How to Start An Automotive Repair Shop In 10 Steps

By June 17, 2021 October 15th, 2021 Tips

Are you an enterprising auto mechanic aspiring to launch your own auto repair shop? If so, this article is for you.

Business planning, legal work, finance and accounting, permits, hiring, marketing…this can all seem intimidating, but we’ve broken out the key work streams below for you to help kickstart your shop. You got this!

1. Put together a Business Plan

Before anything else, you should lay out a business plan that answers the following questions:

  • The auto repair services you will offer: Are you going to be a specialist shop (e.g. transmission or muffler), 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?  

  • Location: There are a bunch of factors to take into consideration when deciding where to open your auto repair business; 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.

  • Upfront costs: All told, you’ll need $50,000+ to start your auto repair business:
  • Funding sources: Will you dip into your savings to set up your shop? Is a bank loan an option? (Tip: try negotiating credit terms or a hire-purchase deal with the heavy-duty equipment suppliers)
  • 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.
  • Target customers: This ties in to the type of auto repair services you plan on offering – for example, if you are going to perform custom work on luxury cars, your target market will be very different from that of regular repair & maintenance work on ordinary cars.

Take as much time as needed to ensure your business plan is well thought-out, and get feedback from anyone that will offer it. Mistakes made in the initial planning stages can result in unnecessary hurdles later.

2. Form a legal entity

A limited liability company (LLC), sole proprietorship, partnership, and corporation are the options available for your  legal structure – each has its advantages and disadvantages in terms of taxation.

An LLC or a corporation are the best options as these will protect your personal assets in the case of a lawsuit. You can register the business under an LLC on your own, at minimal state LLC costs, or hire a professional LLC service for a small fee.

3. Secure financing

You will likely need a loan to help pay for equipment, location acquisition costs, employee salaries, insurance coverage, etc. And every bank and/or investor will want to know the same thing: “Will you be able to pay us back?”

A common source of financing among auto 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. There are two types of SBA loans most relevant to auto repair shop owners:

SBA 7(a) Loans: Covers funding for purchasing equipment, working capital, and refinancing debts.

SBA 504 Loans: Can’t be used for working capital, but the funds can be used to purchase fixed assets like equipment and property.

Find other SBA loan options here.

4. Obtain permits & licenses

Certain permits and licenses are required before one can legally run an auto repair shop; businesses can be subjected to heavy fines, or even sealed, if these regulations are not followed.

For instance, since car repair shops operate 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.

5. Open a business bank account & get a credit card

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 auto repair 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.

6. Setup business accounting

Whether you run a real estate business or an automotive repair shop, 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 would 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.

7. Get business insurance

Obtain insurance coverage to protect your shop from any unforeseen incidents, such as accidents or natural hazards.

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.

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.

8. Hire the right people

From mechanics to an administrative assistant, you will need skilled individuals to help with day-to-day operations. Finding the right employees should be a top priority for you, as auto repair technicians will influence how well your business performs.

9. Define and introduce your brand

If your services are more expensive than others’ in the area, because you prioritize quality over quantity…make that your primary communication to consumers. A strong and clear brand identity will set you apart.

Build your brand
To build a brand, auto mechanics need to network with other businesses that may require their services. Partner 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.

Offer custom services
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.

10. Start selling

Your big day is here…hold a grand opening where people 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 give free services (e.g. a 5-point inspection) to get customers into the door. 

The next step is to enter the digital market – let’s face it, but handing out flyers on street corners and placing ads in the local newspaper just doesn’t cut it anymore. Digital advertising helps create targeted awareness for your brand – think of it as a loudspeaker that lets your target audience know you’re open for business.

After months of careful planning, you’ve finally started your auto repair shop – now it’s time to scale it. Read more at Grow Your Auto Repair Business.

Shop Management Software

AutoLeap is a powerful all-in-one auto repair shop software that helps to keep complete track of your business – from scheduling appointments to managing technicians and generating invoices.