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How to Start an Auto Body Shop

How to Start an Auto Body Shop

Are Pimp My Ride and Top Gear your kind of TV shows? Is your happy place a garage full of spare parts, heavy tools, and engines? Are you a good problem solver, and are you looking for an opportunity to start your own company? Then setting up an auto body repair shop might be a great opportunity for you to turn your passion and skill into a business.

Business Description

An auto body shop’s services include interior and structural repair, as well as 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. It may include chassis repair, windshield replacement, and dent repair. Services can also include paint jobs, detailing services, and customization.

Statistics show that the average auto body shop in the US operates with about 8 staff and out of a single location.

Industry Summary

This industry is primarily driven by the number of traffic accidents occurring on our roads. According to a recent VerticalIQ study, the average driver in the US needs a collision repair service roughly every 7 years.

According to IBISWorld, the auto body industry generates $56 billion in the US every year. It has been growing steadily, at a rate of 2.2% over the past few years (MarketResearch.com). 

In 2022, over 113,000 auto body repair shops were registered in the US. 

This is a highly fragmented and localized industry, with larger companies such as Caliber Collision Center, Service King, and The Boyd Group Inc only holding a 20% market share.

Industry Trends

In the US, BusinessWire forecasts an annual industry growth for auto body shops of 1.7% through 2027. It identifies the main drivers for this growth to be an overall rise in disposable income and an increase in collision cover insurance. In their research report, the rise in disposable income is directly linked to more vehicles on the road and, ultimately, resulting in a surge of accidents. 

The auto body industry will also be faced with continuous innovation and fast-paced changes, and EVs are just one of them. It is anticipated that OBCS (on-board communication systems) will increasingly be sold at authorized new and used car dealerships and, in case of an emergency, directly link to the approved auto repair shop and insurance, for example.

Target Market

Your target market should include individual vehicle and fleet owners, insurers, and car dealerships.

Your services will likely be needed at some point by anyone who drives a vehicle, so in some ways, you have a captive audience. 

However, for your business to be successful, we highly recommend you analyze potential market segments and the need for specific certifications. For example, ensure you are original equipment (OE) certified and that you have the right skills, specialized equipment, and certification to take on EV repairs.

Alternatively, you may target high-end customers and specialize in specific customization services.

Checklist for Starting an Auto Body Shop

Starting an auto body shop can be a very lucrative business, however, there are a few things you need to take into account before diving in head first. This checklist will help get you started on the right foot!

Step 1: Write a Business Plan

A business plan is essential for any business, but it’s especially important for a new business.

The process of writing a business plan can help you clarify your business goals and objectives, identify potential customers and competitors, and determine the strategies you’ll use to reach your target market. If you’re thinking of opening an auto body shop, your business plan will be a valuable tool in helping you secure financing and get your business off to a successful start.

While there’s not a required way to write a business plan, there are some key elements that should be included. These include an executive summary, company description, market analysis, management and organizational structure, product or service line, marketing and sales strategy, financial projections, and the appendix.

By taking the time to write a comprehensive business plan, you’ll be laying the groundwork for a successful auto body shop.

Related: How to write a business plan

Step 2: Decide On a Business Name

Naming your auto body shop is an important step in launching a business. The name you choose shouldn’t only be memorable by also reflect the quality of your work.

Here are a few tips to help you come up with a great name for your auto body shop:
– Think about what makes your shop unique. What sets you apart from other auto body shops in the area? Do you specialize in a particular type of repair? Do you use only the highest quality parts and materials? Keep these factors in mind when brainstorming names.

– Consider your target market. Who are you trying to attract with your business? Are you targeting luxury car owners or budget-minded consumers? Your name should appeal to your target market.

– Keep it simple. A complex name may be difficult for potential customers to remember or pronounce. Choose a name that is easy to say and spell.

– Make it catchy. A catchy name will help your shop stand out in the minds of potential customers. Try to avoid puns or wordplay, as these can be difficult to understand or remember.

