How to start a mechanic shop that is profitable

Before you can register your business as a legal entity and obtain the proper license, you need to know what type of business structure you want. How you structure your business can have tax and legal implications, so it’s important to understand your options:

• Ideal for one-person shops, a sole proprietorship is the cheapest and easiest business structure to get going. However, it offers the least amount of legal protection against your personal assets, which can be risky if someone sues you.
• As the most popular option for auto shop owners, a limited liability company (LLC) keeps your personal and business assets separate, so your personal finances are protected if a customer sues you. But it’s important to note that there are some added fees and paperwork involved in this option.
• If you’re co-owning the shop with one or more people, a partnership makes everything equal, ensuring everyone contributes to the business and shares in profits and losses.
• An S corporation (S-corp) allows you to incorporate your operations the way larger companies do, without being taxed twice (the way they are). Depending on how much money you make, there can be tax benefits with this option.

Once you officially register your auto repair services business, you’ll receive an employer identification number (EIN) from the IRS. An EIN can help reduce identity theft risk, streamline how you do your taxes, and make it easier to open a business bank account.

To avoid penalties and ensure your shop is a safe workplace, it’s important to educate all of your employees on Occupational Safety and Health Administration (OSHA) standards for auto repair shops. The list of employee safety regulations includes:

• Training on the hazards of chemicals and materials they work with
• Guidance on personal protective equipment (PPE), including safety glasses, gloves, and hearing protection
• Teaching proper usage of lifts, hoists, tools, and other machinery
• Educating on workspace safety, such as keeping floors clean and clutter-free, wiping up spills quickly, and making sure tools and equipment are organized and put away when not in use

Understanding the most common risks in your auto shop can help you implement safer work processes and ensure employees know what to do in case of an accident or injury. Some of the most common risks include:

• Workplace injuries from heavy equipment, hazardous chemicals, loud machinery, and slippery surfaces
• Property damage to customers’ vehicles, their personal property, and your tools and equipment
• Service errors, such as misdiagnosing a problem, mishandling parts, or damage caused to a vehicle by using faulty equipment or the wrong parts

Having a general liability insurance policy not only provides your business with protection against common auto mechanic business risks and lawsuits, but it’s also typically required to sign a commercial lease for shop space.

General liability helps pay for repairs, medical bills, and legal fees related to:

• Customer injuries, such as slipping on a wet floor
• Customer property damage, for example, if an employee breaks a pair of sunglasses inside the vehicle they’re servicing
• Advertising injuries, such as slander and copyright infringement

Auto repair shop owners should also consider these options:

• Garage liability insurance extends your general liability protection to incidents that occur in your garage.
• Garage keepers insurance covers costs if a customer’s vehicle is stolen or damaged while in your care.

Once you’ve purchased all of the necessary equipment and tools, you’ll want to protect your investment in case they’re damaged or stolen, or they break down. There are two types of coverage to consider:

• Tools and equipment insurance is a type of inland marine insurance that helps pay for repairing or replacing tools and equipment that are lost, damaged, or stolen. The property usually needs to be less than five years old and valued under $10,000.
• Adding equipment breakdown coverage as an endorsement to your commercial property insurance or business owner's policy gives you financial coverage when your auto repair equipment or machinery malfunctions or has a mechanical failure.

Whether you own or rent a space for your shop, a business owner’s policy (BOP) is a cost-effective way to get both general liability and property insurance. This bundled policy typically costs less than purchasing each policy individually and helps to cover:

• Customer injuries
• Damage to your shop
• Incidents like fires and burglaries

Depending on the types of services you’re offering and whether you hire employees, here are some additional business insurance policies to consider:

• Errors and omissions insurance (E&O), also called professional liability insurance, pays for lawsuits related to professional mistakes and oversights, such as misdiagnosing an issue.
• Business interruption insurance is often included in a business owner's policy (BOP), which covers lost income and other costs when your shop is forced to close temporarily due to a fire, storm, or other covered property claim.
• Commercial crime insurance financially protects your business from criminal acts committed by employees against customers or clients, such as an employee stealing from a customer or client.
• Cyber insurance can help your business recover from financial losses caused by a data breach. If you store credit card numbers and other sensitive customer information, this policy is advised.

Determining your target clientele will allow you to tailor your services, improve your margins, and run a smoother operation. Depending on your expertise, location, and budget, you may choose to work with:

• Everyday drivers who own or lease a car usually come in for standard vehicle repairs and service maintenance.
• Businesses with a few vehicles or an entire fleet of trucks typically need quick repairs, cost-effective services, and regular maintenance.
• Specialty vehicle owners who may require specialized services and expertise for their classic, sports, or luxury cars.

Keeping your shop stocked is the key to success. Here’s a list of the must-have tools and equipment your repair business will need to get started:

• Hand tools, including wrench and socket sets, screwdrivers, pliers, hammers, mallets, and break bars
• Power tools, such as lifts, air compressors, jacks and jack lifts, power drains, work lights, and battery chargers
• Diagnostic tools like vehicle lifts, diagnostic scanners, battery testers, and fuel pressure gauges
• Safety equipment, including glasses, toolboxes, and proper waste disposal systems

To attract potential customers, you must have a clear marketing strategy. Establishing an online presence for your business can help you reach a wider audience in a variety of ways, including:

• Launching a website to explain your services, pricing, work experience, plus your phone number and address
• Claiming your business on Google Business Profile, Yelp, and other related online directories
• Setting up a business profile on Facebook, Instagram, and other social media apps to share tips, customer reviews, and before-and-after photos
• Offering customer referral programs and collecting positive customer reviews
• Adding your brand logo and phone number to shop-owned vehicles and service trucks

Once your doors are officially opened, you must be ready to provide quality service to many customers—often at the same time.

• Set up shop management software to accurately track repairs, inventory, and customer records.
• Be transparent about your prices to earn customers’ trust, including detailed invoices that explain flat rates, hourly labor costs, and options for service bundles or other savings.
• Establish a customer service protocol that ensures clear, honest communication with every client, from diagnoses and estimates to post-job follow-ups.

It’s important to start making room for more cars on the highway before traffic comes to a standstill. Planning ways to expand your business will allow for smoother growth and greater profitability. A few options to consider:

• Hire a technician or an office administrator so you have more time to focus on business strategies
• Expand your service offerings based on the common needs you see arising from customers
• Explore tools to boost efficiency, such as scheduling software and better inventory management systems