Two auto mechanics working on a car that is on the lift
ComplianceMarch 08, 2022

How to open an auto repair shop

small business services

Kickstart your new business in minutes

Find out what business type is right for you

Subscribe to Tax Talks Today

The auto repair business is a $383 billion industry employing 4.4 million people. With new vehicles in short supply, the average age of vehicles is increasing creating favorable conditions for service and repair shops. And as Americans hit the road once again and put more miles on the odometer, the opportunities for entrepreneurs in this market are significant.

If you’re interested in getting into the business, here are some key steps to starting an auto repair shop.

Have a business plan for your auto repair shop

A well-thought-out plan can guide your strategy, identify risks, and help you secure funding to expand and grow your enterprise.

Base your plan on research and analysis of the specific market you’ll be entering. Don’t forget to include details of your experience and expertise in the industry so that you can demonstrate that you have what it takes to succeed and be profitable.

It’s also helpful to demonstrate that you understand the risks of starting an auto repair company and have a plan to overcome any pitfalls.

Use your plan to demonstrate your operational aptitude. For example, include details on how you’ll build your client base, track finances (expenses, profit and loss, cash flow, etc.), and manage your taxes and choice of business structure.

To help you get started, here’s a suggested outline for your auto repair shop business plan:

  • Executive summary: A brief overview of your business and why it will be successful
  • Company description: Provides detailed information about your business and explains your competitive advantages.
  • Organization and management: How your company will be structured and who will run it. For example, will it be a partnership, LLC, S-Corporation? Who will be responsible for day-to-day management?
  • Market analysis: The auto repair market is a crowded one and it’s important to understand the state of the industry before you launch your business. Check out online reviews to gauge the strengths and weaknesses of auto repair shops in your area.
  • Services: Determine what services you will offer. Your options include transmission or engine repair, oil changes, auto body repair, tire and battery, and so on. You may also want to sell auto parts or products to boost your revenues.
  • Future services: Outline any future services you might offer once your business turns a profit and has a solid body of clients.
  • Financial plan: Include a description of your funding requirements, your detailed financial statements, a financial statement analysis, and your profit and loss projections for the next five years.
  • Sales and marketing strategy: Outline your strategies for reaching the right people, communicating your value differentiator(s), and selling your services.

Determine how much it costs to open an auto repair shop

To understand the total projected cost of starting your business, calculate your fixed and variable costs. Whether you choose to buy an existing business or remodel a space will have a big impact on your startup costs.
Your most common and expensive line items will be rent, equipment, insurance, and permits. These will likely cost in the region of $50,000. You must then account for salaries, marketing, property alterations, and so on. So be prepared to budget higher to get your business started.

What are the ongoing expenses for an auto repair shop?

The ongoing expenses for an auto repair shop include, but are not limited to, the following

  • Employee salary and benefits
  • Rent and utilities
  • Repairs and maintenance
  • Insurance
  • Supplies
  • Taxes
  • Advertising and promotions

Is owning an auto repair shop profitable?

According to the U.S Bureau of Labor Statistics, the median annual salary for automotive service technicians and mechanics is $44,050. However, experienced auto body shop owners can expect to earn closer to $70,000.

Determine what to charge

Most auto body repair shops quote a labor charge based on the average time it takes a technician to perform a repair. You can multiply that time by your hourly labor rate to reach a total labor charge. Remember to include your employee hourly rate, capital costs, and profit margin in the hourly rate.

To attract and build your customer base, you might choose to start at a lower price point. Alternatively, you could set a higher price point to reinforce the value of your services. It’s also a good idea to check out what your competitors charge.

Pick a business structure

Your choice of business structure – whether it’s a limited liability company (LLC), corporation, or partnership – will impact your daily operations, taxes, and the amount of risk you’re willing to take with your personal assets. Choose a business structure that balances legal protections and benefits.

