How to Start a Repo Business

Unfortunately, people sometimes have difficulty making on-time payments for major purchases, like cars, boats, furniture and appliances, so the repo man pays them a visit to either repossess the item or persuade the buyer to cough up. 

A repo company works for banks and other lenders to retrieve large items purchased via loan so that the lender can sell them, usually at an auction. The repo business collects fees for each item repossessed, which can make for quite a profitable business. In fact, repo in the US is a growing, billion-dollar industry, so there’s real opportunity in this market. 

But you need more than a tow truck to start a repo business. You need specific knowledge about how to launch a business and the ins and outs of the industry. Luckily, you’ll find everything you need to know in this step-by-step guide, designed to put you on a path to repo success.

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a repo business has pros and cons to consider before decided if it’s right for you.

Repo industry trends

Industry size and growth

• Industry size and past growth – The US repossession industry was worth $2 billion in 2021 after 4% annual growth the previous five years.((https://www.ibisworld.com/united-states/market-research-reports/repossession-services-industry/)) 
• Growth forecast – The US repo industry is expected to grow steadily for the next five years.
• Number of businesses – In 2021, 10,065 repossession businesses were operating in the US.
• Number of people employed – In 2021, the US repossession industry employed 18,234 people. 

Trends and challenges

Trends in the repo industry include:

• The financial difficulties faced by many during the pandemic are driving up repo demand, particularly as economic relief comes to an end.  
• Sharp demand for used cars is driving up the value of repossessed cars, making lenders more likely to repossess to recover their money.

Challenges in the repo industry include:

• Danger is a constant problem for repo workers. Car owners, for instance, often mistake the repo person for a thief and try to stop them by violent means.
• For repo businesses, economic recovery at any given time is bad news for business. 

How much does it cost to start a repo business?

Startup costs for a repo business range from $4,500 – $9,500. The main costs are a down payment on a tow truck and a website. You’ll also need to meet the licensing requirements of your state. 

In some states, you’ll just need a commercial driver’s license (CDL), while in others you’ll need a repossession license. To get a repo license, states require a certain number of educational hours and some repo experience. Check with your state for specific requirements. You’ll also need to check local repossession business laws.

How much can you earn from a repo business?

The average price to repo a car is about $200, and larger, more valuable items can cost more. If you have to track down the person and the items, you can add fees of about $25 per hour. These calculations will assume an average per-repo price of $250. Your profit margin should be about 80%.

In your first year or two, you could work from home and repo five items per week, bringing in $65,000 in annual revenue. This would mean $52,000 in profit, assuming that 80% margin. As you get repeat customers, you could do 25 items per week. At this stage, you’d rent a commercial space and hire staff, reducing your profit margin to around 30%. With annual revenue of $325,000, you’d make a tidy profit of $97,500.

What barriers to entry are there?

There are a few barriers to entry for a repo business. Your biggest challenges will be:

• The licensing requirements of the state
• Connecting with the banks and lenders who will be your clients

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Step 2: Hone Your Idea

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

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an opportunity

Research repo businesses 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 repo business that focuses on trucks, boats, or furniture and appliances, or a repo business that offers investigative services to locate buyers. 

You might consider targeting a niche market by specializing in a certain aspect of your industry, such as repo for car dealers.

This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your products or services

In addition to repossession services, you could offer investigation services. Since you’ll have a tow truck, you could also offer tow truck services when you don’t have repo work. You’d be a combination repo/tow truck business, which would bring in more revenue. 

To learn more about tow truck services, read this Step By Step article on how to start a towing business. 

How much should you charge for repo services?

The average price for a repo is $200 plus $25 an hour for investigative services. When you’re working by yourself, your ongoing costs will be limited to your tow truck payment, fuel, and insurance. You should aim for a profit margin of 80%.

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 banks, lenders, and retailers that do their own financing. You can find them on LinkedIn, but your best bet is to call them directly. You can find them on Google or Yelp. 

