You need a minimum of $303,880 to start a repo business in any city in the United States of America. Repo which is a short form of repossession, is a “self-help” type of action – mainly in the U.S. – in which the party having right of ownership of the property in question takes the property back from the party having right of possession without invoking court proceedings.
The property may then be sold by either the financial institution or third – party sellers. Various objects can be repossessed, but most repossession agencies focus on car repossession.
The repo agent normally uses a tow truck or pickup truck with a special towing attachment called a boom. They also may obtain the key from the car owner.
The agent must be careful however, because they cannot cause physical harm to the vehicle. Usually, the vehicle owner must be notified of a repossession.
The repossession agent will find the car and check its information such as the Vehicle Identification Number (VIN) to make sure they have the right vehicle.
If there is a match, they will attempt to hook up the car to the tow truck and tow it away or pick the lock and drive it away. If you are considering starting a repo business in the United States, you are likely not going to get it wrong because there is a ready market for the services you will be rendering.
Estimated Cost Breakdown to Start a Repo Services Business
When it comes to starting a repo services business, the major areas that you look towards spending the bulk of your cash is renting or leasing an office facility in a conspicuous location, purchasing your operational vehicle and towing truck.
Aside from that, you are expected to pay your employees, pay your utility bills, maintain and fuel your official cars. This are the key areas where you are expected to spend your startup capital on;
- The total fee for registering the business in the United States of America – $750.
- Legal expenses for obtaining licenses and permits as well as the accounting services (car tracking software, P.O.S machines and other software) – $3,300.
- Marketing promotion expenses for the grand opening of the Repo business in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
- The total cost for hiring a business consultant including writing a business plan – $2,500.
- The total cost for the purchase of insurance (vehicle insurance, general liability, workers’ compensation and property casualty) coverage at a total premium – $5,500.
- The cost for payment of rent for an office space with large parking lots for 12 months at $1.76 per square feet in the total amount of $85,600.
- The cost for remodeling the office facility (construction of racks and shelves, painting and beautification) – $15,000
- Operational capital (fixing damaged cars and other cost incurred during repo services) – $50,000
- Other start-up expenses including stationery ($500) and phone and utility deposits ($1000) – $1,500
- Operational cost for the first 3 months (salaries of employees, payments of bills et al) – $45,000
- The cost for start-up inventory (stationery, printing papers, and refillable ink jacket et al)- $800
- The cost for front desk office equipment (cash register, security, ventilation, signage) – $750
- The cost for the purchase of pool cars and towing trucks – $70,000
- The cost of purchase and installation of CCTVs and car trackers: $4,000
- The cost for the purchase of office furniture and gadgets (Computers, Printers, Telephone, TVs, Sound System, radioing gadgets, mobile phones, tables and chairs et al): $7,000.
- The cost of launching a website: $600
- The cost for our opening party: $3,000
- Miscellaneous: $5,000
From the rough estimate as listed above, you would need a minimum of three hundred and three thousand eight hundred and eighty USD ($303,880) to establish a medium – scale but standard Repo services firm in any city in the United States of America. Note that this amount includes the salaries of all the staff for the first three months of operation.
If the average fee per repo service you offer is $350 and your repo company handles at least 30 repossessions per month, growing to 70 by the end of year 3.
If you increase your annual fee by 2% per year and your monthly expenses stay at $15,000 initially, scaling up to $25,000 as your repo business expands; here is the 3-year sales forecast for your repo business:
Annual Revenue Forecast
- Year 1: $126,000
- Year 2: $214,200
- Year 3: $305,878
These revenue figures are based on a growth in the number of repossessions from 30 per month initially to 70 by the end of year 3, along with a 2% annual increase in the service fees.
- Total Operating Costs Over 3 Years: $720,000
- Initial Capital: $303,880
Breakeven Analysis
The cumulative revenue at the end of three years totals $646,078. This amount does not cover the total of the operating costs ($720,000) plus the initial capital ($303,880). Therefore, under these assumptions, your repo business does not reach the breakeven point within the first three years.
To potentially achieve breakeven earlier, your repo business should:
- Increasing the efficiency of operations to handle more repossessions with the same resources.
- Exploring additional revenue streams within the repo business, such as selling repossessed items directly or charging storage fees.
- Reducing operating costs, for example by optimizing routes or negotiating better insurance rates.
Having an idea of what the repo business is all about, it is safe to say that there are key factors that can influence the costs of opening a repo business, and that is what we will discuss in this article.
Factors That Influence the Cost of Starting a Repo Business
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Your Choice of Location
One of the factors that can influence the cost of starting a business is the location of the business. In essence, if you want to start a repo business, the location where you intend to start the business will have a major influence on the cost of starting the business.
For example, different cities or locations have different rental or leasing rates. Interestingly, part of what makes a city business-friendly are factors that are associated with the location.
