How to Start a Custom Car Shop - Cover all your Bases

How to Start a Custom Car Shop - Cover all your Bases

By John Linden

Custom cars -- everyone loves them, but for the uninitiated, there may be a bit of intrigue into how the cars are customized in the first place. Sometimes customizations are done right at home by those who have the tools and know how to do it themselves, but often times vehicles are taken to a custom car shop for a truly transformative custom job.

There's a massive demand for vehicle customization. Due to the very nature of custom car designs, no two jobs are ever the same. The vast majority of the market is made up of car enthusiasts who can truly appreciate a well-done custom car.

Who should open a custom car shop?

Running a custom car shop isn't for everyone. Custom car shops are often run by entrepreneurs who have a passion for cars and who also have an interest for design and engineering. If you decide to take on this endeavor, you must be willing to put in long hours every week as you get down and dirty working on custom jobs and managing a team of technicians. Furthermore, you must be willing to fit in with the unique automotive enthusiast community. Often business ties are formed simply by bonding over car talk!

Who is your target market

Who is your target market

As you might have guessed your target market are those who label themselves as car enthusiasts. These are the individuals who have a deep passion for automotive vehicles. You could delve deeper by targeting those who specifically enjoy a certain segment of cars, such as classic vehicles for example. Perhaps you may cater to a target audience that enjoy muscle cars. Whatever the case, just keep in mind that the more types of cars you work on, the more business you'll be able to bring in.

Custom shops generally sell to retail customers. However, there are some who take on jobs from corporations or from the government. Big jobs such as those typically involve fleet work.

How does a custom shop make money?

Custom car shops work like any other business. Consumers walk through the front door and request custom work on their vehicle. If the shop decides to take on the job, they will do the work and bill the customer afterward. In some cases, the fee is set at a fixed rate. However, it may also be at a flat rate depending on the scope and type of work involved. No matter how the billing works, the customer will pay the shop, and the shop will pay the mechanics involved with the job.

How large does your custom car shop have to be?

It can be difficult to run a car shop out of a smaller location. You'll need a minimum of eight service bays to really run an effective custom car shop. You'll need eight in total because one will be designated as a paint booth while two more will be used as staging and preparation for vehicles that need paint. The rest of the bays will be used for non-body maintenance work.

Keep in mind this isn't required for everyone, as some custom shops might not offer paint services. Perhaps in place of paint, you may offer a more customized service, such as custom car radios or something else in which case you can dedicate the extra bays to that custom service.

There is massive potential for growth as long as you market your business correctly and reach out to the right target audience. Because custom shops aren't as common as a general automotive shop, you don't need many customers to make good money. Obviously, however, you should try to reach out to as many customers as you can!

Getting started with your custom car shop

Opening up your own custom car shop isn't easy, but it's well worth the effort once you get it off the ground.

The moment you've made up your mind to open your custom car shop, there are many steps involved to ensure that your business is compliant with the law. Ignoring these steps could cost you a lot of money, so it's best to implement them at the very beginning to avoid literally paying for your mistakes later on down the line.

Step one: Create a business plan

A crystal clear business plan is important for running any type of business. Jumping in head first without establishing a plan is a potential recipe for disaster. Keep these factors in mind as you're creating your business plan:

  • Target market
  • Initial costs
  • Marketing

These are just a few things you have to keep in mind as you're creating your business plan.

Step two: Form a legal entity

Forming a legal entity, such as an LLC (limited liability company) will ensure that if legal action is taken against you for any reason, your personal assets will remain safe. Only your business assets can be vulnerable to legal action.

Step three: Register for taxes

One thing that can be easily overlooked is the fact that you have to register for state and federal taxes prior to you opening up your doors for business.

Step four: Open a business bank account

Many entrepreneurs who are just starting out tend to use their personal bank accounts until they can get a little cash flow going. We recommend you open a business account with your bank. Not only will this keep your finances more orderly, but it will also show your customers that you are a professional business.

Step five: Hire a CPA

A CPA (certified public account) is someone who has passed the arduous CPA exam, met requirements related to work experience, and has committed to continued education to maintain their CPA certification.

Hiring a CPA will help you keep your finances in order and ensure you're paying the right amount of taxes every year. CPAs vary in price, so make sure you keep your budget in mind as you're shopping around for a CPA to hire.

Step six: Acquire necessary licenses and permits

Running a custom car shop requires that you have the right type of licenses and permits. If you're caught lacking even a single license or permit expect to be hit by heavy fines or even worse, prepare to be shut down.

