How to Structure and Legally Create an Auto Detailing Business
In order to start your professional auto detailing business, you need to decide on a structure and legally create the business. There are a few decisions that you will need to make based on your individual situation. The most popular options are Sole Proprietorship, LLC, or S Corporation. If you choose LLC or S Corp, they are both pass-through businesses and provide protection to the owner(s) which you can read more about below.
Once you decide how to structure your business, getting the necessary license for your state is your next step which we will go through below.
Before I go on, I would highly recommend speaking with a certified public accountant (CPA) and/or attorney. They will be able to take all of your personal information into account and give you the best recommendation and file the paperwork.
A Sole Proprietorship is when you are the only person working your business. All you need to do is file a Doing Business As (DBA) with your state. You are responsible for the profits, loss, debts and liabilities for your auto detailing business. You will just have extra forms to fill out for your personal taxes which varies by state.
A Limited Liability Company is well suited for single company owners who want pass-through taxation, unlimited number of members, and are either a citizen of the United States or not. A LLC is actually not a corporation, but a legal company that gives limited liability to the owner(s).
A LLC generally is useful for those who are not looking to take on investors as they will most likely prefer a corporation to invest in.
Another important factor is the taxation, as the single LLC owner, you will report the income from your business on your personal tax return. This way you are taxed once instead of potentially getting taxed twice as you would with a traditional C corporation.
LLCs provide also provide very little paperwork, limited liability for the owner(s) and generally a low cost to start and maintain.
A S corporation has more limitations than a LLC but does have benefits as well. S corps are also pass-through businesses and provide the owner(s) protection just like a LLC.
In order to start a S Corp, you need to be a U.S. citizen and your business be a U.S. company. You are also limited to 100 shareholders who must be individuals, not companies, partnerships, or nonresident aliens.
S Corps are useful for those looking for investors which is why they require strict paperwork to be kept, meetings to be held, etc.
The biggest benefit you can get from a S Corp is from taxation. You can minimize the amount of taxes you have to pay. The wages you make are liable for FICA, Social Security and Medicare taxes, everything else is dividend income to you and not SECA taxable. This means you pay yourself a “reasonable” salary based on the average income for auto detailing in your state/area and the rest can be dividend income straight to you.
There is more paperwork, cost and upkeep needed for a S corp.
Combination of LLC and S Corp
Now that you know a little bit about the similarities and differences between a LLC and S Corp now I am really going to confuse you.
It is possible to start a LLC and elect for it to be taxed as a S Corp. This way you get the benefit of lower cost, paperwork, maintenance of a LLC and the extra tax benefits of a S Corp!
There is more initial paperwork to get this setup but the ongoing paperwork is equal to that of a general LLC.
Business license requirements
Now that you have your company structure decided you want to officially register your detailing business with your county/state and get the business license. Each state has different requirements and costs associated with registering your business. Some states have sites specifically set up to help guide you through what you need to do.
Some sites are not very user-friendly so if your state isn’t giving you what you need online, you can always go to your local city hall. Don’t hesitate to check out one of the other states sites I highlighted in bold, this is to indicate they are user-friendly and have great information regardless of location.
Here is a list of sites you can reference for your specific state.
Once you visit your state's specific website to start your automotive detailing business, be sure to note down the specific requirements for your state. Write down the license(s) you need, the amount each license will cost you, if there is a renewal period, and anything else you might need to do for your state.
For example, to start an auto detailing business in North Carolina here is what the state recommends:
- Create a business plan. Luckily you have already done this if you follow my steps in my starting a business page. If not take the time to do this, it will definitely help you in the long run.
- Decide your business structure. If you haven't yet, do your research on which structure works best for you. If required, reach out to your attorney or accountant for assistance.
- Come up with your auto detailing business name and register it. This is important, as I mentioned, you want something that your customers will remember and be able to easily find your business online.
- Obtain tax information. This one can get confusing so working with your accountant on this would be helpful but NC offers a number to call to answer questions for everything. This also depends if you are planning on hiring employees and how many.
- Identify your sources to finance your business if applicable. If you are following the guide to start your auto detailing business with $500 or $1000 you may not need financing. The startup costs for a mobile detailing business are relatively low so be sure to not get into debt if you don't have to. If you are looking to get a fixed location, your costs will be higher so keep that in mind as well.
- Consult any further information for being an employer, review regulations for an auto detailing business, register trademarks, get insurance, etc.
This decision for how to structure your detailing business may be daunting and might be so overwhelming you don't want to take that first step forward. Do not let this happen to you, find a CPA or attorney that you trust to walk you through your options with what works for you personally.
Both LLC and S Corp provide protection of your personal assets, pass-through taxation, and deductions on travel, uniforms, advertising, and health premiums so make sure you take advantage of this by tracking your expenses.
Getting a detailing business license in your town is not as difficult as it might seem, just follow the link above for your state or go to your local city hall.
The cost might scare some, simply use the profit from a weekend of detailing your family, friends, and neighbors cars to pay for it, the sooner you do this the better. If you have any questions be sure to leave a comment below. Keep serving, growing and learning.