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How to Start a Car Repair Shop

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Published on February 25, 2022

Updated on August 11, 2022

How to Start a Car Repair Shop

How to Start a Car Repair Shop

Are you pretty good under the hood? Then you probably know that cars regularly break down, and that fixing them costs a pretty penny. US car repair is worth nearly $70 billion, so why not use your skills to start a car repair shop and grab a small share of this massive market? Who knows, you might end up building an empire like Christian Brothers Automotive. 

In addition to being a good mechanic, you’ll need some serious entrepreneurial skills to be successful. Luckily, this step-by-step guide will teach you all you need to know to launch your car repair shop.

Fast Facts

Investment range

$23,050 - $39,200

Time to build

1 – 3 months

Industry trend

growing

Revenue potential

$93,600 - $468,000 p.a.

Profit potential

$56,160 - $93,600 p.a.

Commitment

flexible

Step 1: Decide if the Business Is Right for You

coffee with pen and notes

Pros and cons

Starting a car repair shop has pros and cons to consider before deciding if it’s right for you.

Pros

  • Steady Demand – Somebody’s car is always breaking down
  • Great Money –  Auto repair rarely comes cheap
  • Live the Dream – Fiddle with cars all day and help people get moving

Cons

  • High Startup Costs – A garage and all those tools will be $$$
  • Stiff Competition  – There’s a lot of mechanics out there, plus car dealerships too

Car repair shop Industry trends

Industry size and growth

Trends and challenges

Trends in the car repair industry include:

  • More than 70 million US vehicles are more than 15 years old, which means lots of business for auto repair shops in the years ahead. 
  • Changing auto technology presents opportunities for auto mechanics that are up to date on all the latest features.

Challenges in the car repair shop industry include:

  • As new cars become more reliable, the car repair shop industry may suffer
  • Labor shortages have become an increasing problem in the car repair industry, with qualified auto technicians becoming harder to find. 

Demand hotspots

  • Most popular states – The most popular states for car repair shops are Alaska, North Dakota, and Wyoming.[5]https://www.zippia.com/mechanic-jobs/best-states/
  • Least popular states – The least popular states for car repair shops are Florida, Arkansas, and South Carolina.

What kind of people work in car repair shops?

How much does it cost to start a car repair shop business?

Startup costs for a car repair shop range from $23,000 to $40,000. The main costs include renting a garage, equipment and tools. 

You could go to a trade school and learn to be an auto mechanic in about a year for around $8,000, or take an $800 online course at Penn Foster. It’s probably best to be certified by the National Institute for Automotive Service Excellence (ASE). You can take a test near you for less than $100.

You’ll need a handful of items to successfully launch your car repair shop business, including: 

  • Hydraulic lift
  • Diagnostic machine
  • Basic tools
  • Air compressor
  • Jack and jack stands
  • Oil drain and oil caddy
  • Battery charger and jumper
  • Engine hoist
  • Brake lathe
  • Strut compressor
Start-up CostsBallpark RangeAverage
Setting up a business name and corporation$150 - $200$175
Business licenses and permits$100 - $300$200
Insurance$100-$300$200
Business cards and brochures$200 - $300$250
Website setup$1,000 - $3,000$2,000
Shop rental deposit$2,500 - $5,000$3,750
Hydraulic lift$4,000 - $5,000$4,500
Diagnostic machine$5,000 - $10,000$7,500
Mechanics tool$10,000 - $15,000$12,500
ASE certifications$0 - $100$50
Total$23,050 - $39,200$31,125

How much can you earn from a car repair shop business?

The average car repair bill is $600. When working as a solopreneur, your profit margin after rent and overhead should be about 60%.

In your first year or two, you could work by yourself and do three repairs per week, bringing in about $93,000 in annual revenue. This would mean $55,000 in profit, assuming that 60% margin. As your brand gains recognition and you get repeat customers and referrals, sales could climb to 15 repairs per week. At this stage, you’d hire staff including other mechanics, reducing your profit margin to around 20%. With annual revenue of almost $470,000, you’d make a tidy profit of $95,000.

