Buying an auto repair shop is a significant investment that’ll set you back anywhere from a few hundred thousand to a few million dollars. As a new shop owner, you’ll need to invest significant time in developing your new business as well.
But is owning an auto repair shop profitable? Well, the rewards of owning an auto repair shop can be significant. Statista projects industry revenue to reach $64.2 billion by 2024 which represents 12.24% growth relative to 2020.
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So how do you access this large market? Let’s get right into it!
Buying an existing auto repair shop vs. starting from scratch?
It depends.
Buying an auto repair shop business allows you to build on the foundations of an existing business that’s already generating a profit. However, it’s important to understand why someone is selling their shop. Is it incurring losses, or have the owners decided to end their business on a high note? Either way, you should always look for potential red flags.
On the flip side, starting an auto repair shop from scratch allows you to design every aspect of it. Here’s a full breakdown of the pros and cons to both sides:
- Revenue: An existing auto repair shop will have a loyal customer base to help you make money immediately, whereas a new shop will take years to establish itself. This means that an existing business can potentially yield higher returns.
- Reputation: When you acquire an existing repair shop, you get its reputation too—which may be good or bad. A new shop will take time to build a name for itself. Either way, building a reputation is a daunting task.
- Layout: Every mechanic shop uses different tools in its daily operations. A tire shop and a diagnostics center have very different needs in terms of equipment. You can create the shop layout that suits your needs if you start from scratch.
5 things to consider before buying an auto repair shop
Ready to buy an auto repair shop? Here are five things to consider first.
1. Your goals, interests, and expectations
Before you commit to buying a mechanic shop or an auto repair shop, consider your lifestyle goals, personal interests, as well as your financial expectations. This will determine if buying is the right decision for you, which shop to buy in terms of size and income potential, or if you should own an auto repair business at all.
Answer questions like:
- Would I rather be hands-on or hands-off at my shop?
- How interesting does fixing brakes, changing oil, batteries, and managing customers sound to me? Would I rather have it all outsourced, and can I afford to?
- Would I be okay with making less money if I want to work less myself?
- How much am I able and willing to invest in an auto shop?
- What is the minimum amount of income the business must generate?
If you’re committed to the business, you’ll be more involved in its daily operations and can help it grow.
2. Shop location
An auto repair shop’s location is one of its biggest potential advantages. Here are some points to consider when assessing a shop’s location:
- Convenience: How easy will it be for customers to commute to and from your shop without their car? Is there a comfortable waiting area or restaurant for customers who want to wait?
- Accessibility: If you’ll be servicing trucks as well, consider how accessible your route is to larger vehicles.
- Resident demographics: Look for areas where household incomes are high. This can potentially increase your average repair order size.
- Competition: Your new auto repair shop should be in an area where there’s little to no competition within a two-mile radius. However, shops that you can work with are important. For instance, you might want to collaborate with a diagnostics shop if you work on engine and transmission blocks. Doing so allows both shops to benefit.
- Rent expense: Operating in an area where many cars come by may help increase your car count, but make sure that the rent isn’t unreasonably steep and you can remain profitable throughout the year.
- Public transport: Once people drop off their cars for longer jobs, they need access to transportation. You could provide loaner cars, a pick and drop service, or guide people to the nearest bus stop depending on each customer’s needs. Operating in a high-traffic area opens doors for customer transportation.
- Suppliers: Ensure that plenty of suppliers exist wherever you plan to do business. This allows you to get the best rates since there’s higher competition among suppliers and gives you backup options if you want to switch to a new one. Your supplier should have all the parts you’d need to run your shop smoothly, such as specialized equipment if you work on electric vehicles.
3. Shop reputation
When buying a business, make sure that it has an established reputation as a trustworthy and reliable company.
Stories of dishonest mechanics overcharging or making unnecessary repairs aren’t uncommon, so customers typically research auto repair shops online before they choose a place. That’s why reviews on sites like Yelp and Google can affect a shop’s margins.
This Yelp review, for example, encourages other potential customers to try this auto repair shop. That’s the kind of reputation you should look for in a shop you want to buy.
Be sure to ask around the neighborhood as well since people sometimes buy positive online reviews. If you’ve acquired a shop and want to build a name for it, consider the following:
- Be inclusive: Make everyone feel welcome at your shop—for example, look for ways to attract more women customers to your auto repair business.
- Specialize: You could set yourself apart from the competition by entering a new market. For instance, you could work on electric vehicles and charge a premium since it’s a specialized field. By working on modern technologies, you can future-proof your business.
4. Owner dependence
Automotive repair shops are customer service-oriented. Many shop owners work the front counter and service customer cars themselves to deliver stellar service.
You’ll likely lose customers after the purchase if the shop owner you buy from is heavily invested in the service side of the business. People want to get services from a person they trust—not a company. A shop that has a service writer who’s the “face of the company” is a big plus. When buying an auto shop, consider keeping staff members that have been with the business for a while and are popular among customers.
Also, make sure you have qualified technicians besides the business owner working on customers’ vehicles. According to Automotive Research, finding qualified technicians is ranked as a top threat to auto repair shops.
5. Value for money
The reason you are buying instead of starting from scratch is that an existing shop is immediately profitable.
Look out for:
- Customer lists: Outdated lists with dormant customers won’t be of much help. Before buying a shop, check that it has an accurate database of its current customers.
- Proof of profit: Look at tax returns for up to five years.
- Useless assets: Excess equipment that isn’t generating revenue inflates the selling price without adding profit.
What’s next after you buy?
Buying right and knowing how to manage a mechanic shop can help your business become successful.
Set up systems and processes to improve employee productivity, build customer trust, and boost your profit margins. Invest in auto repair shop management software like AutoLeap to schedule customer appointments, track mechanic performance, improve your online brand presence, and more to keep the business running smoothly.