Step seven: Purchase business insurance

As a business, it's always a good idea to get business insurance. You never know when something may occur that could prove financially disastrous for your business. However, business insurance could help to mitigate some of that financial cost.

Examples of business insurance include general liability, professional liability, and workers compensation.

Step eight: Define your brand

You don't want to be just "another" custom car shop. You want your business to be recognized and sought after for its brand name. Brands are what helps businesses outcompete and stand out from their customers. The same will be true for your custom car shop as long as you deliver a great service.

Step nine: Establish yourself online

One undeniable truth is that your customers are all online. You just have to position yourself in a way where you can be easily found. Establishing a business website can act as an online storefront where customers can learn more about your business and the services you offer. At the same time, set up social media pages on sites such as Pinterest, Facebook, Twitter, Linkedin, and Instagram to begin attracting prospects that you can work to convert into customers.

Tips and tricks to get started

We won't lie, it takes quite a bit of money to open up a custom car business. With the combination of licenses, equipment, rent and insurance (amongst a medley of other expenses) we understand that expenses can really start to add up in a hurry.

One way to lessen your expenses, in the beginning, is to lease space in a custom shop that's already established. Another way to save money is to start out in a smaller building and only offer a limited number of services. Over time as you build up more capital and take on more customers, you can begin to expand your business and move into a larger building.

Marketing your custom car shop

Unlike other businesses that can thrive off of strictly digital marketing, for example, a custom car shop relies very heavily on referrals. In many cases, custom shops only cater to the local car enthusiasts in their area. That means finding out where these people hang out and promoting your services to them.

You can take the traditional marketing approach and promote your services with flyers, posters and business cards. However, it ultimately comes down to the type of work you produce. If you're known for high-quality work word will spread, and your customers will begin to come to you.

Customer retention

It's one thing to get customers to come through your doors. It's something else entirely to keep them as a long-term customer. Custom work isn't something that you need every day, so you need to produce high-quality work if you want a customer to come back to you the next time they need some custom work done.

One way to do this is to specialize your services. For example, you can specialize in audio installations. That way, if your customers are ever in need of an audio installation, you're likely the first person to come to mind. Specializing is one of the best ways to retain your customers because you will always have the solution to a specific problem. Even if you're not the best at what you do at the beginning, such as audio installations, you'll become better at it as time goes on.

Going it alone vs. building a team

If you're a car enthusiast, you've likely run across those shops operated by a single person. If you're dead set on going it alone, that's perfectly acceptable. However, the workload falls entirely upon your shoulders. Furthermore, your ability to scale will be hindered by your lack of a team.

Bringing on a team allows you to handle the managerial duties while mechanics handle the jobs in the garage. Does hiring a team eat into your profits? Yes. Does hiring a team free up yourtime so that you can focus on growing your business and acquiring more customers? Absolutely yes. If your team is good, you'll find over time that they pay for themselves.

How much should you charge your customers?

How much you decide to charge your customers is entirely up to you. However, on average custom car shops tend to charge the market labor rates which sit around $100 an hour or more. Typically, a customer will cover the cost of parts up front and pay for labor when the job has been successfully completed.

How much money can you expect to make each year?

Custom jobs aren't cheap, so it's no surprise that each job should bring a massive profit to the shop. On average, custom shop owners easily make between $50,000 to $100,000 per year. The actual shop may bring in several million dollars a year (if it's highly successful).

Services contract

Minimize the fallout you may take from any potential legal issues by having your customers sign a services contract. Each new customer should be required to sign a services contract which explains to them what they should come to expect from each job.

The services contract should also allow you to minimize any legal issues by laying out payment terms and conditions. Essentially, the services legal contract should allow your customer to gain an understanding of the type of work you will perform on the vehicle. Therefore they can set realistic expectations for the end result.

Launching your custom car business

Launching a custom car business is not easy, but if you're willing to invest your time (and money) and go all in with a set plan in mind, you'll most certainly increase your chances of succeeding in this business.

With the way the economy is today, there's no guarantee you'll be able to bring in customers on a regular basis. However, customization jobs cost more today on average than they've ever been. That means you don't need hundreds of customers to keep you afloat throughout the year. With that being said, to bring in revenue on a regular basis try to offer another cheaper service such as routine maintenance.

Before launching your business make sure you're absolutely certain you're ready for the commitment of running your own custom car shop. Once you've set your mind to it, keep moving forward until you hit success.

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