How to start an auto repair shop? What do I need to open a mechanic shop? If you ponder these questions and aspire to become the proud owner of your own automotive repair business, this article is for you.
Business planning, legal work, finance and accounting, permits, hiring, and marketing can seem intimidating, but we’ve broken out the key workstreams below to help you understand how to open a mechanic shop and what you need to open a mechanic shop. You got this! Here’s how to start an auto shop!
What do you need to open a mechanic shop?
It is good to obtain all necessary documents, tools, and finances. As you go through and plan the shop’s essentials, it will be easier to check all requirements and save you from last-minute hassle.
Business plan & legal structure
Auto shop business owners need to create an extensive business plan. The plan helps lay out the auto repair services to offer, how much capital to invest, and which type of target audience to market to.
Licenses, permits, and certifications
After you’ve registered your shop, there are a few permits and licenses to obtain. This is necessary to comply with local laws and steer clear of legal objections. Here is the list:
1. Employer Identification Number (EIN)
You need to apply for an EIN through the IRS website. This is a must-have after you have filed for your shop’s legal structure. You will receive the EIN confirmation letter instantly. Save the number because it is used for tax filings, bank accounts, and other permits.
2. General business license
To operate in a city or country, you need a general business license. You can apply on the local government website and pay a minimal fee of around $50 to $500. Submit a few documents, such as proof of business and the owner’s ID. Once you receive your license, you can use it for signage permits and insurance.
3. Certificate of Occupancy
This is a legal document given by the local government after ensuring that the building is safe and complies with all building codes. A certificate of occupancy gives you the go-ahead to use the building for business operations.
4. State sales tax
If you are thinking of selling auto parts or tires, then you need a sales tax permit. Check for your state’s revenue website, where you have to fill out the registration form, pay the fee, and receive your sales tax license number. The number is written on the invoice, against which you can charge sales tax.
5. Environmental permits
Mechanic shops would be required to dispose of waste like used oil or old tires. Since these wastes cannot be thrown in the normal trash, you would need to obtain environmental permits. You can visit the EPA’s small business environmental program to read on federal guidelines and follow them accordingly.
Essential equipment and tools
Without the right equipment, your mechanics can’t perform any repairs. So you need to invest in the basic yet most important equipment and tools for you to get started. This includes vehicle lifts, diagnostic scanners, hand tools, and specialty equipment.
Solid financial foundation
Starting a mechanic shop or an auto repair shop requires capital. It’s important to know the startup costs of a car repair shop before you dive in headfirst. A lack of financial planning has seen many small businesses fail within the first few years since their establishment.
It’s also important that you’re realistic about your total cost and revenue so that nothing surprises you when starting your automotive business. It’s also important to factor in your automotive repair shop insurance costs, too, since this investment can protect your finances.
How to start a mechanic shop in 10 steps
There are hundreds of details that you have to consider before starting your mechanic shop. We’ve made it easier for you and listed down all the important steps, from planning and licensing to becoming a profitable mechanic shop.
Step 1: Create a detailed business plan
Before anything else, you should create a business plan for your car repair shop that answers the following questions:
Mechanic services you will offer
Are you going to be a specialist shop (e.g., transmission, engine repair, or auto body repair) or offer general repair and maintenance (e.g., oil changes & multi-point inspections)? Will you differentiate yourself by focusing on specific vehicle makes or anything that runs on four wheels?
Small business owners often have limited capital and must consider the cost of specialty tools and at least have a diagnostic tool or machine for the types of services they choose to offer. Many shops specialize in a single field before diversifying into other categories.
Funding sources
How will you raise money? Will you dip into your savings to set up your garage? Is a bank loan an option? (Tip: Try negotiating credit terms or a hire-purchase deal with the heavy-duty equipment suppliers.) Starting a mechanic shop or an auto repair shop requires capital. It’s important to know the startup costs of a car repair shop before you dive in headfirst. A lack of financial planning has seen many small businesses fail within the first few years since their establishment.
