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How To Start An Auto Repair Shop In 2023

How To Start An Auto Repair Shop In 2023

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How To Start An Auto Repair Shop In 2023

How To Start a Computer Repair Business 1

If you enjoy repairing vehicles and have some training or experience working on cars, opening a car repair shop might be the right business for you.

Although possessing the technical skill and knowledge to repair cars is an absolute necessity, it is not the only element to success. Starting an auto repair shop is more than just understanding how to fix a car; it’s about understanding how to run a business, understanding your industry, and being able to adapt to changes and trends. With the help of this guide, you are now one step closer to turning your automotive dreams into a successful reality.

Business Overview

Car repair shops offer a variety of vehicle repair services to the public. Some of these repair shops specialize in particular services, like muffler repair, collision repair, brake work, or tire service. Others become more generalized and may offer brake work, engine repair, inspections, AC/heating services, and more. Some shops also specialize in working on certain types of vehicles, like sports cars or luxury vehicles. It’s common for a shop to not only work on cars and trucks but also on trailers and small engines like lawnmowers and golf carts.

There’s a great deal of variety in the car repair shops in business today. Small, one-person shops offer a personalized experience, while larger shops provide efficiency and a capacity that allows them to repair dozens of vehicles each day.

Industry Summary

According to IBIS World, the auto mechanic industry has undergone a steady .8 percent annual growth over the last five years and is expected to bring in $77 billion in revenue by the end of 2023. There is a lot of competition in the industry with 285,283 businesses and employs 600,406 people.

The auto repair industry benefits from the fact that people are increasingly keeping their used cars longer, states Christian Brothers Automotive. Given the high cost of purchasing a new vehicle, consumers are increasingly buying used vehicles instead.

Shops need to stay on top of the fact that cars are not becoming more technologically advanced with electronic systems and software playing a vital role, but electric vehicles are continuing to grow in popularity. Auto mechanic shops that invest now in specialized training and equipment will stand to be grow well into the future.

Target Market

Most auto mechanic shops target vehicle owners, though some shops specialize and market toward more niche audiences. A shop might specialize in a particular service, like muffler repair, and market solely toward vehicle owners looking for this particular service. Other shops might work on certain types of vehicles, like luxury or foreign vehicles, and would market only to the owners of those types of vehicles.

Checklist To Start An Auto Repair Shop

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If you’re thinking about starting your own auto repair shop, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.

Step 1: Research the demand for a new auto repair shop

The first step is researching market demand before opening a new auto repair shop. Without a sufficient customer base, even the most skilled and efficient repair shop will struggle to maintain profitability. Furthermore, understanding your market can inform your business decisions, from your shop’s location to the services you offer.

Here’s some tips on how you can research whether there are enough customers to start a new auto repair shop:

Understand Your Target Market: The first step in your market research should be identifying your target market. Do you intend to service high-end luxury vehicles, everyday family cars, or perhaps you’re targeting owners of classic cars? Each demographic will have different requirements and expectations, and understanding who you are targeting will help you assess the size and viability of your market.

Conduct a Local Market Analysis: Once you’ve identified your target market, it’s time to conduct a local market analysis. Look at the number of vehicle owners in your area that fit your target market. This information can often be found in census data, Bureau of Labor Statistics, or through local government reports. Another method is to analyze data from the Department of Motor Vehicles (DMV) to understand the number and types of vehicles registered in your area.

Competitor Analysis: Next, you’ll need to look at your competition. How many auto repair shops are in your area? What services do they offer, and what are their prices? A high concentration of shops might suggest a saturated market, but if you can identify a service gap that you can fill, this could still represent an opportunity.

Survey Potential Customers: If possible, consider conducting surveys or interviews with vehicle owners in your area. This can provide valuable insights into what potential customers want from an auto repair shop. It can also help you identify any underserved areas in your market. Online survey platforms like SurveyMonkey or social media polls can be effective tools for this.

By conducting thorough market research, you can ensure there’s enough demand for your auto repair shop before investing significant time and resources into your new venture. As the adage goes, ‘measure twice, cut once’.

Step 2: Create a business plan

After assessing the market potential for your shop, the next step in starting your business should be to write a business plan. A business plan helps organize the important aspects of the business such as; what will set the shop apart from competitors (customer service, price, location, etc.), what is the total cost of startup costs, where are funds going to come from, what marketing channels will be the best, along with many others.

Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related: How to write a business plan

Step 3: Find a potential location

Finding the perfect location for your auto repair shop is the next of our steps and involves careful planning and strategic consideration.

