Should I Start an LLC for My Car Detailing Business?

Starting a limited liability company (LLC) for your car detailing 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 car detailing business, lawsuits can arise from things like customers injuring themselves on machinery in your shop and employees negligently scratching a customer’s car while working on it.

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

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

Do I Need an LLC for a Car Detailing Business?

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

You should form 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 Car Detailing Business

By starting an LLC for your car detailing 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.

Car detailing businesses will benefit from liability protection because of the relatively high risk involved with performing any sort of auto-related work.

Example 1: A curious customer wanders into your garage and injures their hand on some machinery. They demand you pay for their medical expenses. With your status as an LLC, limited liability ensures your personal assets cannot be seized for the cost.

Example 2: While performing work on a customer’s car a device malfunctions and damages the body of the car. The customer demands for you to pay for the repair cost. Limited liability covers you as the owner of the LLC, protecting your assets so only the business’ assets could be targeted in a lawsuit.

Example 3: A customer sues you after they get into a car accident, claiming that your business was responsible. Being an LLC, limited liability will keep your assets out of the case, with mandated payments only coming from business assets.

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 Car Detailing 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 car detailing 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

Car detailing 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 trusted 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 limited liability protection from being an LLC protects your personal assets, not your business assets.

Having insurance can protect the expensive equipment and tools utilized to detail vehicles, so if they become damaged insurance can help cover the costs to repair or replace them.

Common Situations Business Insurance May Cover for a Car Detailing Business

Example 1: In your specialized business, your workers rely heavily on large equipment to assist in the detailing process. If a customer wanders into the garage to check on their car as it sits on the lift, they could be burned, scraped, or slip and fall on tools on the floor. In this line of work, it's nearly impossible to prevent every possible accident from ever taking place. Luckily, general liability coverage can step in to help cover damages if you're sued by an injured customer.

Example 2: If you're working in a busy garage and one car rolls back into another, it could cause thousands of dollars in damages to both vehicles. While minor scrapes and dings can easily be paid for out-of-pocket, you don't want to be stuck paying for serious damages. Large-scale property damage to a third party's property should be covered by your comprehensive general liability policy.

Example 3: While it’s important to employ a team that takes workplace safety seriously, in the car detailing business, a wide variety of cleaning solutions and oils are used to make each car look its best. If a car detailing product is spilled or not cleaned properly, there is a risk for employees to slip and fall. With general liability insurance, you can rest easy knowing that most accidents, damages, and bodily injury situations are covered in case of a lawsuit.

Other Types of Coverage Car Detailing 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 car detailing businesses should obtain.

Garage Keepers Liability

Depending on the services you offer, it may be necessary to store customer vehicles on-site for several hours or even overnight. If a customer’s car is vandalized or stolen while on your property and you don’t have proper insurance, you could be held responsible for damages and left to repair or replace the vehicle by paying out-of-pocket.

Workers’ Compensation Coverage

Most business types must carry workers’ compensation insurance if they have any part-time or full-time employees. If an employee becomes sick or injured on the job, this type of insurance coverage works to cover their lost wages and related medical bills. Working with vehicles is a serious and potentially dangerous business, which is why it’s so important to make sure that your team is adequately covered in the event of an accident.

Commercial Auto Insurance

If your car detailer shop offers loaner vehicles to your customers or you use your own service vehicles, you are most likely required to invest in commercial auto coverage. Any vehicles that are used solely for business purposes should be covered under a commercial auto insurance policy to help protect your employees, customers, and your bottom line in the event of an accident.

Commercial Umbrella Liability

Whenever a business involves working on and around vehicles, there are a number of different risks to protect against. In fact, it is common for the expenses associated with accidents in these high-risk workplaces to exceed the limits of a primary insurance policy. With the help of commercial umbrella liability insurance, you can supplement your primary coverage for additional protection.

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.

Read our Car Detailer Business Insurance article for more info.

Car detailing business requires very little investment capital. Industry leaders estimate an initial budget of $5,000 to $25,000.

If you are considering investing in one of the many franchising opportunities, your startup budget should be significantly higher, around. $118,000

Ongoing expenses are estimated to be fairly minimal:

Fuel cost.
Tool upkeep.
Insurance.

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

Some of the operating expenses for a car detailing business are cleaning supplies, insurance, and marketing.

Learn more about running a car detailing business.

Car detailing businesses make money by offering car cleaning and restoring services to customers.

Learn more about starting a car detailing business.

A car detailing business provides auto cleaning and restoration services. Car detailing businesses can be relatively inexpensive to start, which potentially means more profit in your pocket. You have the option to provide a mobile service, open an on-site location, or both, this gives you the flexibility to find the best way to attract customers in your area.

Learn more about starting a car detailing business.