Do you want to start an auto repair business and want to know the cost? If YES, here is a cost breakdown to open an auto repair shop and the profit margin/ROI.
An auto repair shop, as the name implies, is a business that repairs faulty automobiles. With millions of vehicles plying the road in the United State, an auto repair shop is indeed a sensible business to venture into. If you’re looking to build your own auto shop from scratch, you’re in for some huge project. You have to obtain all the right equipment and assemble an expert staff. Your staff is in fact what will make or mar your auto repair business.
If you want to run a successful business amidst the competition, you have to ensure that your auto shop is in a high-traffic area, where potential customers in need will happen upon your business. Make sure your shop is within a reasonable distance from local residential areas, since many customers will be paying to have their cars towed to a shop and will take the towing costs into consideration when picking a mechanic.
In designing the shop once you’ve obtained your space, you have to make provision for something like a lobby or sitting area where customers can relax and wait for their cars to get fixed.
How Much Does It Cost to Open an Auto Repair Shop?
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Raising capital to startup a business is the least-fun step, but also the most necessary. Expect your startup costs to hover around $50,000, including equipment, rental fees and insurance. These are the bare basics:
- Diagnostic machine, between $5,000 and $10,000
- Rental fees for your space, anywhere from $1,500 to $15,000, depending on the size and location
- Respectable tool set, including specialty tools, around $15,000
- Lift with installation, about $3,700
- Insurance costs, about $4,000 a year
- Business License: $50 to $100
$36 registration fee, one time, plus $39 per certification, except L1, L2, and L3 certs which are $78 Your startup costs could range between $25,000 and $75,000 especially if you are planning on keeping some reserve funding to pay rent and other operating expenses during the first several months before you are at a breakeven point.
Operating Expenses for Auto Repair Shop
The easiest way to estimate your operating expenses for your auto shop is based on industry data provided by sources like BizStats. The following categories and expense percentages are taken directly from their research:
- Officers Compensation – 7.40%
- Salary/Wages – 12.86%
- Rent – 6.64%
- Taxes – 3.21%
- Advertising – 1.18%
- Benefits/Pension – 1.28%
- Repairs – 0.94%
- Bad debts – 0.11%
- Other SG&A Exp. – 11.55%
- Amort. & Dep. – 0.00%
- Interest Earned – 0.01%
- Interest Expense – 0.59%
- Other Income – 0.52%
- Net Profit – 6.58%
All of these operating expenses are expressed as a percentage of sales. So first you will need to create your sales projections and then you should be able to apply these percentages to your sales.
Average Profit of an Auto Repair Shop
In general, a larger auto repair shop can earn $100,000 per year, and mechanics themselves can make between $30,000 and $50,000 per year. This, of course, will vary depending on your location and area of expertise. Every auto shop’s fees are different.
If you run an independent shop, you will likely charge your clients between $70 and $100 per hour, whereas a shop at a dealership may charge between $80 and $150 per hour. Many shops also have flat rates for certain routine services, like tune-ups and oil changes.
Note that these numbers don’t include employee salaries, a marketing budget, electronics or potential space remodel fees, so you’ll have to budget higher than $50,000 to really get your business off the ground. But for the bare bones, that’s a reliable number.
5 Things That Can Influence your Auto Repair Shop Startup Cost
- Business permits – find out if your locality requires permits for your operation, and any inspections that may be required. These permits can add up to a tidy sum so you have to make provisions for them.
- Labor costs – even if you’re a one-man operation, you may need help with manning the phones, handling billing and customer accounts, balancing the bank statements, or even maintaining the workshop. Don’t underestimate the cost (and value) of hiring additional manpower to keep the shop running efficiently.
- Certifications – many shops advertise that their mechanics are ASE-certified. This may not be important to you initially, but gaining and keeping up certifications could add to your perceived value to customers. So you need to keep this aspect in mind even if you do not have provisions for it at the mean time.
- Advertising – you may be the greatest mechanic around, but no one will know you’re there if you don’t get the word out. With your own auto repair business, you now have marketing responsibilities. You may want to invest in newspaper advertisements, distributing coupons for reduced-price oil changes, and even creation of a website that makes your presence known. You need to spend money to send out fillers about your new business.
- Leasing/rental costs – unless you want to start your business from your garage, but if not, you need to lease or rent a place to set up your auto repair shop. This cost may as well take up the bulk of your startup capital. Note that you have to choose a visible location for your business so you can draw in foot traffic. But you also need to know that a good location would cost you more.