Proximity to main roads, visibility, and accessibility are vital elements to consider as they directly impact your shop’s customer traffic and visibility. You’ll also want to ensure the location has enough space for your service bays, customer reception, storage, and parking.

When searching for the perfect spot, it’s important to consider the zoning laws in your chosen area. Not all areas allow auto repair shops, due to noise, traffic, or environmental concerns, so ensure that automotive repair activities are permitted in the location you’re considering. In addition to checking on zoning, refrain from signing any lease or purchase agreements until your funding is secure. Entering into a premature agreement could leave you financially vulnerable if your funding doesn’t materialize as planned or in the timeline you hoped for.

Additionally, don’t forget to estimate renovation costs. Many commercial spaces may require significant updates to function as an auto repair shop, such as installing lifts, modifying the layout, or updating electrical and plumbing systems. Including these costs in your budget early on can prevent unexpected expenses down the line. Therefore, carefully evaluating all these factors can aid in finding an ideal location for your auto repair shop without overextending your resources.

Step 4: Secure funding

Opening a car repair shop requires a significant financial investment, especially if you don’t have much of the equipment you need. Diagnostic equipment alone can cost many thousands of dollars, and if you have to modify the shop that you’re renting, you’ll be looking at even larger expenses.

One of the most traditional ways to secure funding is through a bank loan, where you approach a bank or credit union to secure a business loan based on your business plan and financial projections. In some cases, the bank will require a loan guarantee from the Small Business Administration (SBA). The SBA backs a portion of the loan, reducing the risk to lenders and making it more likely for small businesses to get approved.

Equipment financing is another common method specific to the auto repair industry. This involves taking out a loan or lease to purchase necessary equipment like lifts, diagnostic tools, and other machinery. The purchased equipment often acts as collateral for these loans.

Related: Finding the money to start a business

Step 5: Secure & set up the garage

Once funding is secure and a location for your auto repair shop has been acquired, the real work begins to prepare the shop for opening. A few key areas to keep in mind:

Plan the Layout: The layout of your shop can significantly affect your operations’ efficiency. It’s important to designate areas for different tasks, such as vehicle inspections, repairs, part storage, and customer service. Consider factors such as workflow, safety, and accessibility and that you have enough space to fit all of the equipment.

Renovate as Needed: If your location requires renovations, make sure you hire reliable contractors and closely manage the process to ensure the work is completed on time and within budget. If you’re making major changes, such as installing lifts or modifying utilities, these will likely need to be inspected and approved by local authorities.

Invest in Quality Equipment: While it can be tempting to save money by purchasing cheaper equipment, quality equipment can save you money in the long run by improving efficiency and reducing downtime due to breakdowns. In addition to basic tools, consider equipment like diagnostic machines, lifts, and air compressors.

Set Up Your Office: Your customer service area should be clean, comfortable, and professional. This is where you’ll make your first impression with many customers. Invest in a good point-of-sale (POS) system and consider software for managing appointments, customer records, and invoicing.

Related: Best auto repair business software review

Setting up your auto repair shop is an exciting step, but it’s also a time to make thoughtful decisions that can affect your business’s efficiency, safety, and customer service for years to come. With careful planning, you can create a shop that’s ready for success from day one.

Step 6: Register the business

Starting an auto repair shop requires several legal considerations to ensure the business is properly registered and compliant with all applicable laws. Here’s some common requirements to register an auto shop:

Form a Business Structure: Choose a business structure that best suits your needs. Options typically include sole proprietorship, partnership, limited liability company (LLC), or corporation.

An LLC is often preferred by small business owners, as it provides liability protection and has fewer administrative requirements compared to a corporation. However, each structure has its pros and cons, so it’s worth consulting with a business advisor or attorney to make the best choice for your situation.

Related: Comparison of business structures

Business Name Registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

Related: Tips for naming an auto repair shop

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Get Business Licenses and Permits: There are several business licenses and permits that an auto repair shop will need to legally operate.

At a minimum, you’ll likely need a business license from your city or county. Many states require auto repair shops to be licensed by the state’s Department of Motor Vehicles (DMV) or a similar agency. You should consult with your local government office or a business attorney to ensure you have all the necessary licenses and permits.

Depending on your location, there will likely be a variety of general licenses or permits needed before opening. This could include a business license, seller’s permit, and Employer Identification Number (EIN).

Related: What licenses do auto repair shops need?