– Avoid using initials or acronyms in your name. These can be confusing for customers and make it difficult to find your business online.

Related: Tips on naming a business

Step 3: Form a Legal Entity

A legal entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures 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 auto body 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 to minimize liability risk 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 that 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 small business 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

Opening an auto body shop can be a great way to tap into a lucrative market. However, finding the perfect location for your business is essential. There are a few key factors to keep in mind when searching for a site for your auto body shop.

First, you’ll want to make sure that the property is large enough to accommodate your needs. You’ll need space for parking, as well as room for the actual shop itself. A decent sized garage or workspace, preferably with high ceilings, is ideal for accommodating tall vehicles and lifts.

Second, you’ll want to choose a location that is easily accessible to potential customers. A busy street or major highway is ideal.

Before committing to a lease or purchase of property, or using your own, be sure to check the zoning to see if you can operate a business from there. Even if you think your neighbors won’t mind, if your business becomes successful and there are several cars parked on your property, they eventually will (or the city will notice) and can force your business to close.

Finally, you’ll want to consider the rental cost or purchase price of the property. While you don’t want to break the bank, it’s important to choose a location that won’t put you at a competitive disadvantage.

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 provide paint services, 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 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 (EIN), and Occupancy Permit, among others.

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

Step 6: Find Financing

Personal investment and bank loans are the most common sources of financing to start a new auto body shop. If you’re looking for bank loans to help finance your auto body shop, there are a few things you’ll need to keep in mind.

First, you’ll need to have a strong business plan. This will help you demonstrate to potential lenders that you have a clear idea of how you’re going to use the loan money and whether the business has the cash flow to repay it.

Second, you’ll need to have good personal credit, typically 650 or higher. This will show lenders that you’re a responsible borrower who is likely to repay the loan on time. In some cases, a lack of credit or collateral will make the bank look to a guarantee, so the loan is more secure. They can submit your loan request to the Small Business Administration (SBA) which provides a guarantee to the bank should the loan not be paid off. While there is an upside that a bank is more likely to make a loan, it will come with higher interest rates.

Finally, you’ll want to shop around for the best interest rates and terms. Different lenders will offer different rates and terms, and some lenders will shy away from auto body shops, so it’s important to compare your options with several banks before making a decision.

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

It can be difficult to market a new auto body shop since people aren’t commonly using your services, but once you have established good quality work, the word of mouth will quickly grow.

But until then, there are likely many competitors in your area to choose from, and customers often have no idea what to look for in a good one. However, there are a few simple steps that you can take to make your shop stand out from the rest.

First, make sure that your website is professional and up-to-date. Include clear pictures of your work, and make it easy for potential customers to get in touch with you.

Secondly, take advantage of social media platforms like Facebook, Pinterest, and Instagram. Post pictures of your work, share positive reviews, and run promotions.

Last, don’t be afraid to get involved in your community. Sponsor local events, donate to charities, join the Chamber of Commerce, and host workshops.

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

When it comes to auto body shop insurance, there is no one-size-fits-all solution. The type and amount of coverage you need will depend on factors such as the size of your business, the services you offer, and the location of your shop.

Property insurance is important and will protect your shop in the event of fire, theft, or damage from natural disasters. It’s also a good idea to have liability insurance, which will cover you if someone is injured on your premises or if you damage someone’s property. Finally, you will likely be required to have workers’ compensation insurance if you have employees in case they are injured on the job.

By carefully considering your needs, you can make sure that you’re properly protected in case of any unforeseen circumstances.

Related: Types of insurance your business may need

Step 10: Hire Employees

An auto body shop typically employs several different types of workers. The most common positions include auto body technicians, painters, and detailers.

Auto body technicians are responsible for repairing the damage to a vehicle’s body. This may involve straightening bent metal, replacing damaged panels, or using special equipment to remove dents.

Painters are responsible for applying the primer and paint to a vehicle’s body. They must have knowledge of different types of paint and how to apply it properly.

