Should I Start an LLC for My Small Engine Repair Business?

Starting a limited liability company (LLC) for your small engine repair business can provide several benefits.

Most importantly, an LLC structure offers limited liability to its owners, which can protect their personal assets from lawsuits and creditors.

For a small engine repair business, lawsuits can arise from things like substandard engine repairs that cause a vehicle further damage or unauthorized repairs that actually harm the customer’s engine.

LLCs are also affordable, highly flexible (from a tax point-of-view), and can make your small engine repair business seem more credible.

Recommended: Use Northwest to form an LLC for $29 (plus state fees).

Do I Need an LLC for a Small Engine Repair Business?

LLCs are a simple and inexpensive way to protect your personal assets and save money on taxes.

You should start an LLC when there's any risk involved in your business and/or when your business could benefit from tax options and increased credibility.

LLC Benefits for a Small Engine Repair Business

By starting an LLC for your small engine repair business, you can:

Protect your savings, car, and house with limited liability protection
Have more tax benefits and options
Increase your business’s credibility

Limited Liability Protection

LLCs provide limited liability protection. This means your personal assets (e.g., car, house, bank account) are protected in the event your business is sued or if it defaults on a debt.

Small engine repair businesses will benefit from liability protection because of the risk of being sued if a customer or employee is injured on company property. In addition, an employee could accidentally damage property belonging to someone else.

Example 1: As your employee makes an effort to fix a company's concrete mixer, a heavy part of the machine he disassembled falls and crushes his hand, causing him injury. If he sues for compensation, your business may be required to compensate, but your personal assets will be shielded by the LLC.

Example 2: While fixing the internal combustion engine of a client's broken lawnmower, his curious child comes around. As you try to move him to safety, he trips over, and the machine's handle injures him. His parents insist the fault is yours and sues you for damages. The lawsuit may affect your business assets, but your personal assets will remain safe.

Example 3: A client hires you to fix a minor engine fault. Five days after repairs, they notice a new fault. They claim that the recent problem is a result of your poor handling and demand that you fix it for free. If you refuse and they sue, your business assets could be affected, but your personal assets will be shielded.

An LLC will also protect your personal assets in the event of commercial bankruptcy or loan default.

To maintain your LLC's limited liability protection, you must maintain your LLC's corporate veil.

LLC Tax Benefits and Options for a Small Engine Repair Business

LLCs, by default, are taxed as a pass-through entity, just like a sole proprietorship or partnership. This means that the business's net income passes through to the owner's individual tax return.

The business’s net income is then subject to income taxes (based on the owner's tax bracket) and self-employment taxes.

Sole proprietorships and partnerships are taxed in a similar way to LLCs, but they do not offer limited liability protection or other tax options.

S Corp Option for LLCs

An S corporation (S corp) is an IRS tax status that an LLC can elect. S corp status allows business owners to be treated as employees of the business (for tax purposes).

S corp tax status can reduce self-employment taxes and will allow business owners to contribute pre-tax dollars to 401k or health insurance premiums.

The S corp status requires that the business pay the employee-owner(s) a reasonable salary for the work they perform.

In addition, the business might need to spend more on accounting, bookkeeping, and payroll services. To offset these costs, you'd need to be saving about $2,000 a year on taxes.

We estimate that if a small engine repair business owner can pay themselves a reasonable salary and at least $10,000 in distributions each year, they could benefit from S corp status.

You can start an S corp when you form your LLC. Our How to Start an S Corp guide will lead you through the process.

Credibility and Consumer Trust

Small engine repair businesses rely on consumer trust. Credibility plays a key role in creating and maintaining any business.

Businesses gain consumer trust simply by forming an LLC.

A growing business can also benefit from the credibility of an LLC when applying for small business loans, grants, and credit.

Northwest will start an LLC for you for just $29 (plus state fees).