Comply with Environmental Regulations: In addition to business licensing, auto repair shops deal with many substances that are environmentally hazardous, such as motor oil, coolant, and batteries. Make sure you understand the regulations around the proper storage, handling, and disposal of these materials.

Certifications: While you’re not required to hold an Automotive Service Excellence (ASE) Certification, the Advanced Technology Institute states that it may be difficult to find financing and liability insurance for your shop without that certification. To earn the ASE Certification, you’ll need to have at least two years of work and educational experience before you can take the certification test.

Step 7: Hire & train employees

Hiring the right team is a crucial element in the success of an auto repair shop. The staff you hire will not only conduct the necessary repair work but will also be the face of your business, interacting directly with your customers. Thus, careful consideration must be given to the hiring process to ensure you attract skilled, reliable, and customer-focused team members.

Common Types of Employees in an Auto Repair Shop and Their Salaries:

Auto Mechanics or Technicians: These are the skilled individuals who diagnose and repair vehicles. They might specialize in certain areas, such as engine repair, braking systems, or electronic systems. The median pay for auto mechanics is around $46,000 per year, according to the Bureau of Labor Statistics. However, highly skilled or specialized mechanics can earn significantly more.

Service Writers or Service Advisors: These employees interact directly with customers. They help customers understand what work needs to be done on their vehicle, provide quotes for repair work, and often handle billing and payment. The median annual wage for a service advisor was $57,292, though this can vary widely based on commission structures.

Shop Manager: Larger auto repair shops might hire a shop manager to oversee daily operations, manage staff, and handle more complex administrative tasks. Salaries for this role can vary significantly based on the size of the shop and the responsibilities of the role but typically range from $40,000 to $60,000 per year.

Hiring and Training Tips for Auto Repair Shops:

Look for Relevant Certifications: When hiring mechanics, look for certifications such as those from the National Institute for Automotive Service Excellence (ASE). These certifications provide assurance of a mechanic’s technical knowledge and competence.

Value Customer Service Skills: For roles that involve direct customer interaction, such as service advisors, strong customer service skills are crucial. A positive, friendly attitude can help to build strong relationships with customers and encourage repeat business.

Offer Competitive Wages and Benefits: To attract and retain quality staff, it’s important to offer competitive wages and benefits. This could include health insurance, retirement contributions, or paid time off.

Provide Ongoing Training: The automotive industry is always evolving, with new vehicle technologies emerging regularly. Offering ongoing training can help your employees stay up-to-date with these changes and improve their skills.

Remember, the quality of your staff can significantly impact your shop’s reputation and success. Therefore, it’s crucial to invest time and resources into hiring and training the right team.

Related: State guide to hiring your first employee

Step 8: Get your Marketing Plan in Place

Marketing an auto repair shop effectively requires strategic efforts that target the local community, as your primary customer base will typically be those living or working in close proximity to your shop.

Local SEO (Search Engine Optimization) is a powerful tool; by optimizing your online presence to appear in local searches, you can significantly increase your shop’s visibility. This can involve managing your Google My Business listing, ensuring your shop’s name, address, and phone number are consistent across all online platforms, and incorporating localized keywords into your website’s content.

In addition to digital marketing, traditional marketing methods such as direct mail or local newspaper ads can still be highly effective, especially if your target demographic includes an older audience who might not be as active online. Joining your local Chamber of Commerce and handing out business cards at networking events, will help get your name established in the community.

Sponsoring local events or youth sports teams can also be a great way to increase your visibility within the community and build a positive brand image.
Building partnerships with other local businesses can also be beneficial. For instance, you could offer a discount to employees of a nearby business in exchange for them promoting your services to their customers.

Last, never underestimate the power of word-of-mouth marketing. While it takes a while for word-of-mouth to start working, providing exceptional customer service will lead to satisfied customers who are more likely to recommend your shop to friends and family. Offering a referral incentive program can further encourage this word-of-mouth marketing and help you acquire new customers.

Related: Low-cost ideas to market a new business

Step 9: Establish relationships with suppliers and vendors

Finding reliable suppliers is a vital aspect of running a successful auto repair shop. Here’s some advice to help you identify and establish relationships with the right suppliers:

Determine Your Needs: Before you start looking for suppliers, you need to know what you’re looking for. Make a list of the tools, parts, and supplies you’ll need to run your shop effectively. This can include anything from motor oil and filters to brake pads and diagnostic tools.

