make more money by branching out and offering basic maintenance. In today’s economy, the market for customization is smaller than it was just 10 years ago. However, costs for customization have risen. This means work may bring in good revenue, but jobs may be sparse. Filling in with routine maintenance can help boost revenue.

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