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How to Start a Custom Car Shop

How to Start a Custom Car Shop

A career working on cars can be rewarding, but if you’ve always enjoyed making specialized modifications to your vehicles, then starting a custom car shop may be a better option than starting a more general car repair business. There’s a definite need for vehicle specialists who have the tools and knowledge to do custom installations and work. By starting your own custom car shop, you can help customers bring their dream vehicles to life.

Business Overview

Custom car shops provide specific vehicle alterations for car owners. Custom work can encompass paint jobs, car wraps, engine modifications, body enhancements, technology installations and updates, and more. Some shops specialize in one certain type of customization, like sound systems, while others may offer broader services.

There is plenty of competition in the car customization industry, so it’s important to spend time researching and developing the idea behind your shop before opening your doors. Research local competitors and the services they offer and consider the types of car enthusiasts located within the area. If you are marketing to sports car owners, make sure that there are enough potential customers within the area to keep your shop running long-term.

Custom car shops exist for your everyday vehicle owner as well as for owners of certain types of vehicles, like work trucks, sports cars, classic cars, and even race cars. These shops become sought-out and trusted because they do work that other shops don’t, and they often have access to products that you can’t find at a more general mechanic. 

Starting a custom car business is hard work, but it can also be rewarding. It’s possible to start customization work on the side, allowing you to balance your new business venture with a part-time or full-time job. This strategy can also help to keep initial costs down, potentially allowing you to start working in this field without the need to secure outside funding.

Especially in the beginning, it may be difficult to have consistent work, and some shops will do fleet work to even out the fluctuations.

Industry Summary

According to IBIS World, the car body shop industry saw multiple growth-driving factors, including an increase in the average age of vehicles and improved consumer confidence. The COVID-19 pandemic resulted in a revenue decline of 10.1% in 2020, negating the earlier industry growth and making for a 0.0% revenue increase from 2015 to 2020. However, IBIS World predicts that from 2020 to 2025, the industry will bounce back from this setback and experience steady growth.

As of 2020, the car body shop industry was a $44 billion market with 112,682 businesses in operation. The industry employed 329,320 people.

Industry Trends

Custom car trends are shaping the car shop industry. According to Red Bull, classic cars have made a resurgence, and that trend is likely to continue for some time. Other popular customizations include altering camber angles to optimize a vehicle for drifting and customized paint jobs for that one-of-a-kind feel.

Complete Mobile notes that many car lovers are enhancing their daily driver vehicles with certain customizations. Remote smartphone starting allows drivers to change everything from the temperature to the navigation and music, so their cars are ready to go as soon as they step inside. In-dash navigation continues to gain in popularity, and some vehicle owners are replacing their CD players with infotainment systems. Front- and rear-facing cameras are also popular options, and they can provide valuable documentation of car accidents and road rage.

Target Market

A custom car shop’s general target market will be car enthusiasts with disposable income to make vehicle upgrades and customizations. Depending on the shop’s business model and specialization, that target market may change slightly. Some shops specialize in working with certain types of vehicles, like sports cars, and will need to market to owners of those vehicles. Other types of shops may specialize in one certain type of customization, like vehicle wraps, and market to vehicle owners in need of that certain service.

Skills, experience, and education useful in running a custom car shop

Running a custom car shop doesn’t require a business degree, but certain skills and experiences will be helpful in running this type of business.

Auto industry knowledge and experience. Knowledge and experience in the automotive industry is essential for any custom car shop owner. A genuine enthusiasm for the industry will also help the business owner to deliver quality work.

Awareness of customization trends. A custom car shop owner will need to stay aware of current and emerging customization trends. This can help to keep the shop current and appealing to its customers.

Attention to detail. Keen attention to detail is essential in this industry, and this trait can help make a car shop a success.

Mechanical and technical skills and training. Mechanical and technical skills and training are a must, and previous experience as a bodyworker or mechanic is ideal. Some types of customization, like custom fabrication, paint jobs, or installing custom bodywork require specialized training and skills. Experience with these types of customization will increase a business’ versatility and leave the business owner well-prepared to train other staff.

Customer service skills. Strong customer service skills will help a business owner to build rapport with customers. Knowing how to interact with customers and address concerns can improve a business’ reputation and lead to referrals and repeat business.

Management experience. It may be possible for a business owner to manage their smaller shop, but as that shop grows, they’ll need to hire staff. Experience hiring, training, and managing staff will be a valuable skill.

