In a world constantly on the move, tires are a necessity, not a luxury. This makes starting a tire shop a potentially great business opportunity, given the fact that every vehicle on the road will need tires.
While knowing the difference between radials and bias ply tires is important, there is a lot more to starting a successful tire shop business. To help you get started, our guide will get into the nuts and bolts of how to get started and answer some common questions.
Business Description
A tire shop is a business that sells and installs new and used tires for various types of vehicles, including cars, trucks, motorcycles, and sometimes even bicycles. Additionally, a tire shop may specialize and offer tire services for specialty vehicles like semis or RVs. Many shops operate on an appointment basis but will also offer walk-in services to increase the number of customers served daily.
The primary source of income for a tire shop is the sale of new tires; however, additional revenue can be generated from several other services. A few of these could include:
- Wheel alignment
- Tire rotations
- Wheel balancing
- Tire repair (i.e., tire patches for hole repairs)
- TPMS (tire pressure monitoring system) replacement
- Brake replacements
- Selling custom wheels
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Industry Summary
The tire shop industry in the United States is a significant part of the automotive sector. As of 2023, the industry generated over $45.2 billion in revenue.1 The industry has grown by 0.9% annually over the last five years and is expected to continue growing because of increasing demand for better-performing (and more expensive) tires and the regular need for tire replacement due to wear and tear.
Steps To Starting A Tire Shop
Step 1: Write a Business Plan
When you decide to start a tire shop, preparing a business plan should be your first step. Writing a business plan is essential for several reasons:
The first reason why writing a business plan is important is that it helps you better define your goals and objectives. You may have a general idea of what you want to achieve, but you may miss some elements unless you put them down on paper.
Another reason why a business plan is important is market research. This section gives you an understanding of the demand for tire shops in your area, your competitors, and even helps in finding the ideal location for your business. Including this research in your business plan ensures you’re set up for success in a competitive market.
Last, is the business plan has you calculate the finances and include educated estimates of how much you’ll sell, monthly expenses, and the profit you can expect. This not only gives insights on whether the business is likely feasible, but lenders will pay close attention to this section when evaluating your loan.
Related: How to write a business plan
Step 2: Source Funding
The next step when starting a tire shop is to figure out how you’ll fund the business. Getting your financing together might not always be easy, but here are some common options that are available.
Personal investment: Have a look at how much money is in your savings that you could put towards your new business. If your personal savings aren’t enough to fund everything, you’ll need to find money from other places.
Traditional lending: Getting a loan from a bank is the most common outside funding source. Banks will want you to invest at least 15% of your own money into the business, have a good credit score, and be able to provide collateral. In cases where banks need a bit more assurance or security when backing your loan, they may make use of a Small Business Administration loan guarantee.
Equipment financing: Specialty lenders offer loans or leasing options for expensive tire shop gear, such as wheel balancers and vehicle lifts. This financing method helps reduce initial out-of-pocket expenses.
Friends and family: You might be able to get some money from friends and family members who want to help you succeed. To make sure things remain friendly, always put all agreements in writing to be clear about the terms.
Microloans: For smaller amounts, or if other options just aren’t available to you, you could consider microloans. Local economic development organizations may offer this type of loan, and they sometimes also provide business training to help guide you toward starting your tire shop.
Related: Finding the money to start a business
Step 3: Register the Business
Before you can open your doors and serve customers, there are some legal steps you need to take. Every state has different rules, but here’s an overview to help you navigate this process.
Business structure: First, decide on the legal structure of your business. This determines how your business will be taxed and the level of personal liability you’ll face. Here are the four main types:
- Sole proprietorship: Easiest to start, least costly, but offers no personal liability protection.
- General partnership: Similar to sole proprietorship, suitable for businesses operated by multiple people.
- Corporation: Offers liability protection but is more complex and costly to start and maintain.
- Limited Liability Company (LLC): Combines liability protection with simpler operational requirements.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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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.