The four most common are:

  • Sole proprietorship: This means that the business is owned and run by one person with no legal distinction between the owner and the business.
  • General partnership: A general partnership is the simplest variety of partnerships and is created automatically when two or more persons engage in a business enterprise for profit. No state filing is required.
  • Limited liability company (LLC): This is one of the most popular forms of business entity for small businesses. An LLC offers limited liability protection (shielding your personal assets by protecting them from debts and liabilities associated with the company) and pass-through taxation.
  • Corporation: A corporation is a separate legal entity owned by its shareholders, thereby protecting owners from personal liability for corporate debts and obligations.

For more information on business entity structures, read Comparing company types.

Choose a business name

Naming your business may not be as simple as it seems. When selecting a name, try to make the name short, easy to remember, descriptive of the business, and capable of drawing attention. Depending on the business form you choose, you may have to register and/or receive approval from the local or state government where your business is formed.

For more information on naming rules for different entity types, read Naming your startup business.

Register your business

Depending on the location and business structure of your auto repair company, you may need to register your new business with your state and/or local government.

To do this, LLCs, corporations, and general partnerships must register (online or through the mail) with the Secretary of State or business agency where they conduct business.
Importantly, if you choose to operate your business under a name other than your personal name (even if you are a sole proprietor), you will need to register that business name with state and/or local governments a process known as filing a “doing business as” (DBA) name.

Get federal and state tax IDs

Before you can pay business taxes, you may need to register your business with the IRS and obtain an employee identification number (EIN). An EIN is the equivalent of a social security number for your business and is required on your state and federal tax filings. (Note: If you’re a sole proprietor without employees, then you don’t need an EIN. Instead, you will file your taxes using your social security number.)

An EIN is also needed to open a business bank account and ensure the separation of your business and personal finances.

You may also require a state tax ID. Typically, you’ll need to get an EIN before you apply for your state tax ID. Check with your state or a business lawyer, as the process will vary by state.

Open a business bank account and credit card

A business bank account and credit card keep your personal and business transactions separate and afford certain legal protections. For example, if you operate an LLC or corporation, maintaining a business bank account helps you maintain liability protection and the security of your personal assets in the event your business is sued or found liable.

A bank account and credit card also help build business credit — something that suppliers and vendors will verify before transacting business with you. For this reason, consider opening your business accounts as soon as you start incurring business expenses or accepting money.

Find a location for your auto repair shop

Scout out locations in high-traffic areas where customers will find your business. It’s a good idea to locate your auto repair shop reasonably close to a residential area so that customers don’t face steep towing costs. Ensure you have plenty of space for parking vehicles, a lobby, waiting area, and product display.

Be sure to research zoning laws since some areas are zoned for certain types of businesses and buildings.

Get standard licenses and permits

Most small businesses need some form of business license or permit to operate. These vary by business type, location, and regulations. Your state or local government may also require you to obtain the following:

  • Basic business operation license: This is a license from the city in which your business will operate, or from the local county (if the business will be operated outside of the city's legal boundaries).
  • Zoning and land use permits: Local governments’ zoning laws may prohibit certain business activity in designated areas.
  • Building permit: If you plan on remodeling or building a commercial space, you'll need to get a building permit.
  • Sales tax license/sellers permit/resellers permit: This license/permit has many names and those names vary by state, but it is required for the selling of almost all products and services.

Special license requirements for auto repair shops

Most states issue auto industry licenses through their Department of Transportation or DMV. To determine which application you must file, find out what classification your business falls into. You will also need to file supporting documentation and attachments such as proof of insurance, a surety bond, financial statements, a credit report, and more.

Special licenses for auto repair shops incur an application fee. These can range from $100 to over $1,000.

Once you’ve obtained your license, be sure to maintain it and keep up with renewals.