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The Licensing, Permits, and Legal Requirements
Another major factor that can influence the cost of starting a repo business is the cost of obtaining the needed licenses, permits, and legal requirements.
A repo business has legal implications if you don’t play by the rules. As a matter of fact, if you wrongly harass anyone or wrongly try to repossess someone’s property, you can be sued.
To start this business, you must obtain a Business License, a Repossession License, Tow Truck Operator License, Commercial Driver’s License (CDL), Surety Bond, Insurance (Liability, Commercial Auto, Errors and Omissions), GPS Tracking Device Use Permit,
Storage Yard License, Federal Motor Carrier Safety Administration (FMCSA) Registration, Employee Background Checks and Certifications, Compliance with Fair Debt Collection Practices Act (FDCPA), Compliance with State and Local Regulations.
Trust me, obtaining all these licenses, permits, and legal requirements will cost you a significant portion of your startup capital.
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The Cost of Purchasing the Required Insurance
The cost of purchasing the required insurance is yet another major factor that will influence the cost of starting a repo business. A repo business is one business that exposes the business owner, and workers to unimaginable risks.
This is why generally, a repo business needs to have general liability insurance, commercial auto insurance, errors and omissions insurance, garage-keepers insurance, workers’ compensation insurance, surety bond, umbrella insurance (excess liability), and property insurance (for equipment, storage facilities, etc.) in place before starting out.
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The Cost of Equipment and Tools
Another major factor that can influence the cost of starting a repo business is the cost of purchasing the needed equipment and tools to operate the business. Of course, you know that without the required equipment and tools, you cannot start a repo business.
Before you can start a repo business, you must make sure you have tow trucks (wheel lift or flatbed), GPS tracking devices, locksmith tools (lockout kits, key cutting equipment), jump start equipment, vehicle dollies or skates, winches and chains,
Safety gear (reflective vests, gloves, hard hats), camera and documentation equipment, hand tools (wrenches, screwdrivers, pliers, etc.), vehicle diagnostic tools, communication devices (two-way radios, cell phones), recovery straps and chains, first aid kit, flashlights, and portable battery packs.
Trust me, the amount you will use in purchasing all the tools and equipment will form a huge percentage of your start-up capital.
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The Cost of Hiring and Training Your Employees
If you want to start a repo business, then you must be prepared to hire and train employees who will work with or for you. The cost of hiring and training your employees is a significant factor that can influence the cost of starting your repo business.
Basically, you should make provision to hire an operations manager, repossession agents, office/administrative staff, mechanics (if offering repair services), legal counsel/compliance officer (if applicable), and marketing and sales personnel (if applicable).
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The Cost of Renting or Leasing Storage Facilities
Another major factor that can influence the cost of starting a repo business is the cost of renting or leasing storage facilities. Interestingly, repo businesses usually have several storage facilities in different locations for obvious reasons. Trust me, the cost of renting or leasing storage facilities for your repo business will take up a large portion of your budget.
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Your Marketing and Branding Cost
The amount you are going to spend in marketing and branding your repo business is yet another major factor that can influence the cost of starting the business. Basically, marketing and branding are necessary if you want to attract people and businesses that are likely going to do business with you.
Even though there are no specific costs attached to marketing and branding a repo business, the bottom line is that if you want to launch a business that will win a fair share of the available market in your location, then you must be ready to invest a significant amount to marketing and branding.
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The Cost of Technology and Software
If you want to start a repo business, then you must be prepared to invest in technology and software. Before you can successfully start a repo business, you must have the following technology and software in place:
Repossession management software, GPS tracking software, communication tools (phones, two-way radios), accounting and bookkeeping software, customer relationship management (CRM) software, website and online presence, vehicle diagnostic software (if offering repair services), inventory management software (for storage yards), mobile apps for agents, and document management software.
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Budget for Contingency Planning
Lastly, another major factor that can influence the cost of starting a repo business is the budget for contingency planning.
If you know how the repo business works, you will agree that whoever wants to start a repo business should make adequate provisions for contingency planning. This is so because the nature of the repo business exposes the business to unpredictable scenarios, especially if they are confronted with aggressive or criminally minded individuals.
Apart from that, if you are operating your repo business in a city where competition is rife, then you may want to have contingency plans and financial reserves to manage cash flow during slow periods or unforeseen challenges is important.
In conclusion,
It is important to note that all the factors listed above are major factors that can influence the overall cost of starting a repo business. But please note that your preferences and other factors that are not listed above may also contribute to the cost of starting a repo business.
So, we usually recommend that you conduct your market research and feasibility studies before drawing up your budget for starting a repo business.
Please note that this is a rough estimate and we usually advise our readers to go to the market or directly contact wholesalers and suppliers of all you need in order to get the real time prices of these items. The truth is that if you are a good bargainer, you can get a better deal that will help you beat down the estimated price as listed above.