How to Start an Auto Repair Shop (9 Step Guide)

Legal Disclaimer: This article is written for informational purposes only and does not constitute professional financial advice. Please reference section179.org and a professional accountant for advice on financial planning and filing taxes.  

As 2020 comes to an end, you might be thinking about all of this year's expenses and wondering what you might be able to write off on your taxes. You may even be considering whether or not to make a big purchase, weighing the tax deductions you could get if you bought it this year versus next.

Is it worth buying that new lift before the year ends? Or should you put it off until 2021?

What is Section 179?

Section 179 of the IRS tax code allows business owners to write off the entire cost of a piece of equipment, renovations, or other assets in the first year instead of writing off an asset a little bit at a time over a five, seven, fifteen, or thirty-nine year period. To give an example, if a shop owner buys a new tire machine, they could either write off the taxes over a seven-year period, or they can use Section 179 to get the entire deduction in the first year.

What Type of Costs Qualify for Section 179?

• Tangible business property, including machinery and equipment
• Leasehold improvements
• Computer software*

*Is Tekmetric Eligible for Section 179?

Generally speaking, off-the-shelf computer software that has been purchased outright is eligible for Section 179. Because Tekmetric is a web-based software and does not make users sign a contract, it is not eligible for section 179, but it does qualify for a standard tax deduction.

Whether you’ve worked in the industry for years as a technician or are considering moving into the automotive industry for the first time, owning an auto repair shop can be a very rewarding experience.

In collaboration with PartsTech, we reached out to our customer, Eric Reich, who purchased his auto shop in 2021, to learn about his experience and share it with you. 

Before becoming an auto repair shop owner, Eric worked for about ten years in the aerospace MRO (Maintenance, Repair & Overhaul) sector and about ten years in the electrical distribution sector. Looking for a change, Eric ultimately jumped into the auto repair industry by purchasing Bennet’s Automotive — a six-bay shop that services all domestic and Asian-manufactured vehicles.

The Dream: Owning his own business

For Eric, working at large corporations for 20 years became too predictably bureaucratic. He felt buried by meetings, paperwork, and slow decision-making. “After spending nearly two decades at corporate companies, I was looking for something I could call my own,” said Eric. “My goal was to be an independent business owner and not rely on large corporations whose only goal was to maximize profits at all costs. I found that independence when I purchased Bennett's Automotive, which has been in business since 1991.”

The Good: Success and positive outcomes

Taking the time to find the right shop 

Eric didn’t want just to purchase the first shop for sale that came across his path, “You can’t rush or predetermine anything. If the shop you are evaluating is not a good candidate, then you have to walk away,” said Eric. During his patient search, Eric found that he very much enjoyed the process of evaluating prospective shops and identifying if they were a good potential candidate to achieve his business goals. 

A dedicated, expert team

From our conversation with Eric, it is clear that he values his team, which stayed on through the change of ownership when he purchased the shop. “I have been consistently impressed and proud of my team's dedication and technical expertise. During the transition of ownership, they did not allow the uncertainty of the situation to impact the quality of their work,” said Eric. Having the right people in place is critical to a successful shop. “I was so lucky to purchase a shop with such a solid existing team.”

The Bad: Challenges and setbacks

A small team naturally results in staffing issues

Eric credits his team with minimizing the level of operational challenges he faced as a first-time shop owner: “Thankfully, I had a great core team when I took over the shop. Without them, the transition would have been much more difficult. You are only as good as your team.”

Though his team is awesome, he quickly discovered that his most significant operational challenge would be staffing: “As a smaller shop, the risk is in quality manpower. If we have a guy out or are operating a guy short, it adds additional strain to the rest of the team.”

The Unexpected: The things that caught Eric off guard 

Time is incredibly precious, and everyone wants a piece of it

“As a shop owner, you have to be careful about your time,” says Eric, “and one of the biggest surprises I encountered was the number of unsolicited calls from random companies trying to sell or sign me up for something.” 

There is a ton of paperwork.

“I did not realize how much paperwork would come with purchasing and owning a shop,” said Eric, “There is a lot!” 

Tips from Eric for anyone interested in purchasing an existing auto shop 

First things first 

Before jumping into the deep end of purchasing a shop, Eric recommends you consider the following first:

• Be very honest with yourself regarding your goals. Do you want to work in the shop? Be more hands-off? Etc.
• Be willing to walk away from a bad deal. Don't get attached to any one shop/location. If the numbers don't make sense, don't move forward.
• Ensure you have enough operating cash. You must have enough cash to handle normal ebbs and flows and an emergency. Not having enough cash is the fastest way to run into problems. (Eric likes to have at least three months of overhead.)
• Be very thoughtful about overhead. You have to ensure that each overhead line item has a specific and defined purpose. 
• Take training in basic financial acumen. To be set up for success when starting the journey of purchasing a shop, Eric advises aspiring shop owners to have a strong understanding of business finances such as P&Ls, pricing strategies, and cash flows to evaluate the shop's health. This is important so you know whether or not you should walk away from a deal. If necessary, Eric encourages taking a financial training course first.

It’s not just about the physical tools and equipment.

When purchasing an existing shop that already had a lot of the necessary physical tools and equipment, Eric focused on the software he wanted to implement. He encourages shop owners to evaluate the current software and make necessary changes early in their ownership journey. 

Choose software that drives efficiency and organization and is user-friendly for employees. Also, select software that enhances customer engagement and provides a positive experience.

“Generally, you must streamline your operations and communicate effectively with customers. We use Tekmetric as our shop management software for efficient workflow and customer communication. It also integrates with software such as PartsTech, which allows us to quickly source, price, and order parts from multiple vendors. This efficiency helps our small shop operate as lean as possible, speeding up vehicle repairs.”

Put a big focus on building trust with customers

One of the big reasons Eric wanted to upgrade the shop's software when he purchased it was to have better tools to help build customer trust. “We transitioned to Tekmetric from an older legacy program that made communicating via text/electronically almost impossible. We get consistent customer feedback that they like our new system and communication method with our ability to send inspections, images, videos, estimates, and invoices digitally.”

Closing

Purchasing an auto repair shop is a significant step that requires careful planning, honesty about your goals, and a strong understanding of the business's financial and operational aspects. 

As Eric's journey demonstrates, having the right team, investing in efficient software, and being prepared for unexpected challenges are crucial for success. If you're considering this path, take the time to evaluate your options thoroughly, seek out the necessary training, and build a solid foundation for your new venture. With dedication and the right approach, owning an auto repair shop can be an incredibly rewarding experience.

It might sound simple, but it's true: smartphones and digital experiences have revolutionized the way people interact with businesses. We've all come to expect near-instant responses, simplified checkout processes, and visibility into what we're paying for.  

And independent auto repair shops aren't any different. There's a unique opportunity where your business can meet customer's expectations with modern service and modern operations.

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How Can You Make Your Auto Repair Shop More Modern? 

We keep saying that word "modern," but what does that really mean for auto repair shops? When we step back and think about the modern independent repair shop, we could sum it up with three core concepts:

1. The freedom to run your business in a more contemporary way with data, industry knowledge, flexibility and independence to work as in whatever way is best for you and your shop.
2. The power to simplify your shop's operations can gain complete visibility, control and opportunity to determine the best path forward for every decision.
3. The best experience for your customers, every time, for every job, whether that's a coolant flush and pad replacement, or a turbo rebuild.

With the right tools in place, your team members won’t have to stress about extra oversight and can feel empowered to take the reins at work. And your customers can have a more active say in the repair process.

One of the best tools for modernizing your business is a modern, cloud-based shop management system.