Research Suppliers: Start by researching suppliers who specialize in auto repair parts and tools. You can find them through industry trade shows, online directories, and professional organizations. Reading reviews and asking for recommendations from other auto repair shop owners can also provide valuable insights.

Establish Relationships: Good relationships with suppliers can often lead to benefits like better prices, more favorable terms, faster delivery times, and sometimes help with launching your shop. Try to meet with potential suppliers in person if possible, and communicate regularly to build a strong relationship.

Consider Local and National Suppliers: While local suppliers can often provide faster delivery and personalized service, national suppliers might offer a wider range of products and potentially better prices due to their larger scale. Consider using a mix of local and national suppliers to balance these benefits.

Negotiate Terms: Don’t be afraid to negotiate with suppliers. This could include negotiating prices, payment terms, and delivery schedules. Remember, everything is negotiable.

Taking the time now to find and establish relationships with the right suppliers can lead to more efficient operations, better customer service, and ultimately, a more successful business.

Step 10: Prepare to launch your auto repair shop!

Wrapping up the startup process, here are some additional considerations that an experienced auto repair shop owner might advise:

Business Insurance: As mentioned earlier, getting the right insurance is essential for protecting your business. This includes liability insurance, property insurance, and workers’ compensation insurance. Consult with an insurance agent to ensure you have the appropriate coverage.

Related: What types of insurance does an auto repair shop need?

Bookkeeping: Implementing an efficient bookkeeping system is important for managing your finances and keeping track of expenses and income. You might opt for bookkeeping software like Wave Accounting (FREE) or Quickbooks, hire an in-house bookkeeper, or outsource this task to a professional firm.

Bank Account: Open a separate business bank account to keep your personal and business finances separate. This simplifies bookkeeping and is essential for legal and tax reasons.

Pricing: You need to set prices for your services that cover your costs, allow for a profit, and are competitive with other auto repair shops in your area. Pricing might require some trial and error and should be reviewed regularly.

Payment Methods: Accepting credit cards and other electronic payment methods can provide convenience to your customers and might boost sales. You’ll need to set up a merchant account to accept credit card payments. Popular options include Square or Stripe.

Grand Opening: Plan a grand opening event to draw attention to your new business. This might involve special promotions, local advertising, and perhaps a celebration at your shop. A well-executed grand opening can help to establish your presence in the community and attract your first customers.

The needs of every business are unique, so you might need to adjust this advice to suit your situation. Starting a business involves a lot of hard work, but with careful planning and determination, you can build a successful auto repair shop.

This material is property of StartingYourBusiness.com

Greg’s Tip: Being great at fixing cars is just one part of having a successful auto repair shop. To work on your business skills, consider seeking advice and guidance from experienced auto repair shop owners, industry experts, and/or attending industry workshops.

Greg's Business Tip

Common Questions When Starting An Auto Repair Shop

How much does it cost to start an auto repair shop?

Starting an auto repair shop can vary significantly in cost, depending on several factors like location, size, and the extent of the services you plan to offer.

On average, the initial startup costs for an auto repair shop can range from $50,000 to $100,000, though this amount can be substantially higher for large, fully equipped shops or if a location will be purchased vs. leasing.

Some of the costs to get started include:

Equipment and Tools: One of the most significant expenses for auto repair shops is equipment and tools. Essential items like vehicle lifts, air compressors, wheel balancers, diagnostic machines, and a variety of hand tools can add up. This expense can range from $15,000 to $25,000 for a small shop, but it can easily exceed $50,000 for larger shops or those offering a wide range of services.

Location: Renting a location could cost anywhere from $1,500 to $15,000 per month, depending on the location, size, and condition of the property. If you plan to purchase a location, your costs will be significantly higher. In addition to the cost of the location, money will need to be set aside for any renovation costs.

Inventory: You’ll need to stock a variety of parts for repairs. The cost of your initial inventory will depend on the range of services you plan to offer but expect to spend at least $5,000 to $10,000.

Licenses and Permits: The cost of business licenses and permits will vary by location, but you might budget $1,000 to $2,000 for this expense.

Insurance: Depending on the extent of your coverage, annual insurance costs could range from $4,000 to $8,000 or more.

Operating Expenses: Beyond these initial startup costs, it’s critical to budget for your operating expenses – the ongoing costs associated with running your business. These typically include rent or mortgage payments, utilities, payroll, shop supplies, inventory replenishment, insurance, marketing, and routine equipment maintenance. It’s generally recommended to have a buffer of three to six months’ worth of operating expenses on hand, especially during the startup phase. This financial cushion can help you navigate unexpected expenses or slow periods without risking having to shut the doors. Depending on your shop’s size and overhead, this buffer could be anywhere from $20,000 to $50,000 or more.