Competitors
Drive around or look them up online. While a little healthy competition never hurts anyone, you should definitely be aware of who your competitors are and understand how they affect the potential of your own business. Having this information can give you an advantage in your auto repair shop marketing too. It’s easier to distinguish your shop if you know what you’re up against.
Target customers
This ties in to the type of auto repair services you plan on offering—for example, for independent shops looking to perform custom work on luxury cars, your target market will be very different from that of regular repair & maintenance work on ordinary cars. Your car repair shop needs to have a defined audience and a sound marketing strategy to attract new customers!
Build a comprehensive business plan. Ask your colleagues to review the plan and share their input with you. Pay attention to detail and avoid mistakes that will set you back after planning is complete.
Remember that a business plan isn’t set in stone, but acts as a guide to give you an estimate of where your mechanic shop should be in a certain amount of time.
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Step 2: Secure your financing
To start a car repair shop, you’ll likely need a loan to help pay for equipment, location acquisition costs, employee salaries, insurance coverage, etc. To ensure less debt and bank queries, business owners can invest their personal savings. You will have no liability or interest to pay and have full ownership of the shop. As you expand, you can explore bank loans.
Before providing a business owner with a bank loan or investing in a new business, the first question is always, “Will you be able to pay us back?”
A common source of auto shop financing among car repair shops is Small Business Administration (SBA) loans. Lenders offer more flexible terms and better interest rates for SBA-backed loans, as they are insured by the federal government. If a borrower defaults on their loan, the SBA steps in and pays a guaranteed amount to the bank to help minimize the loss. As a mechanic shop owner, you should know your options for SBA loans. There are two types:
- SBA 7(a) Loans: This loan will account for shop equipment you may require. It will also enable you to refinance your debts as needed.
- SBA 504 Loans: This loan enables you to buy items that fall in the fixed assets category. Examples include property for the shop location or new equipment. Find other SBA loan options here.
Step 3: Choose a legal structure and register your business
After finalizing your business plan, the next step is getting legalities in order.
Every new venture needs to obtain business licenses specific to the state in which it operates. Establishing your repair shop as a legal entity is no exception. A limited liability company (LLC), sole proprietorship, partnership, and corporation are the options available for the legal structure of your repair shop; each has its advantages and disadvantages in terms of taxation.
LLC | Corporation |
Owned by individuals | Owned by shareholders |
Liabilities are not transferred to the owner | Liabilities are not transferred to the owner |
Taxed as a partnership or corporation | Taxed as a separate entity |
Fewer formalities | Frequent meetings required |
An LLC or a corporation is the best option for auto repair businesses, as these will protect the owner from bearing damages out of their personal finances in the case of a lawsuit. You can register the shop under an LLC on your own, at minimal state LLC costs, or hire a professional LLC service for a small fee.
Step 4: Find the perfect location
Shop owners must consider several factors when deciding where to open their auto mechanic shop: proximity to their target market, accessibility & visibility (for walk-ins), the rent, etc. This is probably going to be the most important decision you’ll make, so weigh all the pros and cons carefully. It’s also important to decide whether you will have your own car repair shop or rent one out.
It is also important to consider zoning laws. Since operating a mechanic shop gets noisy and polluted, only a few specific zones are permitted. That’s why it’s important to check the permitted locations and choose the one that attracts more customers.
Step 5: Obtain all necessary permits and licenses
As mentioned in the permits section above, you need a business license and certain permits before opening a mechanic shop. Businesses can be subjected to heavy fines or even sealed if these regulations are not followed. All this can be avoided if you pay the state fees to get the right licenses.
For instance, since every automotive repair shop operates out of garages, a Certificate of Occupancy (CO) is mandatory, as it proves that all legal and safety regulations have been met by the garage and it is fit for people to work in/customers to visit.
