How to Open an Auto Body Shop

Co-authored by Madison Boehm

Last Updated: May 21, 2021 References Approved

Opening an auto body shop can be a personally rewarding and financially lucrative business decision. However, knowing how to make a vehicle look like new isn't enough to ensure business success. Foremost, you need to develop a business plan that will help you acquire the funding necessary to open a business and ensure that operations run smoothly right from the start! Fortunately, you can readily get help taking the necessary steps to get an auto body shop up and running.

Part 1

Part 1 of 4:

Generating an Actionable Business Plan

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Start working on a business plan. One of the best ways to ensure a small business will be successful is planning ahead. Even if you’re fully capable of top notch auto body work, starting a business requires substantial research, analysis, and consideration. In short, have a thorough business plan in place before committing to opening a business of your own.^{[1]
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- Start by writing a detailed company description. For instance, address whether you’ll have a full-service shop of specialize in one service. Will it cater to a specific clientele, such as Japanese cars, or provide service to any type of vehicle?
- A well-developed business plan will help at every step of the process. In particular, you'll benefit from more favorable lease agreements, credit lines, conversations with potential vendors, funding opportunities, and even operational practices.
- Don’t think of a business plan as a tool to help you run a business. Instead, develop your plan as a way to decide whether you can move forward opening an auto body repair shop in a particular area.
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Get guidance writing your business plan from the SBA. The U.S. Small Business Administration (SBA) is the best source of assistance in starting your own business. In particular, the SBA provides instructions and formatting guidelines to help you write a business plan. These materials are available for free online. The SBA will also be able to notify you of other helpful organizations that might have more specific advice regarding the auto repair industry.^{[2]
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U.S. Small Business Administration
U.S. government agency focused on supporting small businesses
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- The SBA can also link you with local organizations, individuals, and resources to help plan, finance, and open a business.
- Further, the SBA may be able to link you with a successful business professional that is willing to donate their time to help a small business. If this opportunity is available, ask about working with someone who has experience working with auto shops.
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Get local business advice. Particularly if you do not have experience starting small businesses, you’re going to need a good amount of guidance. For instance, do you know how to construct a profit and loss statement, balance sheet, and other financial statement? If not, you’ll need to hire, befriend, or otherwise acquire the assistance of an account. You’ll likely also need a lawyer to determine the best structure of your business. Finally, bankers see plenty of business plans – you can likely find one that’s willing to look at yours and provide feedback free of charge.^{[3]
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- While other auto-body repair shops may not want to help the competition, contact other local businesses that work on automobiles in a different capacity. For instance, parts stores or junkyards will likely know a lot about the local automotive community, including potential customers.
- Particularly if the ownership of your business will be shared, or you’ll be taking out loans to cover start-up costs, make sure to talk to both a lawyer and a financial professional while crafting your business plan.
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Get advice directly from a local government office. There are often city, county, and state-level small business centers that are tasked with the enforcement of business regulations. Auto body shops require various special licenses and permits, and these offices can tell you what you will need and help you get it. The SBA can help link you up with local offices that can inform you of the regulations you’ll need to meet.^{[4]
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U.S. Small Business Administration
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- Auto-repair shops must have permits to do business, as well as specific permits to perform particular types of jobs, such as paint-removal and painting.
- It’s helpful to know about any pertinent regulations during the planning phase, to incorporate any potential costs or other issues associated with meeting these requirements.

Part 2

Part 2 of 4:

Assessing Your Start-Up Costs

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Specify your expected revenue for the first few years. Aside from knowing where business will come from, you also need to know how much – and how fast – the business can be expected to grow. Be able to articulate where, specifically, money will come from, as well as what operational expenses will be. For instance, initial and recurring costs must be recorded, as well as a loan repayment plan, and the level of profits that are expected each month or quarter.^{[5]
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- Forecast these figures for the first three years after opening.
- Decide on the prices your shop will charge for specific services. These can be used alongside your anticipated customer projections to determine revenue estimates.
- Establish a “break-even” point. This is the point at which the business will be generating revenue, as opposed to spending money as it gets up and running. It may take longer to “break even” than you initially realize.
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Determine the amount of funding you’ll need. Simply stated, you need to know how much money you’ll need to open the business and maintain operations until your shop starts generating revenue. If you intend to borrow money by way of a loan, it is especially important to determine a concrete dollar amount to ask for. Unfortunately, there's no ballpark number, since differences in location, equipment, and shop size can cause start-up costs for auto body repair shops to fluctuate considerably. This is partly why is so important to develop a solid business plan, as it is the best way to accurately estimate your start-up costs.^{[6]
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- Know that SBA-insured loans are one of the best sources of funding for a small business. This is another reason you should follow the SBA’s guidelines when developing your business plan.
3
Over-estimate equipment and materials expenses. Equipment expenses are commonly underestimated. While you may be able to save money buying used equipment, there is a greater chance of unforeseen costs associated with maintaining older equipment. A good rule of thumb: estimate your initial equipment and inventory expenses and increase the number by thirty percent. While this may seem like a huge amount of money, it's far better to wind up spending less than expected than it is to wind up needing to borrow more.^{[7]
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- For example, if you estimate needing $100,000 dollars' worth of equipment to open the shop, plan to secure funding for $130,000 dollars' worth of equipment.
- Make a detailed list of all the equipment you’ll need and its cost. This should include everything: lifts, wheel balancers, hoists, paint guns, paint mask, and the decorations in the reception area.
- If you intend to lease some equipment, consider a SBA-backed loan, which may offer you a low interest loan with no down payment to pay for equipment.
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Be willing to invest in the best location you can find. In simplest terms, plan to open an auto body shop in the best location you can afford. In particular, you want a location that is easily accessible from major roads. Ensure any location you’re considering is zoned for commercial use. Taking out a slightly larger loan to help finance a business in a location where it is more likely to succeed may even allow for you to negotiate a lower interest rate.^{[8]
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Consider opening an auto body franchise location. You have the option of franchising your business as opposed to opening and running your own business from the ground up. The main benefit of franchising is a considerable reduction in the likelihood that your business fails. This relative advantage is based on multiple factors, including name recognition, large scale marketing, and "tried-and-true" managerial and operational procedures.^{[9]
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- To find out about franchising options in your areas, contact the corporate offices for the auto body repair "chains" that are popular in your state. Be sure to contact them all, and be aware that they may be willing to meet or beat another franchise's offer. Seek the advice of an account and/or lawyer regarding any specific legal or financial questions you have.
- Of course, there are costs associated with franchising. The bottom line is that you'll make a smaller portion of what your shop pulls in, though this depends on your specific franchising agreement. On the other hand, you may also avoid costs that may be incurred if you open a business on your own and make errors that a franchising agreement may have prevented.

