Of course, you can choose to start with an existing car rental franchise. Or you can start your own car rental business. This way, you can modify a proven profitable small business model into 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 biggest player, with the United States in the lead. Overall, car rental company activity was $92 billion in 2021, most of which ($57 billion) was related to tourism. The car rental business is expected to reach $140 billion by 2027.
Why You Should Start a Car Rental Business
Why should you start your own car rental business?
- More and more people are buying small, fuel-efficient vehicles for everyday use. These people will still occasionally need a large truck or van for special purposes.
- You have always loved cars.
- It’s profitable.
- You can start small and build. You can start a car rental service with just one vehicle.
- You have many options for your type of operation. Vehicle rental companies can specialize, such as rental vans, classic and exotic cars, a luxury car rental service, or delivery trucks and vans.
Starting a Car Rental Business in Ten Simple Steps
Buying an existing business can mean buying a franchise from a proven brand and business model with upfront franchise fees, such as Avis, Hertz or Enterprise. Or you could buy an existing rental business that an owner wants to sell. Or you could start your own business, which would take this proven business structure and build it the way you want.
Learn how to start a car rental business with our selected steps:
Find other car rental companies
As part of your market research, look at other car rental companies and note which aspects of those operations you think are relevant to what you plan to do. For example, if you plan to offer classic car rentals or specialty vehicle rentals, you can make changes to the standard rental agreement.
Decide what type of Vehicle Rental business you are going to start
Car rental services have always been aimed at business travelers. But according to statistics, the fastest growing segment of the car rental company is the tourist.
If there is an option to take over an existing car rental business, do your due diligence. What is the reason for the sale? What are the ages/mileages of the rental vehicles? Is the business profitable?
Determine your target market
Before you start your new business, think about who you think your target market is. Before you start a car rental business, you need to know who will be in charge most often.
Short-term and/or long-term customers? Delivery or specialized vehicles? Luxury vehicles?
Choose a business name
First, check that the name has not already been taken. Choose a name that reflects your target market.
Write a car rental business plan
Your business plan will have similarities to the majority of business plans, with a few key differences:
- You will need a strategy to implement Covid-level cleaning and disinfection of your fleet, which will be a required standard for any successful car rental business.
- Your main cost will be the vehicles. Your start-up costs will depend on how many cars you can afford.
Choose a business structure
The majority of start-up car rental businesses choose the Limited Liability Company or LLC. These corporate structures protect personal assets.
Choose a business location
Car rentals must be supported by a dynamic population. This is an important factor to consider.
Another factor is the cost of registered vehicles, as well as business taxes that will be levied on your operation. You can find this information from the Small Business Administration. The Small Business Administration has a great chart with those numbers.
For example, if you locate your business entity in Vermont, the state will add a 15% rental tax to your rental fee, plus an additional 9% 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 a $1 state tourism fee per day.
Open a business bank account
Using your business name, create a separate business account, along with a designated business credit card. Business accounts should always be kept separate from money/assets and personal accounts.
Sort out your business finances
When you start your own business, you will most likely need a business car loan.
Many vehicle rental companies partner with a car dealership, where they initiate a purchase or lease agreement. Using local car dealerships makes pickup and delivery more convenient. Of course, vehicle costs (business loans) will be the biggest expense for small businesses in this area. Loans are expensive, but they’re a great way to build business credit and support future fleet expansion.
Take out commercial insurance
Insurance is another major expense. At a minimum, you will need comprehensive general, commercial and commercial liability insurance for fleet insurance. If you own or rent a pitch, you will also need home insurance.
Get your taxes in order
You will need an Employer Identification Number, or EIN, to create a legal business entity. You will need it even if you are running a sole proprietorship, as the EIN is required for state tax filing.
This is where you may need to seek the services of professionals, such as an accountant and a business lawyer. Here are the main taxes you may have to pay:
- state tax
- workers’ compensation tax (if you have employees)
- tax fees by localities, such as cities and/or counties
- Personal Property Rentals – Must be reported on Schedule C as required by the IRS
Create a website
Search engine optimization is important for every business website. If you don’t have the knowledge or the time for this, hire a professional. You want people to be able to find you easily through an internet search.
You will also need a presence on various social media accounts, such as Facebook, which is another source of potential customers.
Market your business
In addition to your website, social media platforms, and digital marketing, you can affiliate with local businesses. For example, a local lumber yard or furniture store might give your card to customers who need to rent a delivery vehicle, or a vehicle repair shop might do the same, for a customer who needs a short or long term local rental. Build customer loyalty but react quickly to problems, especially breakdowns.
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 vehicles.
Is a car rental business profitable?
A low-end daily rental for a small vehicle is $40 and up, with a high-end vehicle rental for $100 to $200 per day. You can expect to spend $500 to $1,000 per month on insurance costs. Your monthly fleet costs will vary depending on your number of vehicles.
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