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
Obtain business licenses and permits: Next, look into what licenses and permits your tire shop will need. These will vary depending on your location but typically include a business license and a sales tax permit. If you’ll be disposing of tires or other waste, you may also need environmental permits.
Related: State guides for general business licensing
Step 4: Acquire & Set Up a Location
With your funding secured and the business officially registered, it’s time to shift gears and focus on the operational side of things. This phase is where your tire shop starts to take shape, and your dream begins to become a tangible reality.
Arguably, one of the critical first steps in the setup process is identifying the location of your tire shop. The shop should ideally offer easy accessibility for customers, with ample space for service bays, parking, and inventory storage. A high-traffic area, easily visible location, and proximity to other auto-related businesses such as car dealerships, gas stations, or auto parts stores could all be factors to consider.
Once you’ve found your ideal location, turn your focus to the physical layout of your shop and invest in any necessary equipment.
With your physical shop set up, you now need to establish administrative systems for billing, accounting, and customer management. This includes investing in a Point of Sale (POS) system, accounting software, and other office equipment. These tools will help you keep track of sales, manage finances, and maintain a database of your customers, all of which are key to running a successful tire shop.
Step 5: Set Up Accounts with Suppliers
You’ve done the groundwork, found a location, and set up your tire shop. Now, it’s time to move to the next step: setting up accounts with suppliers and ordering inventory.
Settling on the tire brands you’ll carry is your first step. You’ll find three main categories you can consider: flag brands, associate or house brands, and private label brands. A few big wholesale tire distributors can supply all these. They’re a one-stop shop and can provide everything you need to fill your store. Don’t rush this decision. Take your time to compare all your options and find the best discounts, the most favorable payment terms, and the most reasonable delivery fees. Your expected sales volume is an important factor to keep in mind here, as the more you can order from one distributor, the greater the discounts.
Along with tires, you’ll be dealing with other car parts depending on the range of services you plan to offer. Routine maintenance items like batteries, oil filters, and brake pads are often bought at the same time as tires. So, think about finding a reliable auto parts distributor. It’s worth looking into both local and nationwide distributors to find the one that suits you best.
Finally, as you plan your initial inventory order, ensure you have enough to meet your early demand. It’s a careful balance between having enough of the right stock and overfilling your store. Talk with your suppliers who can help calculate optimal inventory.
Step 6: Hire Staff
When you start a tire shop and need to hire employees, you take on a new role, that of an employer. It’s an important step to get your shop up and running, and as an employer, you have several responsibilities and legal requirements to follow.
One of the first steps in becoming an employer is obtaining an Employer Identification Number (EIN) from the IRS. It’s like a social security number but for your business, and you’ll use it for federal payroll taxes.
Next, you need to verify that potential employees are eligible to work in the US. This usually involves checking identification and filling out an I-9 form for each employee.
Each state has its own set of requirements for hiring. These may include new hire reporting, income withholding orders, and unemployment insurance reports. Be sure to familiarize yourself with the specific requirements in your state. Most states also require businesses to have worker’s compensation coverage. This type of insurance helps cover the cost if an employee gets hurt at work.
Last, you’ll need to understand federal and state labor laws. They cover important aspects, such as minimum wage, break times, and overtime pay.
Related: State guides for hiring your first employee
Step 7: Prepare to Open!
As you near the end of setting up your tire shop, there are a few additional steps to consider. These will vary by individual, but here are some common ones:
Business insurance: Common types include liability insurance, property insurance, and worker’s compensation. These protect against various risks associated with running a tire shop.
Setting up bookkeeping: Organize your accounting to handle daily transactions, taxes, and financial statements. This can be through hiring a bookkeeper or using accounting software.
Opening a business bank account: Having a separate bank account for your business helps keep your business and personal finances separate. This makes everyday management and tax time easier.
Creating a marketing strategy: Now that you’re almost ready to open, you want people to know about your tire shop. One part of this is creating a logo and setting up a website. But your marketing might also include things like printing business cards and flyers, online ads, or even a billboard.
