How to Start a Tool Rental Business

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Our guide on starting a tool rental business covers all the essential information to help you decide if this business is a good match for you. Learn about the day-to-day activities of a tool rental business owner, the typical target market, growth potential, startup costs, legal considerations, and more!

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Start a tool rental business by following these 9 steps:

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 step 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 initial 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. Skip on ahead to the Business Overview for more detailed answers to all your questions.

Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.

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STEP 2: Form a legal entity

Establishing a legal business entity such as an LLC prevents you from being personally liable if your tool rental business is sued. Consider using a registered agent service to help protect your privacy and stay compliant.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

STEP 4: Open a business bank account

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.

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.

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.

STEP 7: 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.

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.

STEP 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.

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Select your state below for an in-depth guide on completing each of these steps in your home state.

Business Overview

A tool rental business offers construction and carpentry tools for both professionals and homeowners. Tool rentals often cover large or expensive tools which individuals will use infrequently or are too expensive to buy outright.

Who is this business right for?

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.

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 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.

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.

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 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!

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 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.

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Growing Your Business

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.

Recommended: Get started with local advertising for your business with a $300 credit from Yelp.

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.

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.

Legal Considerations

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.

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.
A smiling man sits at a computer and learns about corporate veils


To learn more about maintaining your LLC's corporate veil, read our guide and protect your personal assets.

Earning Potential

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.

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.

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.

Next Steps

Get more ideas with our Business Ideas Tool.

Check out our How to Start a Business page.

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