What barriers to entry are there?

There are a few barriers to entry for a car repair shop. Your biggest challenges will be:

  • The high startup cost
  • Strong competition from local dealerships and mechanics
  • Acquiring auto mechanic skills and certification, if you don’t already have them

Step 2: Hone Your Idea

Now that you know what’s involved in starting a car repair shop, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Why? Identify an opportunity

Research car repair shops online and in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a car repair shop that makes house calls. 

You might consider targeting a niche market by specializing in a certain aspect of your industry, such as brakes or mufflers. This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your products or services

Your services will depend on your skills and your equipment. You could just offer oil changes and tune-ups, or a full range of services all the way up to engine replacement. The more you can do, the better.

How much should you charge for car repair services?

Prices will vary based on the repairs to be done. Your prices should work out to $75 to $130 per hour for labor. Your costs will be for overhead, rent, and labor, and once you have other mechanics working for you, you should aim for a profit margin of about 20%. 

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will be anyone who owns a car, so you should spread out your marketing to sites like TikTok, Instagram, Facebook, and LinkedIn. You could also partner with tow truck companies to get and give referrals.

Where? Choose your business premises

You’ll need to find a garage/shop space to rent. Find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
Should you start a car repair shop business

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better 
  • Name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “auto mechanic” or “car repair”, boosts SEO
  • Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your offerings in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running. 

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to car repair shops. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your car repair shop will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

  • Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
  • C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
  • S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a car repair shop.

Step 8: Apply for Licenses/Permits

Starting a car repair shop business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your car repair shop business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

business partnership teamwork

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You may want to use industry-specific software, such as shopmonkey, AutoLeap, or Shop Boss, to manage your appointments, workflows, invoicing, and payments. 

Online Marketing

Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness. 

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products: 

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area. 
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Schedule Now”. This can sharply increase purchases.
  • Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers. 

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your car repair shop meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your car repair shop business could be:

  • Certified mechanics for all your auto repair needs
  • Affordable car repairs, guaranteed to get you back on the road fast
  • Car broke down? We’ll come to you! Mobile car repair 

Kickstart Marketing

Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Signage – Put up eye-catching signage at your store and website 
  • Flyering – Distribute flyers in your neighborhood and at industry events 
  • In-Person Sales – Offer your car repair services to local tow truck companies 
  • Email marketing/newsletter – Send regular emails to customers and prospects. Make them personal. 
  • Seek out referrals – Offer incentives to generate customer referrals to new clients. 
  • Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
  • Payper-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a car repair shop, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in car repair for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in car repair shops. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial. 

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a car repair shop business include:

  • Mechanics – perform car services and repairs
  • General Manager – scheduling, ordering, staff management, accounting
  • Marketing Lead – SEO strategies, social media, other marketing

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Start Making Money!

If you’re a mechanic, why work for someone else when you could be the boss of your own shop? It will take a significant investment to get started, but you’ll soon grab a slice of the $70 billion market and get a nice return.

Now that you’ve honed your entrepreneurial skills, it’s time to get your tools ready and start driving toward auto repair success! 

Car Repair shop Business FAQs

How much does it cost to start a car repair shop?

You can start a car repair shop for a bit more than $20,000. Your expenses will be garage rental, a hydraulic lift, a diagnostic machine, and mechanics tools.

How profitable can a car repair shop be?

A car repair shop can be extremely profitable. The average repair bill is $600, so a handful of those a week adds up fast.

Do I need a license to start a car repair shop?

You should be certified as a mechanic, and you may need various business licenses and permits at the state and local levels. Check with your local governments for requirements or visit MyCorporation’s Business License Compliance page.

How much should I charge for car repairs?

Prices will vary depending on the type of repair, but typically they should work out to be $75 to $130 per hour for labor only. More advanced repairs should be at the higher end of that range.