If you enjoy working on cars and have an eye for detail, opening an auto body shop may be a great small business for you. Starting an auto body shop is more than opening a business; it’s about creating a solution. Every day, countless cars are dinged, dented, and damaged, and as an auto body shop owner, you step in to turn these mishaps around (and make a decent profit as well).
Having exceptional auto repair skills is important, but starting an auto body shop requires more than that. To help you take the next step, our guide will walk you through the process, providing a broad overview of the business, practical steps to get started, and answers to common questions.
An auto body shop specializes in repairing vehicles that have been damaged in accidents, as well as tackling dents, rust, and other cosmetic issues. These services include interior and structural repair, as well as paint jobs, detailing services, and customization of all kinds of vehicles, such as trucks, trailers, passenger cars, buses, and vans. Repair work is usually substantial, well beyond the usual maintenance work, and will require specialized skills and equipment.
Body shops primarily make money by charging customers (or their insurance company) for labor and the cost of replacement parts and materials.
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The auto body repair industry in the United States consists of 87,237 businesses that generated over $59 billion in annual revenue in 2022.1
The industry includes national and regional chains, franchise operators, and independent collision repair shops. The industry is highly fragmented, with many small, independent shops that are often family-owned. Despite the fragmentation, the industry is seeing a trend toward consolidation, with larger players acquiring smaller shops to expand their reach and improve service delivery.2
Steps To Start An Auto Body Shop
Step 1: Write a Business Plan
In the journey of starting an auto body shop, one of the first steps you need to take is writing a business plan. This step serves as the foundation of your business and guides your path through the startup phase to growing the business. It’s not only a document that most lenders are going to require if you need funding, but there are other reasons for it, too.
Market research is one important component of a good business plan. It allows you to better understand your competition and the demand for auto body services in your area.
Why does this matter? First, knowing your competition helps you identify what sets your business apart and how you can outperform other auto body shops in your area. Also, understanding the demand for auto body services helps you gauge the potential market size to estimate whether there is room for another shop.
By conducting market research, you can also ensure your services are priced competitively and meet the needs of your local market, positioning your auto body shop for success.
Another key section of a business plan is making financial projections. This involves estimating your startup costs, including expenses for leasing or purchasing a facility, buying equipment, hiring staff, and marketing your business. You will also project your income and expenses, considering factors like the average number of cars you expect to service each day, the rates you’ll charge for different services, and overhead costs.
Financial projections help you evaluate the feasibility of your business by calculating when (or if) your body shop can make a profit.
Related: How to write a business plan
Step 2: Secure Funding
Starting an auto body shop can be a lucrative opportunity, but before you can open your doors, you’ll need funding. Let’s explore where this money can come from.
Personal investment is your initial source of funding. Start by examining how much of your personal savings can be allocated towards starting your shop. Unless you have a lot of cash on hand, you will likely need to explore financing options to cover the startup costs.
Lenders are a very common option to finance a new auto body shop. They usually require you to invest between 15% and 25% of your personal funds towards the total project cost, in addition to good credit and sufficient collateral. If the bank needs additional security is required to back the loan, the Small Business Administration (SBA) provides loan guarantees to lenders.
Interestingly, paint companies in the auto body industry sometimes offer loans in the form of a “prebate.” This unique financing option can help with acquiring the necessary materials and equipment.
Partnerships with auto parts suppliers can also offer a funding avenue. They may provide equipment financing or a loan in return for a commitment to purchase their supplies.
Borrowing from friends and family is another avenue. To maintain good relationships, put all agreements into writing.
For smaller funding needs, especially when traditional lending options are out of reach, microloans are a useful alternative. These loans are typically offered by local economic development organizations and often come with the added benefit of business training.
Last but not least, equipment financing is another source of funding that allows the purchase or lease of auto body shop equipment without a large upfront personal investment.
Step 3: Register the Business
Starting an auto body shop involves several legal considerations, from choosing a business structure to obtaining necessary licenses and permits. The requirements vary by location, but here is an overview to help you navigate this process:
Choose a business structure: The first task is to choose a business structure. Here are the four primary types of business structures:
- Sole proprietorship: This is the simplest form of business structure and often involves the least cost to set up. The downside is that the owner is personally responsible for all business debts and obligations.
- General partnership: This structure involves two or more people sharing ownership of a business. Each partner contributes to all aspects of the business and shares in the profits and losses. Like a sole proprietorship, a general partnership doesn’t offer liability protection.
- Corporation: A corporation is a separate legal entity owned by shareholders, providing owners with limited liability protection. However, it’s more complex and costly to set up and maintain compared to other structures.
- Limited Liability Company (LLC): An LLC combines the limited liability protection of a corporation with the tax advantages and operational flexibility of a sole proprietorship or partnership.
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.
Some popular LLC formation services include:
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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.
Related: Name ideas for an auto body 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.
Obtain business licenses and permits: Depending on your location, you may need specific licenses or permits to operate an auto body shop. This could include a business license, sales tax license, and environmental permits. Check with your local and state government to determine what is required.
Related: What licenses do auto body shops need?
Comply with regulations: Depending on the extent of services offered at your shop, there will likely be several regulations to be aware of. For example, in order to provide paint services,3 there are federal and state regulations to follow. Also, there are often state rules for the proper storage and safety of common supplies like carb cleaners, solvents, oil, and tires to be aware of.
Step 4: Acquire & Set Up the Shop
After securing funding and registering your business, the next phase in launching your auto body shop is setting up the operations. This stage involves making decisions about location, equipment, and the day-to-day running of your business.