Get Started

How to Form an LLC

Forming an LLC is easy. There are two options for forming your LLC:

You can hire a professional LLC formation service to set up your LLC for a small fee
Or, you can choose your state from the list below to start an LLC yourself

Select Your State

For most new business owners, the best state to form an LLC in is the state where you live and where you plan to conduct your business.

Do LLCs Need Insurance?

All businesses need insurance to protect their business assets — even LLCs. This is because the limited liability protection from an LLC protects your personal assets, not your business assets.

Small engine repair businesses need insurance to cover risks such as damage to repair tools and equipment, and clients' and employees' lawsuits.

Common Situations Business Insurance May Cover for a Small Engine Repair Business

Example 1: One of your repair technicians accidentally knocks over a line of electric generators from a landscaping customer. Most of the generators require minor repairs, but a few need a full replacement. Your general liability policy would cover the repair and replacement costs for the broken generators.

Example 2: During a routine pick-up, one of your employees forgets to secure a strap that would properly secure the vehicle being towed. This results in the car detaching from the truck which causes major damage to the car. General Liability Insurance would cover the damage done to the customer’s vehicle.

Example 3: While testing a customer’s lawn mower, you temporarily lose control of the machine and run over the customer’s foot. General liability insurance would pay for the customer’s medical bills related to the accident as well as your legal fees and any damages if the customer pursues a lawsuit.

Other Types of Coverage Small Engine Repair Businesses Need

While general liability is the most important type of insurance to have, there are several other forms of coverage you should be aware of. Below are some other types of insurance all small engine repair shops should obtain:

Commercial Auto Insurance

Every vehicle you use for business purposes—from deliveries to towing—requires commercial auto coverage. If you use personal vehicles for work-related duties, your personal car insurance won’t pay for damages to your car in the event of a work-related accident. Commercial auto insurance protects all vehicles you use on-the-job in the event of an accident.

Workers’ Compensation Insurance

Most states require businesses to carry workers’ compensation insurance for their part-time and full-time employees. This coverage protects your employees if they become injured at work or fall ill after a work-related accident. It not only covers an employee’s medical bills and lost wages if they need time to recover but also any disability benefits stemming from a work-related accident.

Commercial Umbrella Insurance

While your general liability insurance policy covers most claims, some accidents or lawsuits may be so catastrophic that they threaten to exhaust the limits of your primary coverage. Commercial umbrella insurance protects you from paying out-of-pocket for any legal fees and awarded damages that exceed your primary policy.

Crime Insurance

If a burglar steals a customer’s property from your shop or you encounter an instance of employee dishonesty, crime insurance protects your business by covering any costs related to the incident.

Should I Start an LLC FAQ

Choosing the right business structure depends on your business’s unique circumstances and needs. However, unless your business is very low risk (like a hobby), an LLC is likely the better option.

Visit our LLC vs. Sole Proprietorship guide to learn more.

At a minimum, you’ll need general liability insurance, commercial property insurance, and workers’ compensation insurance if you have employees.

Read our Small Engine Repair Business Insurance article for more info.

The cost to start this business can be meager if you already have the space and tools, especially if you don’t have a large client base yet. Importantly, you should consider buying additional liability coverage for your business.

Visit our How to Start a Small Engine Repair Business guide to learn more about the costs of starting and maintaining this business.

Small engine repair businesses typically have low expenses, but owners will have to pay for insurance, salaries, and continuing education. They also will have to rent commercial space.

Learn more about running a small engine repair business.

A small engine repair business owner charges customers for their work. Prices will be based on the skill level and tools needed to do a particular job, as well as demand and how much the item being repaired originally cost.

Learn more about starting a small engine repair business.

A small engine repair business fixes and maintains engines that power vehicles or other types of machines, such as lawnmowers or generators.

Small engine repair businesses can make a good profit if their business volume is high enough. This could involve, for example, repairing six to eight small engines a day.

Learn more about starting a small engine repair business.