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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.
Who is this business right for?
This business is ideal for someone who has a sincere interest in automobiles, automobile maintenance and the driving experience.
What happens during a typical day at a car rental business?
The typical car rental business owner spends time researching new vehicles, making decisions about his fleet of vehicles, making marketing decisions, delegating work duties to employees, and establishing alliances with local businesses.
What 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.
What is the growth potential for a car rental business?
The growth potential of your car rental business depends on the location, the quality of your fleet and your marketing savvy. Location is the most important factor. Establish your car rental business in an area with plenty of business travelers and others who are likely to need a temporary means of transportation and your business might grow quite quickly. It is possible to grow to the point that you expand the business across the region, the state and even throughout the nation.
What are some skills and experiences that will help you build a successful car rental business?
It is important to understand the needs and desires of your target customers. Gain an in-depth understanding of automobiles, automobile trends, travelers, business professionals, and marketing. It will also help to have superior people skills to generate inroads with decision makers at businesses that require car rentals.
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 steps to start a car rental business?
Once you're ready to start your car rental business, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your car rental business is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your car rental business keeps your finances organized and makes your business appear more professional to your customers.
- 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.
- 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.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- 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.
- Establish a 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. Save 15% when you create a business website with Weebly.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I find a business mentor?
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a car rental business?
It will likely help to pinpoint a niche. Perhaps your area receives an abundance of business travelers. Pick out vehicles that appeal to these individuals. Market in mediums that such target customers are likely to be exposed to. However, you should not neglect other customers such as leisure travelers. Have numerous different vehicles ready for rent at all times of the year that appeal to customers of all interests and backgrounds.
Be on the prowl for marketing alliances. If a hotel is located near your car rental business, propose a deal. It might be possible to refer customers to this hotel in return for referrals to your car rental business. If you establish such a relationship, assemble a brochure that explains the alliance with the hotel. It is even possible to coordinate the placement of this brochure or other marketing materials in the hotel.
Your website is of the utmost importance. It should be enhanced for search engines (SEO) and compatible with mobile devices. Bring on a web programmer and user experience designer to polish the website and build a mobile app so customers can rent a vehicle in moment's notice from their smartphone or other mobile device.
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.
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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.
How and when to build a team
A couple employees are necessary when launching your car rental business. It will be helpful to have someone answer the phone to take reservations and answer questions. You will also need an auto mechanic to service your fleet of vehicles. A vehicle cleaner will come in handy to keep vehicles looking their best on the inside and out. You can add more employees as the business grows. A marketing guru, an accountant, and an administrators will eventually be necessary.
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.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
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 US Small Business Associations directory of local business resources.
Maintain Personal Asset Protection
Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Two of the simplest steps that will protect your business, and yourself, are to:
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.
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 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.
How much can you charge customers?
Rates for car rentals differ by the quality of 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.
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 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.
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.