Car rental business rents vehicles at affordable daily and weekly prices. There are different parties interested in car rental including business and leisure travelers and those whose vehicles are under maintenance. There are a lot of people who start a business in the niche that they have passion for and car rental business is not an exclusion to that. There are numerous people around the globe who have a deep passion for cars and they want to connect their life with them. Thus, a car rental business might be a great way to accomplish that task.
However, a car rental business does not involve the purchase of cars for cash and then simply renting them. Proper business requires a proper business plan, combined with a strong base of financial and marketing knowledge. It is not enough to know everything about cars when starting a car rental business. You need to have sufficient business skills or at least a desire to develop these skills in order to run the business successfully. The following sections of this article depict the main steps that should be taken by a person wanting to start a car rental business and they are as follows:
Plan your business
A business plan is an essential part of the success of any business. It allows determining the specifics of the business and discovering the pitfalls of the business that you have not previously thought about. As part of the business plan, you will have to evaluate the startup and ongoing costs. As you have probably figured out, a car rental business requires an inventory of vehicles that could be bought from dealers or people selling a car privately for cash. This business also requires premises, a good location, an office, employees, computers, and printers as well as insurance of the business and vehicles, vehicle maintenance tools.
You should now also forget about the ongoing expenses of a car rental business. These include employees’ wages and salaries, utilities, insurance, servicing the fleet, renting cost of the premises, marketing, and website maintenance. You should also take into consideration the target market. An ideal customer for this type of business would be a business that requires a number of car rentals for their employees. Other great candidates would be a group of business travelers that are in need of the car.
It is highly important to understand the amount that you can charge customers. The rates for car rentals extremely depend on the type of vehicle selected by the customer and its physical location. As a rule of thumb, the lower the class of the vehicle, the lower the car rental rate and visa versa. Competitor analysis is also crucial when developing a business plan. You should analyze all the competitors in your area. It will give you an idea of what cars are most commonly rented and what the car rental rates in your city are.
As part of the business plan, you have to find a way to finance your business. Financing of the new business is normally done by investors or lenders. However, if you apply for credit, a lender will assess your credit history, thus, make sure it is in a positive state. In addition to that, investors and lenders will also ask you about the business plan as you want to see when you expect your business to make profits.
Form a legal entity
After you have found a source of financing your business it is time to form a legal entity and establish your business. This can be accomplished by means of partnership, corporation or LLC, which stands for Limited Liability Company. This legal business entity can prevent you from being personally liable for in case your car rental business is sued. However, there are numerous other business structures that you can opt for including corporations, DBA’s, partnerships and so on. You need to carefully analyze each of them and pick the one that is applicable to your business needs.
You should now also forget about the Business Liability Insurance that you will have to pay for on a regular basis. It might be also the case that you will need to acquire a surety bond that gives your customers financial protection in case you are not able to meet your obligations.
Register for taxes
Before opening up a business, every person needs to apply for a variety of state and federal taxes. In order to do so, it is needed to apply for an EIN, which stands for an employer identification number. However, you should not worry about that as it is really easy and completely free.
Open a business bank account
It is essential for personal asset protection to have dedicated business banking and credit accounts. If your personal and business accounts are mixed, your personal assets such as home, car and other valuables are at a high risk in case your business is sued. In business law terms, it is called piercing the corporate veil.
Establish a business accounting
Accounting plays a crucial role in any business as it is highly important to understand the amount of money coming in and the amount of money that is being spent. Cash flow management plays a vital role in any business as it allows for critical and objective assessment of the performance of the business. Without any doubt, this can be done by the business owner in the early stages of the business, however, the more clients and cars you get, the more complicated the process becomes. Therefore, you will need to consider hiring a professional accountant.
Obtain all necessary licenses and permits
If you want to avoid hefty fines or even cause your business to shut down, you will have to acquire necessary permits and licenses. These include state and local business licenses, certificates of occupancy and service contracts. Before you rent any car to a customer, you will need him/her to sign a service agreement, which clarifies the client’s expectations and minimizes the risk of legal disputes by establishing payment terms and conditions as well as service-level expectations and intellectual property ownership.
Develop an inventory of vehicles
When you have completed all the aforementioned steps it is time to develop a car inventory. You can either acquire vehicles from people who sell cars for cash or you can buy brand new cars from dealers. Without any doubt, it is economically efficient to buy used cars but only if they are in good condition. This is the point where you will also need your business plan as it shows the type of cars being used by your competitors.
Normally, car rental companies offer different types of vehicles and classify them based on the class, such as the economy or business. It is possible to buy used car that falls into business class, but it is almost impossible to find a used vehicle that falls into an economy class and which is in good condition. Therefore, it is advised buy brand new cars that fall into an economy category in order to avoid potential problems with your potential customers. If you decide to buy luxuries, used cars you will have to assess it in a detailed way. It is recommended to evaluate the car with a mechanic who will be able to spot the potential defects that you will probably miss.