Start a tool rental business by following these 10 steps:
- Plan your Tool Rental Business
- Form your Tool Rental Business into a Legal Entity
- Register your Tool Rental Business for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Tool Rental Business
- Get the Necessary Permits & Licenses for your Tool Rental Business
- Get Tool Rental Business Insurance
- Define your Tool Rental Business Brand
- Create your Tool Rental Business Website
- Set up your Business Phone System
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your tool rental business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 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 much can you charge customers?
- 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 tool rental business?
Costs for opening a tool rental business will be focused on the tools themselves, as this is your store’s commodity. Invest in quality tools, as inexpensive tools don’t often stand the test of time. It will be more costly to replace lower quality numerous times, as opposed to a one time purchase of a more durable option. You may also want to focus on tool which are the most likely to be rented, to start. Then, add additional items, as your budget allows for them. You will also need to rent or buy a brick and mortar location as your shop and storage facility. Choose a location which makes sense for potential renters.
Next, you must budget for a business license and business insurance. Then, invest in a lawyer to help you create the customer contracts for tool rentals. You need documents in place which protect your business from tools not being returned, returned damaged, customer injuries and other issues which may occur. It can be helpful to have legal assistance for the entire business venture start-up, as you are giving the public access to numerous tools which can cause bodily harm or will be damaged through misuse. Make sure the customer understands the responsibilities they incur during rentals and you have the paperwork to back it up!
What are the ongoing expenses for a tool rental business?
Most ongoing expenses for a tool rental business will revolve around the maintenance and servicing of tools. Some of this can occur in-house, if you are mechanically inclined. Other expenses will be tool replacements and upgrades and expanding your tool rental options. You will also have the rental and utilities expenses for your shop.
Who is the target market?
Your target market will primarily be contractors and commercial and residential workers. These working people rely on quality tools to get the job done and bring home a paycheck. This makes your business an integral part of that process for them. They often need you as much as you need them. Having what they need will keep them coming back.
The second tier of customers are your residential customers who are looking to complete a job around the house, but don’t have the equipment on hand to get it done, They will be less frequent, but still make up a decent portion of your overall customer base.
How does a tool rental business make money?
A tool rental business makes its money from the rental of tools by customers. Some tool rental businesses also offer supplies to go with the tools being rented, such as nails, screws, cement bags, and welding rods. These materials can add more to your bottom line and overall revenue stream.
How much can you charge customers?
Rental costs will somewhat be dictated by those of your competitors. If you find yourself in a location without competition, refer to a national average for pricing your rentals. You want to be fair in price, not undercutting your competition, and offer easy to understand pricing and contracts for rentals.
How much profit can a tool rental business make?
Profit will depend on your location and what tools you offer, but tool rental companies have been doing well recently, overall. Annual profits for a tool rental business can range between $35,000-50,000.
How can you make your business more profitable?
Some tool rental companies have looked into teaching how to classes for the public on the weekends. These seminars allow for novice users to understand how certain tool factor into projects and give the customers more confidence to attempt projects and, in turn, rent your tools.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Tool Rental Business Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your tool rental business is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 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!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 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.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
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.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
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.
STEP 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.
Make LLC accounting easy with our LLC Expenses Cheat Sheet.
STEP 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 Tool 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 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.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 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.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
How to promote & market a tool rental business
As mentioned above, advertising and marketing is quite important to your business’ success. Business cards, flyers, and banners are all worthwhile expenses for your company’s marketing strategy. Simply making your name and logo visible will help direct more customers to your door. Then, it’s up to you to retain them with top quality equipment and customer service.
Use of social media is also worth the work, as it is often a free option to generate more customer knowledge of your services. Look for groups and organizations who have forums or online communities, in which you can become a known commenter or add your own blog content.