Insurance for auto repair shops

Insurance policies that your auto repair business will need to obtain include:

  • General liability insurance: This protects you from injury or accident claims, property damage, and false or misleading advertising.
  • Commercial property insurance: Covers the costs of repair or the replacement of damaged assets.
  • Workers’ compensation: Covers your business from medical expenses or lost wages in the event an employee is ill or injured.
  • Garage insurance: Covers auto repair businesses from liabilities such as a customer injury or damages from faulty work.

Note: If you are leasing property, the lease agreement may require certain insurance limits.
Always consult a trusted insurance broker to ensure you get the right coverage.

Finance your auto repair shop

There are several ways to finance your auto repair shop. A small business loan can cover many of your startup costs. To increase your chances of getting a loan from a traditional lender, you must have a robust business plan, financial projections for the next five years, a budget, and a solid credit history.

If you don’t qualify for a traditional loan, consider a U.S. Small Business Administration (SBA) loan program such as the SBA 7(a) loan. This can be used for almost any business purpose, such as constructing your auto repair business, purchasing equipment, buying an existing building, and refinancing. Another option is the SBA 504 loan program. This offers lower down payments and interest rates and can be used for commercial real estate, heavy equipment, and other fixed assets.

Hire technicians

If you start solo, you can probably do much of the work yourself. But it’s a good idea to hire front-of-house staff to handle calls and customers. If you intend to hire employees, including mechanics, start the hiring process a month before your open date. This will allow enough time for the candidate search, interviews, background checks, and negotiating an offer.

Reach out to local community and tech colleges to find talent and get involved in automotive programs at these institutions so that you can make connections.

Once you’ve found quality hires, invest in training. This will ensure your team is as successful and efficient as possible. Training also shows that you value your employees and are invested in their future.

Consider ASE certifications for your technicians

The Automotive Service Excellence (ASE) test and certification demonstrate that your technicians are certified in quality vehicle repair and service. This is issued and regulated by the National Institute for Automotive Service Excellence. In addition to passing an ASE certification test, automotive technicians must have two years of on-the-job training in automotive repair to qualify for certification. To remain ASE-certified, professionals must retest every five years to keep up with advancing automotive technology.

Promote your auto repair business

Think about how you will get the word out about your auto repair business. Here are some tips:

  • Launch a website: Create a website that lists your services and is optimized for search engines. This will ensure your business ranks high when someone searches for a local repair shop. Use key search words and phrases in your body copy, headers, and metadata. Finally, be sure your website is designed with desktop and mobile users in mind. For more information, read Top 3 tips for building a company website.
  • Launch a social media presence: Set up business pages and accounts on Facebook, Yelp, Google My Business, and Instagram. Regularly post updates, news, and specials. Consider paying for sponsored ads on Facebook and Google.
  • Get positive reviews: Online reviews can make or break a business. Think of ways to solicit reviews of your services from your customers. Monitor reviews on social media and diplomatically respond to any unfair negative reviews.
  • Network: Introduce your business to local businesses such as local towing companies and other firms that might want to partner with you. Join your local chamber of commerce and other small business groups.
  • Communicate value: Customers aren’t always looking for the cheapest service or repair, so be sure to develop a value proposition that differentiates your business from the next one. You can also build value through rewards programs, superior customer service, and an active online presence.

Prioritize the customer experience

No one looks forward to an auto repair, so find ways to go above and beyond to make the experience easy and convenient. Here are some tips:

  • Train your advisors and customer-facing staff to put the customer first and communicate in a friendly, professional, and courteous manner.
  • Offer value-add services like pick-and-drop options, such as a free Uber ride.
  • Keep in touch with customers with email or text-based service reminders, specials, and news updates.
  • Make your waiting area as comfortable as possible with seating, refreshments, Wi-Fi, and magazines.

Learn more from BizFilings

BizFilings is dedicated to making starting a business easier so you can focus on doing what you love. For more information, check out our state guides for LLCs and corporations.

small business services

Kickstart your new business in minutes

Find out what business type is right for you

Subscribe to Tax Talks Today

Back To Top