Acquiring the shop: Ideally, even though it’s going to cost more, look for a location that’s easily accessible from major roads, ensuring that your shop is convenient for customers to reach. The site should offer ample space for all aspects of your operations, including a workshop for repairs, an office area for administrative tasks, and a comfortable waiting area for customers. Additionally, adequate parking is a must, as you’ll need space not only for customers’ vehicles but also for cars that are being worked on. Also check local zoning laws before committing to a facility to ensure that an auto body shop is permitted to operate that location.
Equip the shop: Once you’ve secured your location, it’s time to start purchasing the equipment for your shop. Depending on the services you plan to offer, you may need tools for body repair, painting equipment, safety gear, and possibly diagnostic machines if you intend to provide mechanical repair services. Whether you choose to purchase or lease your equipment will depend on your financial situation and long-term plans. Leasing can be a good option if you want to start with the latest equipment and keep your initial out of pocket costs low.
Operational details: With your location set and equipment in place, you can now focus on your business operations. This involves determining your hours of operation, the services you will offer, and how much you will charge for these services.
Step 5: Hire Staff
As a new employer, there are certain responsibilities you will need to take care of before you can hire your first employee.
The first step is to obtain an EIN from the IRS. This unique number is used for tax purposes and is essential for reporting information about your employees.
Next, you need to ensure employment eligibility. This means verifying that your employees are legally allowed to work in the United States.
You must also adhere to state hiring requirements. These vary by state and may include specific forms to complete and reporting requirements to meet when you hire new employees. Most states also require employers to carry worker’s compensation insurance. This type of insurance protects your employees if they get injured on the job, covering their medical expenses and a portion of their lost wages.
Finally, familiarize yourself with the relevant labor laws. These include federal laws such as the Fair Labor Standards Act, which sets minimum wage, overtime pay, recordkeeping, and youth employment standards, as well as any state-specific labor laws.
Step 6: Prepare to Open!
After covering the core steps for starting an auto body shop, there are several remaining tasks that will vary based on individual needs. A few of the most common ones for a body shop include:
Business insurance: Securing business insurance can help protect your shop from unexpected events. Types of insurance that are common for auto body shops include general liability insurance, workers’ compensation insurance, and property insurance.
Setting up bookkeeping: There’s no getting around the fact that every business will involve some amount of bookkeeping. Whether you choose to manage this yourself with the help of bookkeeping software or hire a professional, you’ll need a system in place to handle daily transactions, taxes, and financial statements.
Opening a business bank account: A business bank account separate from your personal accounts can make tracking your business finances easier and more efficient.
Accepting credit cards: Set up ability to accept credit card payments from customers for their convenience.
Creating a marketing strategy: With a strategic marketing plan in place, you can start spreading the word about your auto body shop. Ideas for promotion might include creating a logo, building a website, launching social media pages, or running local advertising campaigns.
Preparing for the grand opening: Develop a plan to let potential customers know about your new business. This can include creating a logo and website, utilizing social media, or even traditional advertising methods like print ads or billboards.
Common Questions When Starting An Auto Body Shop
How much does it cost to start an auto body shop?
Starting an auto repair shop will need a substantial initial investment and a budget to cover initial running costs until you have a solid customer base. Assuming you are starting from scratch and not setting up in an existing shop and buying everything new, plan on $120,000 to $225,000 to cover all initial expenses. Costs typically breakdown into:
Equipment & tools: The most significant cost is usually for equipment, which at minimum could range between $100,000 – $150,000. This includes vehicle lifts, welding equipment and tools, frame machines, spray booths, prep decks, air compressors and delivery systems, and other specialty tools. Costs scale with shop size.
Location: Leasing a space will require initial deposits, which can vary widely based on the location’s size and geographic area. Expect to pay anywhere from $10,000 to $30,000 for deposits and initial rent or more if purchasing.
Renovations and shop setup: Setting up your shop might require renovations, which can cost between $5,000 and $20,000, depending on the extent of the work needed to make the space suitable for an auto body shop.
Marketing: Initial marketing costs, including creating a website, designing a logo, and promotional materials, can range from $2,000 to $5,000. This is important for establishing your brand and attracting customers.
Business registration: Registering your business, including licenses and permits, might cost between $50 and $1,000, depending on state and local requirements.
Administrative setup: Investing in management software and setting up administrative systems could cost between $1,000 and $5,000. This includes point of sale systems, bookkeeping software, and customer management tools.
Insurance: Initial insurance costs, including liability and property insurance, can range from $3,000 to $10,000.
Lastly, while not a hard-and-fast rule, we recommend you also have funds to cover three to six months’ worth of operating expenses. This can help you manage unexpected situations or slower business months without undue stress.
How profitable is an auto body shop?
Estimating the potential profitability of an auto body shop involves considering various factors, including revenue streams, operating expenses, and industry trends. Let’s break down these elements to get a sense of the possible profits.
Revenue: The revenue for an auto body shop primarily comes from services like body repairs, painting, and customization. Suppose an average repair job costs $500, and the shop completes an average of 4 jobs per day. Assuming it operates 25 days a month, the monthly revenue would be 4 jobs/day × $500/job × 25 days = $50,000.
Additional services like detailing or custom work can increase this figure.
Expenses: Major expenses include rent, utilities, payroll, equipment maintenance, and supplies. Assuming monthly costs are as follows: rent ($5,000), utilities ($1,000), payroll for a small team ($15,000), equipment maintenance ($2,000), and supplies ($5,000). The total monthly operating expenses would be $28,000.
Final Profit Calculation: Subtracting the expenses from the revenue gives us a monthly profit. So, $50,000 (revenue) – $28,000 (expenses) = $22,000. Annually, this would be $22,000 × 12 = $264,000.
However, it’s important to note that these numbers are simplified estimates.
What is the NAICS code for an auto body shop?
The NAICS code for an auto body shop is 811120, which is classified under Automotive Body, Pait, Interior, and Glass Repair.
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?