 

Checklist for Starting a Custom Car Shop

Starting a custom car shop can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.

Step 1: Write a Business Plan

The first step to starting a custom car shop is to write out a detailed business plan. This plan will outline your business’s key elements, including your target market, services offered, and research about the industry. To secure funding at a bank, you’ll need this business plan. Multiple sources have also found that having a business plan increases the chances of success.

Related: How to write a business plan

Step 2: Name the Business

Finding the perfect name for a business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a custom car shop

Step 3: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a custom car shop, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

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:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 4: Select Your Location

Your shop’s rent will vary depending on factors like its location and the size of the space that you’re renting. Amenities, like a heated garage and off-street parking, can also increase rental costs. Look for a location that strikes a balance between the features you need and a rental cost that you can afford.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

Depending on the extent of services offered at your shop, there will likely be several regulations to be aware of.

In order to have a paint shop, there are federal and state regulations to follow. Also, there are rules for the proper storage and safety of common supplies like carb cleaner, solvents, oil, and tires to be aware of too.

In addition, you will need to check for general business requirements from local, state, and federal agencies. Common ones include a local business license, sales tax permit, Employer Identification Number, and Occupancy Permit, among others.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a business idea, and developing a business plan is just the beginning. You’ll also need to secure financing for your business to help cover the costs of remodeling a space and buying the equipment you’ll need to open up a shop. To get a business loan, a borrower will need to have good credit and personally invest 15-25% toward the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get Your Marketing Plan in Place

A marketing plan will help a business continuously bring in new customers. Common marketing techniques for a custom car shop include social media pages on Facebook, Instagram, Pinterest, and Twitter, developing a website, online advertising, print advertising, generating 5-star reviews on Yelp, Google, and others, and more. Referral and customer loyalty programs can also help to bring in new customers.

Networking can also be an essential element in building your client base. Developing connections with other auto body shops can encourage them to refer customers looking for custom work to you. It’s also important to develop relationships with local car clubs and venues frequented by your target audience.

Related: Low-cost ideas to market a new business

Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.

Step 9: Get Business Insurance

There are several types of insurance to consider when starting a custom car shop. A few of these include:
– General liability insurance helps protect the business if a customer is ever hurt while on the business’ property or as a result of the shop’s work.
– Commercial property insurance helps to cover damages that can occur if the shop or its equipment are ever damaged in an event like a fire.
– Worker’s compensation insurance helps to protect the business if an employee is ever hurt while at work.

The cost of insurance policies will vary depending on factors like the shop’s equipment value and the number of employees on staff. To get the most accurate idea of what to budget for insurance, request quotes from multiple insurance providers. When comparing these quotes, evaluate the differences between premiums, coverage exclusions, coverage limits, and deductibles.

Related: Common types of insurance a business may need

Step 10: Hire Employees

While a business owner might initially operate a custom car shop entirely on their own, eventually, it will be necessary to hire employees as the shop expands. According to PayScale, these are the average salaries for these common custom car shop positions:

– Restoration technician: $40,000
– Metal fabricator: $52,000
– Mechanical engineer: $56,000

When hiring employees, the shop’s budget will need to include additional related expenses like paid time off and worker’s comp.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your custom car shop is critical to your business’s long-term success.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

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

The cost to start a custom car shop will depend on many factors, including the equipment needed and the size of the shop. It may be possible to start a smaller business out of a home garage, saving on rental costs until the business becomes large enough to justify expanding into another space.

Some common startup costs for a custom car shop include:
– Space rental and renovation costs
– Machinery and equipment such as electrical tools, diagnostic machines, air tools, woodworking tools, lift, Jitter Bugs/sanders, air compressor, etc.
– Inventory
– Signage
– Working capital to pay for the first few months of labor, rent, utilities, etc.

How much does a custom car shop owner make?

According to Car Covers, custom car shop owners make profits of between $50,000 and $100,000 per year, while the shops may bring in a million dollars of revenue or more each year.

While these profits are encouraging, multiple factors will contribute to a shop’s profitability. The shop’s location, services offered, target market, and profit margins will determine its financial success. Thorough market research can help to ensure that the services your shop provides are in-demand, your prices are competitive with other shops, and that your profit margins are great enough to keep your shop successful.

Are there grants to start a custom car shop?

It’s extremely rare to find a grant to start a custom car shop. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.

What is the NAICS code for a custom car shop?

The NAICS code for a custom car shop is 811121, which is categorized under Automotive Body, Paint, and Interior Repair and Maintenance.

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?