Car repair shops must follow mandatory federal and state-level environmental regulations as well. You can find the complete checklist here.
Step 6: Open a business bank account and maintain a history
A dedicated business bank account and credit card can help protect your personal assets in case of bankruptcy or if any legal action is taken against your mechanic shop.
This is referred to as the “corporate veil,” a legal construct that protects your personal assets (home, car, and other valuables) if anything happens to your company.
With a business account, you are also eligible for better interest rates, higher lines of credit, and other benefits. For example, with a dedicated business credit card, your company can establish a credit history, which can be useful when trying to raise more money in the future.
Regardless of the type of car repair shop you run, keeping a detailed and organized history of your income, expenses, assets, and liabilities is critical to understanding your business’s financial performance over time. It will also help you file annual taxes faster because your accounts will already be in place!
AutoLeap’s QuickBooks integration simplifies your accounting with the automated flow of transactional data, saving you a lot of time and hassle.
As you set up your auto repair shop, implementing tools like auto repair estimate software can streamline your workflow, helping you manage payments and enhance customer service.
Step 7: Purchase tools and equipment
What’s the point of starting a mechanic shop without tools? Auto repair tools and equipment are necessary to run operations. It can be costly to purchase all the equipment, which is why you can start from the basics. Some of these include a basic reader, a jack stand, battery chargers, etc.
As your business grows, you can purchase or loan equipment based on customer demands. For example, if there are more tire-changing appointments, you can look into wheel balancers and tire-changing equipment. Some equipment requires certain ceiling requirements, such as vehicle lifts. Before you choose a location and look into purchasing two-post or four-post lifts, take into account the ceiling height required to install these lifts.
Step 8: Hire your all-star team
You’ll need to hire the best mechanics and front office staff to provide the best experience that encourages repeat business from your existing customers. Finding the right employees should be a top priority for you, as auto repair technicians will influence how well your business performs.
To remain profitable, it’s important to provide solid customer service and deliver results, for which it might be a good idea to hire people with good work experience and an attitude to learn and grow.
You can’t handle repairs, process payments and manage the front desk manually, and this is where AI and automation can simplify your operations.
AutoLeap’s AI Receptionist (AIR) ensures every call is answered, summarized, and documented 24/7, even when your team is short-staffed or your shop is closed. This way, your employees can stay focused on delivering great service, while AIR acts as a reliable extension of your front desk, helping you capture more business without burning out your team.
Step 9: Get the right business insurance
Obtain insurance coverage to protect your shop from any unforeseen incidents, such as natural hazards or accidents involving customers and staff members. Similarly, commercial property insurance is a must-have for all auto repair shop owners to protect their business assets.
General liability insurance is the most common coverage that small businesses can take advantage of. If you’re unsure about what risks may be involved or which insurance type fits your needs best, start with this basic insurance program.
Another important insurance is garage keeper insurance. It covers against harm done to customer vehicles under unforeseen circumstances. If the car is damaged due to fire, theft, weather, or accidents, then the mechanic shop is protected under this insurance.
Workers’ compensation coverage is another option that protects your business against employee lawsuits, e.g., if a mechanic gets injured while working on a car. There are several types of mechanic shop insurance for you to choose from. Pick the one that best suits your shop’s needs.
Step 10: Market your new shop
Without marketing, getting the word out about your shop will be very hard. People search for everything online before they decide to take any action. This is why marketing is your biggest tool in driving awareness for your business.
Hold a grand opening where potential customers in the area can stop by and see what differentiates you from the competition. You could advertise promotional discounts for the first week (or month) or provide maintenance services for free (e.g., a 5-point inspection) to get customers through the door.
Consider unique offerings
For example, your auto repair shop could potentially be the only one in a 10-mile radius that offers custom installations for stereos and alarm equipment or specializes exclusively in a specific car make. One of the best automotive repair shop advertising strategies is word-of-mouth marketing. Make customers talk about how special your offerings are.