Preparing for the grand opening: Plan a launch event to introduce your shop to the community. This might include special promotions or community engagement activities.
Common Questions When Starting A Tire Shop
How much does it cost to start a tire shop?
If you’re thinking about starting a tire shop, you’re probably curious about how much this could cost you. While the total costs can vary quite a bit, you can expect to spend somewhere around $90,000 to $160,000.
Here’s a closer look at some of the main expenses you’ll need to plan for:
Location: The cost of leasing or renting a shop can vary significantly depending on the size and location. Expect to pay a security deposit and the first month’s rent upfront. This could range from $2,000 to $10,000 or more. If purchasing or renovations are needed, these additional costs will need to be figured into the budget.
Equipment: Essential equipment for a tire shop includes automotive lifts, tire changers, wheel balancers, and various tools. The cost of equipment can range from $20,000 to $75,000, depending on the number of bays and whether you can find a shop with lifts already in place.
Inventory: Stocking your shop with a wide range of different sizes and brands of tires, rims, tubes, and other related merchandise can cost around $60,000 and up.
Insurance: The initial cost of insurance, which includes general liability insurance, property insurance, and workers’ compensation insurance, can range from $2,000 to $3,000.
Marketing: Initial marketing costs, which include signage, business cards, and a website, can range from $2,000 to $5,000.
Business registration: The cost of registering a business can vary depending on the state, but it typically ranges from $50 to $500
Other startup expenses: Other startup expenses, such as business registration, legal fees, uniforms, office supplies, and utility setup, can add another $1,000 to $2,000 to your startup costs
How profitable is a tire shop?
To estimate the potential profitability of a tire shop, we can use industry statistics and reasonable assumptions to create a revenue projection, expense projection, and, ultimately, a profit estimate. Here’s an example of the profitability of a small tire shop:
Revenues: Start by estimating the average number of tires sold per day and the average sale price per tire. For example, if a tire shop sells 20 tires a day at an average price of $150 per tire, the daily revenue would be $3,000. Monthly, this equates to $75,000, assuming the shop operates 25 days a month.
Expenses: Next, calculate the cost of goods sold (COGS), which includes the wholesale price of tires and any direct labor costs for installation. Looking at industry averages for the Cost of Goods Sold (inventory costs) of 75%, the daily COGS would be $2,250, leading to a monthly COGS of $56,250.
Then, add operational expenses such as rent, utilities, employee salaries, insurance, and marketing. If these expenses total $10,000 per month, the total monthly expenses would be $66,250.
Profit calculation: Subtract the total monthly expenses from the monthly revenue to estimate the profit. In this case, $75,000 (revenue) – $66,250 (expenses) = $8,750 monthly profit before taxes.
This simplified example shows a potential annual profit of $105,000 for a tire shop. However, actual profits can vary based on several factors.
What skills are needed to run a tire shop?
Many day-to-day operations in a tire shop business can be delegated to employees. However, running a tire shop will require management confidence and entrepreneurial motivation to drive your business forward.
Employee management skills: Likely there will be a handful of employees working for your business. The employees can handle front-end customer service, tire repairs and replacements, payroll, and budgets. Management skills allow you to lead your team well, maintain company standards, and encourage a high work ethic.
Tire knowledge: Although you don’t need a degree or certificate to change a tire, you need to know the basics of tire changes and repairs. Hired employees may be the “expert,” but having an understanding of tire repairs for yourself will help you know that your employees complete quality work.
Operations management: Operations management includes oversight of appointments, employee work schedules, orders, and expenses. The ability to manage these business aspects helps improve efficiency and reduce waste.
Sales: Most of the shop’s profit comes from tire changes and basic repairs. However, your income will increase substantially with a focus on sales. For instance, during a standard tire change, you may upsell new brakes to your customer, adding value to the service and increasing the amount of money earned per customer interaction.