Part 3

Part 3 of 4:

Researching and Appealing to Your Market

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Conduct formal market analysis. Assess whether a market exists for the type of business you hope to open. In the most basic sense, a comprehensive business plan helps identify potential issues before they arise. In particular, ensure that there’s actually business to get!^{[10]
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- Specific statistics to look out for include the number, age, and types of vehicles in the area you’re considering. Additionally, find out what insurance companies are commonly used in the area, and how many similar businesses you’d be competing with.
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Develop relationships with paint and parts companies. Large businesses that you may want to work with can offer you a wealth of knowledge, and potentially even assist you. Often, these companies will make business development consultants available to potential new partners. Some may even be willing to help with your business plan, as your success would potentially lead to further business for them.^{[11]
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- Further, they may help you with marketing. They will have access to marketing data, and will be up-to-date on new technologies and marketing practices. You can also likely find quick assistance from business partners regarding layout and design of your marketing materials.
- Establish positive relationships with specific employees at suppliers. This will likely help ensure the supply channels you will rely on once your business is open run smoothly.
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Specify your marketing intentions. Marketing plans are some of the most important features of a solid business plan. The options are endless: consider flyers, print ads in local publications, and online advertising. When writing about the services and products you’ll provide, describe them as though whomever is reading them knows nothing about auto body repair. In particular, outline how what you offer will be different from what competitors already offer.^{[12]
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- Reach out to the local auto-restoration community. People who frequently work on classic or antique cars will often work with auto body shops. You can even offer people who are active in these communities discounts, knowing that they may valuable sources of recurring business.^{[13]
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Contact auto insurance representatives. It may prove to be extremely lucrative to be on insurance companies’ “recommended repair facility” lists. Often, people will ask their insurance companies who to go to for service, particularly when they anticipate their insurance company paying for some or all of the service. By developing good relationships with those companies directly, you’ll bring in additional customers.^{[14]
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- Feel free to be direct. Ask insurance company representatives how you can get on the recommended repair facilities list.

Part 4

Part 4 of 4:

Staffing, Registering, and Certifying Your Shop

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Interview and hire employees. While experience is highly valuable, it’s also vital that your employees are trustworthy and polite. Personable service leads to happier customers, better reviews, and more business. More simply, friendly, happy employees lead to happy customers. Hire accordingly.
- Include detailed estimates of anticipated labor costs in your business plan as well. For instance, employer-paid taxes and benefits will likely lead to high labor costs than you would foresee based only on the going hourly rate for auto techs.
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Register your auto body shop. You'll need to register your business with the city, state and federal government. Since specific registration requirements will vary, contact your state’s DMV for information on the requirements in your area. Plan to prove that you have ownership or permission to use the facilities where your shop is located, as well as proof of the appropriate zoning. Further, you’ll need proof of an official business name, as well as proof of worker’s compensation insurance.^{[15]
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Ensure that your business will meet body shop regulations. Your shop will be generating hazardous wastes that will affect both air and water quality near your facility. Accordingly, you must demonstrate that you are consistently meeting both state and federal regulations. The regulations you’ll need to meet depend on what services you offer at your shop, as well as it’s location and proximity to municipal facilities. Find your state’s guide to environmental compliance for auto repair shops on the Environmental Protection Agency website.^{[16]
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Expert Q&A

Question

How do auto body shops get customers?

Madison Boehm
Business Advisor, Jaxson Maximus
Madison Boehm is a Business Advisor and the Co-Founder of Jaxson Maximus, a men’s salon and custom clothiers based in southern Florida. She specializes in business development, operations, and finance. Additionally, she has experience in the salon, clothing, and retail sectors. Madison holds a BBA in Entrepreneurship and Marketing from The University of Houston.

Madison Boehm

Business Advisor, Jaxson Maximus

Expert Answer

Through marketing and a good service. A good reputation is necessary for most successful businesses, but it takes time. It's nothing that's going to happen overnight, for instance. I think a business itself should be centered around good customer service, good hospitality, and creating a good product in general. The business has to win, the consumer has to win, and the staff has to win. And if all those things are aligned, that creates kind of a perfect storm of a good reputation for a business, bringing in more customers.
Question

What are the licensing requirements when starting an auto shop?

Community Answer

This will depend on the city and state in which you hope to operate. Contact your local DMV, chamber of commerce, or the SBA for more information.