Remember, these are approximate costs and will vary depending on numerous factors. It’s important to conduct thorough research and create a detailed business plan to calculate your specific startup and operating costs. And as you start to generate revenue, closely tracking your income and expenses will help ensure your business remains financially stable.

Another way to minimize costs, starting with a specialty service like brake work or tire alignments, adjustments, and installation can help keep startup expenses minimal. These fields don’t require extensive diagnostic equipment, and the inventory is more minimal when compared with that you’d need to start a more generalized repair business.

Is an auto repair shop profitable?

Many factors affect a car repair shop’s potential earnings, including the shop’s size, the number of employees, the types of services it offers, and even its location – shops in urban areas will probably bring in more business than shops in more rural areas. A shop’s profit margins also affect its income.

To start figuring out the potential income and profits for an auto repair shop, let’s look at a few statistics.

For starters, according to a survey by AAA, average vehicle repair costs range from $500 to $600. We need to remember too, that auto repair shops typically charge for both parts and labor. The average combined profit margin for auto repair shops is 55%.

The average hourly rate for auto repair labor varies greatly across the country, with an average cost ranging from $45 to $170 per hour. Shops in urban areas or those that fix specialty vehicles tend to be at the higher end of this range.

Now looking at the profitability of an auto repair shop run by a single person can be estimated by considering the average vehicle repair costs and the profit margin.

Assuming that the average vehicle repair costs range from $500 to $600, and that the average combined profit margin is 55%, we can calculate the profit per repair job. Figuring on the low side, a repair costing $500 comes out to a profit of $275 ($500 * 0.55 = $275).

As a single owner-operator, the number of repair jobs that you can handle in a day will depend on the complexity of the repairs and your efficiency. For instance, as a new shop, if you are able to complete three jobs a day, your daily profit would be $1,100 ($275 * 4 = $825).

Extrapolating this to a monthly scale (assuming a 5-day work week and 4 weeks in a month), the monthly profit for a one-person auto repair shop would be $22,000 ($1,100 * 20 = $16,500).

These are gross profits, and from this amount, you’d have to subtract your operating costs such as rent, utilities, and other expenses to calculate the net profit.

Assuming annual sales of $198,000 and then subtracting expenses such as rent, utilities, insurance, marketing, equipment repairs, etc. (and no wages), we could expect a monthly expense of $10,000, which would leave $78,000 in profits a year.

Please note these are rough estimates and actual costs can vary based on a multitude of factors, but these calculations provide a snapshot of the potential profitability of a single-person auto repair shop. Always do a detailed cost analysis before starting your business.

What skills are needed to run an auto repair shop?

While starting an auto shop doesn’t require a business degree, certain skills, and experiences are valuable when going into the auto repair business.

Automotive Knowledge: A detailed knowledge of cars is a must for any car repair shop owner. The better you know cars, the more trust customers will have in you – and the more they’ll keep coming back.

Vehicle Repair Experience: No formal vehicle repair education is required to become a mechanic, but when opening a car repair shop, however, you should have plenty of vehicle repair experience. Earning a degree in an automotive-related field can leave you well-prepared for the challenges of working as a mechanic, but it isn’t required.

Interpersonal Skills: Car repair shop owners will need to work with customers daily, and customers can be stressed or upset when their vehicles are broken. Strong interpersonal skills are valuable when running a repair shop.

Management Experience: If a repair shop employs staff, then management experience is a valuable trait to have. From interviewing and hiring staff to maintaining schedules and training staff, management is an ongoing task when owning a repair shop.

Organizational Skills: With multiple vehicles on the schedule, each needing different repairs and different parts, good organization becomes important to keeping a shop running smoothly. Organizing the shop itself is also vital so that mechanics can quickly find the tools and supplies they need to maximize their productivity.

Physical Stamina: Repairing cars is a physically demanding job, and mechanics spend most of the day on their feet. Physical stamina is important when working in this industry full-time.

What is the NAICS code for an auto repair shop?

The NAICS code for an auto repair shop is 811111.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Resources:
Auto Care Association
Automotive Maintenance & Repair Association
Automotive Service Association

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

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How To Start An Auto Repair Shop In 2023

How To Start An Auto Repair Shop In 2023

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