How To Start A Car Rental Business | The Complete Guide For Beginners
Starting a car rental business today is a good idea which will help you to make money within a short period of time and also open great opportunities for people.
A car rental business rents vehicles at affordable daily and weekly prices. All sorts of different parties are interested in car rentals. Common customers include business and leisure travelers, those whose vehicles are out of commission and businesses.
How To Start A Car Rental Business
1. Plan Your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What Are The Costs Involved In Opening A Car Rental Business?
The business will require a fleet of vehicles, an office, computers, printers, high-speed Internet, the payment of incorporation fees, insurance for the business and automobiles, vehicle maintenance tools, a closed-circuit camera system, employee wages/salaries, and marketing efforts.
What Are The Ongoing Expenses For A Car Rental Business?
Ongoing expenses include employee wages/salaries, utilities, insurance, the addition of new vehicles to the fleet, servicing the fleet, office/parking lot rent, high-speed Internet, marketing, and website maintenance. The lowest level of employees will make between $8 and $12 per hour. An on-site mechanic will command a salary between $35,000 and $70,000.
Bring a marketing professional on board and he will require an annual salary in the range of $30,000 to $65,000. The same salary rate applies to an accountant and web designer. Insurance is necessary to protect your business as well as the automobiles. Budget at least $500 to $1,000 per month for this expense.
Utilities including high-speed Internet will run several hundred dollars per month. You can purchase or lease vehicles that will be added to the fleet. Anticipate adding a new vehicle every couple of months so always have at least $20,000 to $30,000 on-hand for such a purchase.
Extrapolate this cost across the entire year and new additions to the fleet will likely cost $100,000 per year if purchased outright. Servicing your fleet of vehicles will likely cost between $500 and $1,000 or more per month, depending on how many customers you have.
The cost of your office/lot rent will likely be between $700 per month and several thousands of dollars per month. Allocate at least $500 to $1,000 per year for website improvements. Budget around $500 per month for marketing.
Who Is The Target Market?
The ideal customer is a business that requires numerous car rentals for employees. Another coveted customer persona is a group of business travelers who are willing to spend a considerable amount of money on car rentals while away from home.
How Does A Car Rental Business Make Money?
A car rental business makes money by renting automobiles to those who need a means of transportation while away from home, to embark on a trip, or as a substitute for a vehicle that is being repaired.
How Much Can You Charge Customers?
Rates for car rentals differ by the quality of the vehicle and the location. In general, the low end of car rentals, such as a Nissan Versa, cost around $35 to $50 per day. Upscale car rentals like a Mercedes-Benz or Lexus will run upwards of $100 to $200 or more per day.
How Much Profit Can A Car Rental Business Make?
Your car rental business can rake in the cash if you have an optimal location, a diverse fleet of vehicles, and competitive rates. It is possible to make $50,000 to $100,000 in the first couple of years.
Continue to grow your business and you will eventually reach the mid-six figure mark. Expand across the region and/or nation and your car rental business can make millions of dollars per year.
How Can You Make Your Business More Profitable?
Consider selling the old automobiles in your fleet. If certain vehicles are no longer en vogue from a style perspective, sell them or trade them in. You can charge extra for various levels of auto insurance.
It is prudent to establish relationships with local car dealerships so they can steer customers your way when vehicles are being serviced or repaired.
What Will You Name Your Business?
Choosing the right name for your business is very important. That alone needs thorough planning because you need to relax your mind before you can get the right name for your business.
2. Form A Legal Entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your car rental business is sued. There are many business structures to choose from including Corporations, LLCs, and DBAs.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
3. Register For Taxes
You will need to register for a variety of state and federal taxes before you can open for business. In order to register for taxes, you will need to apply for an EIN. It’s really easy and free!
4. Open A Business Bank Account & Credit Card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open A Business Bank Account
- This separates your personal assets from your company’s assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get A Business Credit Card
- This helps you separate personal and business expenses by putting your business’ expenses all in one place.
- It also builds your company’s credit history, which can be useful to raise money and investment later on.
5. Set Up Business Accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
6. Obtain Necessary Permits And Licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a car rental business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in the US Small Business Associations directory of local business resources.
Certificate Of Occupancy
A car rental business is generally run out of a lot. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws, and government regulations have been met.
If You Plan To Lease A Location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a car rental business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
If You Plan To Purchase Or Build A Location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your car rental business will be in compliance and able to obtain a CO.
Car rental businesses should require clients to sign a services agreement before starting a rental. This agreement should clarify client expectations and minimize the risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership. Here is an example of one such services agreement.
7. Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, worker’s compensation insurance may be a legal requirement in your state.
8. Define Your Brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How To Promote & Market A Car Rental Business
Advertise across a number of different mediums. Make use of brochures, flyers, introductory letters, magazine ads, newspaper ads, search engine optimization pushes, local directory listings, and online directory listings. It is prudent to establish relationships with decision-makers at local businesses. Bid for contracts from the airline sector, government agencies, and corporations.
How To Keep Customers Coming Back
The quality of your website and mobile app matter a great deal. Make sure the car reservation process is as easy as possible and you will attract and retain customers. Research local competitors’ rates and match or beat those rates.
Offer a wide array of vehicles that appeal to drivers with varying tastes. Your fleet should consist of luxury automobiles, economy vehicles, sport utility vehicles, sports cars, compact cars, intermediate cars, and so on. Make sure your vehicles are clean and in tip-top shape at all times.
9. Establish Your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.