Are you aspiring to become the proud owner of your own automotive repair shop? If so, 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 kickstart your garage. You got this! Here’s how to start an auto repair shop!
1. Put together an auto repair business plan
Before anything else, you should create a business plan for your car repair shop that answers the following questions:
- The 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 a diagnostic machine for the types of services they choose to offer. Many shops specialize in a single field before diversifying into other categories.
- Location: Shop owners must consider several factors when deciding where to open their auto mechanic shop; proximity to your 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. On the other hand, you may take location out of the equation by starting a mobile mechanic business.
- Upfront costs: Aspiring auto repair shop owners need $50,000+ to start their car repair shop. The breakdown is summarized in the table below:
- 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 an auto repair shop requires capital. It’s important to know the startup costs of a car repair shop before you dive in head-first. 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, 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 thoughtful auto repair business plan. Ask your colleagues to review the plan and share their input with you. Use 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.
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. Now that you have a solid auto repair shop business plan, it’s time for the next steps.
2. Form a legal entity
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 it operates in. 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.
An LLC or a corporation are the best options 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 repair shop under an LLC on your own, at minimal state LLC costs, or hire a professional LLC service for a small fee.
3. Secure 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. 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 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.
4. Obtain permits & licenses
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.