Where? Choose your business premises

In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. You can find commercial space to rent in our 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

Step 3: Brainstorm a Repo Company 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 “repo” or “repossession”, boosts SEO
• Name should allow for expansion, for ex: “Elite Repo Group” over “RV Repo Pros”
• 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 Repo 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: Provide a concise overview of your repossession (repo) business, highlighting your service model, target market, and competitive edge.
• Business Overview: Outline the primary function of your repo business, focusing on asset recovery services for financial institutions and private lenders.
• Product and Services: Describe the specific types of repossession services you offer, such as vehicles, equipment, or property recovery.
• Market Analysis: Assess the demand for repossession services within the regions you plan to operate and the prevailing economic conditions influencing the market.
• Competitive Analysis: Evaluate other repo companies in the area, identifying your business’s unique approach or services that will provide an advantage.
• Sales and Marketing: Explain your strategy for building relationships with lenders and marketing your services to potential clients.
• Management Team: Highlight the qualifications and experience of your management team, emphasizing expertise in legal procedures and asset recovery.
• Operations Plan: Detail your operational procedures for repossession, including client agreements, asset location, and recovery methods.
• Financial Plan: Outline your startup costs, pricing model, and financial projections, considering the average number of repossessions and operating expenses.
• Appendix: Include any supporting documentation, such as licenses, contracts, insurance policies, or partnership agreements that underpin your business plan.

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

Step 5: Register Your Business

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 repossession businesses. 

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 repo business 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 an 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. 

Form Your LLC

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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.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• 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 repo business. 

Step 8: Apply for Repo Business Licenses and Permits

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

In some states, you’ll just need a commercial driver’s license (CDL), and in others, you’ll need a repossession license. To get a repo license, states will require a certain number of educational hours, and some require repo experience. Check with your state for specific requirements. You’ll also need to check local repossession business laws.

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.

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 repo 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

As opening day nears, prepare for launch by reviewing and improving some key elements of 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 Smart Repo, Tracers, or Repo Systems to manage your contracts, invoicing, and payments. 

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. 

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.

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.

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. 

Marketing

Starting a repo business can be a lucrative venture, and effective marketing is crucial to its success. Beyond creating a website and networking, consider the following strategies to enhance your business presence and attract clients:

1. Local Partnerships: Collaborate with local auto repair shops, towing companies, and financial institutions to establish referral partnerships, increasing your reach within the community.
2. Targeted Direct Mail Campaigns: Utilize direct mail to reach out to car dealerships, banks, and credit unions in your area, emphasizing your expertise in efficient and secure vehicle repossessions.
3. Community Events and Sponsorships: Participate in or sponsor local events and community gatherings to raise awareness about your Repo Business, fostering trust and recognition among potential clients.
4. Educational Seminars: Host seminars or webinars to educate financial institutions and car dealerships about the repossession process, showcasing your expertise and building credibility.
5. Social Media Engagement: Leverage social media platforms to share success stories, industry insights, and engage with your audience, creating a human connection and building trust in your services.
6. Discounts and Promotions: Offer special promotions or discounts to financial institutions for bulk services or to clients who refer others, encouraging loyalty and word-of-mouth referrals.
7. Vehicle Recovery Success Stories: Showcase real-life success stories on your website and marketing materials to highlight your track record and instill confidence in your ability to recover vehicles efficiently.
8. Specialized Marketing Collateral: Design informative brochures and business cards emphasizing your specialized skills, making it easy for potential clients to understand the unique value your Repo Business brings.
9. Online Reviews and Testimonials: Encourage satisfied clients to leave positive reviews on online platforms, enhancing your online reputation and serving as social proof for your business’s reliability.
10. GPS Technology Integration: Highlight the use of advanced GPS technology in your repossession process in marketing materials, emphasizing your commitment to efficient and precise vehicle recovery.

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.

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 repo business 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 repo business could be: 

• Professional repo services to recover your loan money fast
• Truck repossessions – we can handle the load
• We track down valuables quickly to return your money to you 

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 repo business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in repo 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 repossession. You’ll probably generate new customers or find companies with which you could establish a partnership. 

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 repo business include:

• Repo Drivers – repo vehicles and other items
• General Manager – scheduling, accounting
• Marketing Lead – SEO strategies, social media

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: Run a Repo Business – Start Making Money!

If you want a business that might offer a little excitement, a repo business may be just the ticket. Auto repossession and other large item repossession is a large industry, worth $2 billion and counting. You can make a good living, have some flexibility, and run your business from home for a small investment. You’ll have to jump through a few licensing hoops and get a tow truck, but it will pay off in the end.

Now that you understand the business, you’re ready to get on the road to launching your new repo company!