How to keep customers coming back
Return customers come back because they had a favorable experience and are comfortable or somewhat trusting of you, as a business owner. Personal relationships with your customers are important and show that you’re paying attention, care about the customers, and want their business again. And, when you are seeing return customers, offer them incentives for returning. Deals on rental equipment or time rented can do quite a bit to influence customers to return. Even as much as asking about the progress or end results of a job can indicate to a customer that they’re not just another number.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2022 to find the best phone service for your small business.
Recommended Business Phone Service: Nextiva
Nextiva is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
Start A Tool Rental Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Those with experience in construction, commercial, and residential contractor work or are familiar, as a retailer, with the various tools needed to complete jobs will find a niche in this market. Knowing the right tool and its application is also critical for success in this business venture. It is also extremely helpful to have knowledge or experience in running a small business. Small business financials and personnel management are critical to running a successful small business.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a tool rental business?
Day to day activities for a tool rental business revolve around interactions with customers. You should be personable to the customers and knowledgeable about what tools you offer. Make sure you vet the potential customers as to what they want to accomplish with the tools they’re renting. This will help you and the customer build a strong relationship, and you can steer them towards the right tool for the job. It also insures your tools aren’t damaged or destroyed from misuse or usage in the wrong application, saving you and the customer both time and money.
Other day to day activities will include:
- rentals and returns of tools
- processing customer invoices
- maintenance on rental tool stock
- shop maintenance and re-stocking of office materials and tool accessories, such as nails, sandpaper discs, and floor polishes
- Advertising, marketing, and social media interactions
What are some skills and experiences that will help you build a successful tool rental business?
Running a successful tool rental business is as much about knowing your tools as it is about knowing how to run a small business. Your knowledge of the tools will be helpful, but often the tools will rent themselves, as most customers understand what they need before they get to your store. Still, being able to talk to customers and offer guidance and advice are important skills. Small business finances and managerial operations will be what makes your business money overall, though. Make sure you have a business plan in place, which you are adhering to, proper rental agreement paperwork for you and the customer’s benefit, and a business license and insurance to cover all intangibles which might arise.
What is the growth potential for a tool rental business?
Tool rental businesses are quite popular and, with the increase in building in the last few years, are a great opportunity for a successful business. When properly managed, tool rental businesses should flourish, and there is often room for expansion, once the initial business is established.
Take the Next Step
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.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a tool rental business?
Tool rental businesses can be profitable and relatively simple to manage. Your main concern will be making sure you have enough customers to maintain profitability. Conduct extensive research for your area to determine the housing and construction markets and the likelihood you will also see residential weekend warriors coming through your doors, as well. Check out your competition and see what they’re doing right or wrong. Some businesses succeed or fail, simply because they didn’t understand their potential customer base.
You will need to spend a good amount of time and revenue on advertising, as well. You can use social medial and a website to boost your visibility for customers. These are relatively inexpensive options, especially for start-ups. However, you will also need signage to direct the customers not checking the internet and looking for a convenient tool rental option. Flyers, business cards, and banners all help spread the word. Also, advertise or partner with hardware and contractor stores. Many smaller retailers won’t have rental programs like their big box competitors, which gives both small business entities the option to profit off the shared customer experience.
Finally, look to connect and become familiar with building and contractor organizations, as well as local and regional homeowners associations. Becoming a trusted partner with these organizations can act as a funnel to your business. It also helps to spread your business name and reputation.
How and when to build a team
When first venturing into the tool rental business, you will not need many employees, if any. Other than servicing and maintenance of the equipment, there is the rental paperwork and exchanges of money for the rentals taking place. Therefore, much of the cleaning and maintenance can be done by you, on the off hours, to start. You will also be the one handling in store customer service and inquiries, as well as advertising and marketing. These tasks will become more laborious and time consuming, as your business expands, though. Adding an additional team member or two will be need, although likely 6 months to a year after first opening. When it’s time, look for individuals who are as comfortable holding a wrench as they are on a 10 key. Just like yourself, you need employees who can cover many different aspects of the job.