Detailers are responsible for cleaning and polishing the interior and exterior of a vehicle. They must be able to use different types of cleaners and polishers and have an eye for detail.

In addition, many auto body shops also employ office staff, such as managers, receptionists, and bookkeepers. Each of these employees plays an important role in keeping the shop running smoothly.

Related: Hiring your first employee

Step 11: Set up an Accounting System

There are a few key features to look for when choosing accounting software for an auto body shop.

The software should be able to track vehicle repair estimates and invoices. This will help to ensure that all repairs are properly accounted for and billed. Additionally, the software should be able to track insurance claims to help to streamline the billing process and ensure that all payments are received in a timely manner. Last, the software should provide detailed reporting capabilities. This will allow the shop owner to see which areas are generating the most revenue and where improvements can be made.

By taking the time to choose the right accounting software, an auto body shop can not only stay on top of taxes, but improve its overall efficiency and profitability.

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 an auto body shop?

Starting an auto repair shop will need a substantial initial cash injection and a budget to cover initial running costs until you have a solid customer base. 

Ensure your business plan is thorough and your budget detailed so you can present this to potential investors or lending institutions. 
You will need a good-sized, fit-for-purpose space and specialized equipment and technology. Those two are likely your largest expenses.
Space: Unless you own land, we assume you are renting a relatively large shed with amenities in an easy-to-access location. Depending on the region and zoning you are in, rental costs and a rent deposit can be anything between $15,000 and $30,000. 

The specialized equipment you need depends on your business model. However, consider including diagnostics tools, hydraulic equipment, stud welders, hooks and chains, work benches, sanding, grinding, and spray tools in your budget. Best Buy Automotive Equipment estimates the cost of equipping an auto body shop to be at least $32,000 and up to $150,000.

Unless your business is owner-operated, you will also need to cover labor costs, insurance, and professional development for your staff. 
Other budget items are insurance and business licensing, customer management and booking systems, marketing, and communications.

How profitable is an auto body shop?

According to the Bureau of Labor Statistics, the average hourly rate of an auto body mechanic is $22.73. However, that can go up to almost $37/hour ($76,000 annually) for a highly qualified and experienced technician. 

Use these figures as part of your pricing structure. Other factors influencing your expected income will be the location of your shop, the size of your business, the expertise you offer, and the quality of your service. 

According to IBISWorld, this industry is expected to perform well over the next few years and is forecast to grow. It is worth noting that there is an acute shortage of qualified technicians, and demand currently outstrips supply. 

Are there grants to start an auto body shop?

It’s extremely rare to find a grant to start an auto body 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 skills are needed to run an auto body shop?

Technical and repair skills. You will ideally have several years of practical experience in auto repair under your belt. You will need working knowledge of hydraulic and power equipment, manual dexterity, and excellent critical thinking skills. You’ll increasingly need to be familiar with the electrical requirements of EVs and AI systems. 

We highly recommend that you get ASE certification. ASE, the National Institute for Automotive Service Excellence, offers certification and degree programs. 

Excellent customer service skills. Many of your customers may come to your shop on the back of an accident and may be worried and upset. A positive can-do attitude, empathy, and excellent communication skills will go a long way in this business. 

Ensure you can explain a process or a necessary repair in plain English, using layman’s terms. Explain timeframes and costs clearly and ensure you can deliver on both. The level of expertise and quality of your service will strongly support the success of your business. 

Stay up to date and on top of trends. Stay connected with your networks and professional associations. It’ll give you the advantage of being informed about trends, new technologies, and innovations, but also changes in regulations and laws that might affect your business. 

Maintain excellent professional relationships with new and used car dealers, as well as car part dealers and manufacturers, insurers, and manufacturers of specialized equipment.

Relevant associations:
ASE
Bodyshopbusiness 
CREF

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?

Final Thoughts

Take time to prepare a detailed and thorough business plan!

If you have a solid understanding and a passion for cars and have some solid business management skills to add to that, starting your own auto body repair shop may be the best investment in the future you have made. 

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