Set up your Google Business Profile
Nowadays, it’s important to have your business’s online presence. Build your mechanic shop profile on Google. So, when your customers search for a mechanic shop online, your shop comes up, and they can make an appointment online.
This is where marketing and scheduling features in AutoLeap’s auto repair shop software can really make a difference. AutoLeap helps you easily schedule appointments, send reminders, and prepare invoices.
Build your local network
To build a recognizable brand, shop owners and mechanics need to network with other businesses and automotive institutes. For instance, partnering with local taxi companies or a limousine service, both of which would need the services of reliable auto repair shops for regular vehicle repair and maintenance.
Do you need a mechanic license to open a shop?
The owner vs. the technician
Under most of the legal laws, owners can open a shop without a mechanic’s license. They need a business license to operate and hire qualified technicians to perform auto services.
There are a few states that make it necessary for non-qualified owners to hire certified professionals to supervise auto shop operations. This includes safety, emissions, or specialty services.
State-specific requirements
There are different requirements for different states. It is important to check the local bureau for automotive repairs before you finalize opening a shop in a specific state. There are a few states that have general licensing conditions on the individual mechanics or the repair shop where they are employed. In the majority of jurisdictions, an individual is able to practice as a mechanic without a license offered by the government.
The value of ASE certifications
Though ASE certifications are not legally mandatory to operate or establish a shop, they are generally accepted industry standards that prove the competence of the technicians and can be of significant importance to gain customer trust and credibility.
There are numerous stores seeking or in need of ASE-certified employees due to their assistance in selling quality service, enhancing image, and in certain situations even reducing insurance rates or fulfilling the conditions of manufacturers’ partnerships.
How much does it cost to start an auto repair shop?
Aspiring auto repair shop owners need a total of approximately $70,000 to $150,000 to start their car repair shop. The cost breakdown is summarized in the table below. Please note that these are basic estimates and can vary as per shop size, location, and services offered.
One-time | Approximate cost |
Business license | $100-$500 |
ASE Certifications -Per registration | -$36 -$50-$95 |
Hydraulic lift | $5,000 – $12,000+ |
Diagnostic equipment | $8,000 – $20,000+ |
Specialty tools and mechanics tool set | $15,000–$40,000+ |
Initial Marketing & Signage | $2,000–$8,000 |
Recurring | Approximate cost |
Insurance | $4,000–$10,000+ annually |
Rent | $2,000–$10,000+/month |
Shop Management Software | $100-$300+/month |
Working Capital (First 3-6 months) * *Includes utilities and payroll | $15,000–$20,000 |
Conclusion
Starting your own mechanic business doesn’t sound easy, but if you follow our 10-step guide, you will nail all the basic requirements. With the right business plan, reliable financing, a qualified team of mechanics, and basic equipment, your repair shop will be up and running in no time!
Frequently Asked Questions
Do you have to be a qualified mechanic to open a garage?
It is not necessary to be a qualified mechanic to open a garage. You can hire qualified mechanics and technicians for the auto services offered.
How much does it cost to start an auto repair shop?
For small auto repair shops with 1-2 bays, it can cost from $70,000 to $150,000 over the course of six months. For medium shops, it can cost between $170,000 and $270,000.
How do I start a successful car repair business?
Running a successful car repair business will require a lot of strategic planning. You will need to:
- Secure a location
- Pay up-front costs
- Obtain licenses
- Securing necessary funding
- Buy shop equipment
- Hire certified technicians
- Build your brand
- Market your services
What licenses do you need to open a mechanic shop?
A general business license, a garage keeper license, and environmental permits are some of the must-have licenses you need to open a mechanic shop.
How do you calculate labor cost for auto repair?
To determine your shop’s labor cost, you will need to consider a number of factors. These factors include the number of employees you plan to hire and your total labor budget. You should also factor in other costs like health benefits and bonus structures.
