Starting a car rental business

You can of course choose to start with an existing car rental franchise. Or you can start your own car rental business. That way, you can tailor a proven, money-making small business model to a setup that best suits your location and desired business size.

The car rental industry in 20222

The global car rental market is booming. North America is the largest player, with the US leading the way. Overall, the car rental business was $92 billion in 2021, most of which ($57 billion) was related to tourism. The car rental company is projected to reach $140 billion by 2027.

Why you should start a car rental business

Why start your own car rental business?

More and more people are buying small, fuel-efficient vehicles for everyday use. Those people sometimes need a big truck or van for special purposes. You’ve always loved cars. It’s profitable. You can start small and build. You can start a rental car service with one vehicle. You have many options for your type of activity. Car rental companies can specialize such as renting passenger vans, classic and exotic cars, a luxury car rental service or vans and vans.

Starting a car rental business in ten easy steps

Buying an existing business may mean buying a franchise from a proven brand and business model, with an initial franchise fee, such as Avis, Hertz or Enterprise. Or you can buy an existing rental business that an owner wants to sell. Or you can start your own, where you would take that tried and true business structure and build it the way you want.

Learn how to start a car rental business with our chosen steps:

Research other car rental companies

As part of your market research, look at other rental car companies and note the aspects of those activities that you think would fit with what you intend to do. For example, if you plan to rent classic cars or special vehicles, you can make changes to the standard rental contract.

Decide what type of car rental business you are going to start

Car rental services have traditionally been geared towards business travelers. But according to the statistics, the fastest growing segment of the car rental business is the tourist.

If there is an option to acquire an existing car rental company, do your due diligence. What is the reason for sale? What are the ages/kilometers of the rental cars? Is the company profitable?

Determine your target market

Before starting your new business, brainstorm what you think your target market will be. Before starting a car rental business, you need to know who is driving the most.

Short-term and/or long-term customers? Delivery or special vehicles? Luxury vehicles?

Choose a company name

First check if the name is not already in use. Choose a name that reflects your target market.

Write a car rental business plan

Your business plan will have similarities to most business plans, with some key differences:

You need a strategy for implementing Covid-level cleaning and disinfection of your fleet, which will become a required standard for any successful car rental company. Your main costs will be vehicles. Your startup costs will depend on how many cars you can afford.

Choose a business structure

Most start-up car rental companies choose the Limited Liability Company or LLC. These corporate structures protect personal assets.

Choose a business location

Car rental needs to be supported by a vibrant population. That is an important factor to consider.

Another factor is the cost of vehicle licensing, as well as the business taxes levied on your business. You can find that information at the Small Business Administration. The Small Business Administration has an excellent chart with those numbers.

For example, if you locate your business entity in Vermont, the state will add 15% rental tax to your rental price, plus a 9% surcharge and 6% state tax. Or, if you chose nearby Connecticut, there would be no rental tax and you would pay 6.35% state tax and $1 per day city tax.

Open a business bank account

Use your business name and start a separate business account along with a designated business credit card. Business accounts should always be kept separate from personal money/assets and accounts.

Sort your business finances

When you start your own business, you probably need a business car loan.

Many car rental companies are affiliated with a car dealership, where they initiate a purchase or lease contract. Using local car dealers makes pick up and delivery easier. Obviously, auto costs (business loans) will be the highest cost for small businesses in this area. The loans are expensive, but they are a good way to build business credit and support the future expansion of your fleet.

Take out business insurance

Insurance is another major expense. You need minimum general liability, commercial and comprehensive commercial vehicle for fleet insurance. If you own or rent a location, you will also need home contents insurance.

Get your taxes in order

You need an employer identification number or EIN to set up a legal business entity. You will need this even if you are a sole proprietor, as the EIN is required for filing state taxes.

Here you may need to hire the services of business professionals such as an accountant and corporate lawyer. Here are the main taxes you may have to pay:

State Taxpayers Compensation Tax (if you have employees) Taxes by localities, such as cities and/or countiesPersonal Property Rentals – Must be reported on Schedule C as required by the IRS

Build a website

Search engine optimization is important for any business website. If you don’t have the knowledge or time for this, call in a professional. You want people to be able to find you easily with a web search.

You should also be present on various social media accounts such as Facebook which is another source for potential clients.

Market your business

In addition to your website, social media platforms, and digital marketing, you can also join local businesses. For example, a local sawmill or furniture store can give your card to customers who need to rent a van, or an auto repair shop can do the same for a customer who needs a local short- or long-term rental. Retain customers, but respond quickly to problems, especially outages.

How much does it cost to start a car rental business?

Startup costs can range from $50,000 to $100,000. There are variations, such as the cost of the location to rent or lease, and the type and number of rental cars.

Is a car rental company profitable?

An inexpensive daily rental for a small vehicle is $40 and up, with a more expensive vehicle renting for $100 to $200 daily. You can expect to spend $500 to $1,000 monthly in insurance costs. Your monthly fleet costs depend on your number of vehicles.

Image: Depositphotos

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