- Plan Your Business (Business Plan)
- Form The Business Entity
- Open a Business Bank Account
- Secure Funding
- Acquire The Vehicles
- Shop Around For Car Rental Business Insurance
- Pick Your Business Location
- Get All Necessary Permits And Licenses
- Draw Up Any Legal Paperwork Needed
- Setup Your Online Business Presence
- Have A Marketing Plan Ready
- Hire Employees
- Launch Your Business
- How To Start A Car Rental Business (Checklist)
Below, is a detailed step-by-step on how to start a car rental business.
Whether you’re planning on starting a car rental business with your own vehicle(s), acquiring a few of them, or a whole fleet – this article covers everything.
How To Start A Car Rental Business (13 Steps):
Starting any business can be an overwhelming process of planning, questions, and research. So let’s look at how to start a car rental business from start to finish.
#1. Plan Your Business (Business Plan)
When starting a business, you’ll want to have a comprehensive business plan of your business’s “who, what, and how.”
Here is a list of questions you can ask and answer yourself to start shaping the business plan for your car rental business:
Who is your customer?
This is one of the most important questions you can answer as it will help answer other business plan questions with more clarity and to help understand the business you want to start.
Who your customer is will determine the types of vehicles you purchase, business location, amongst many other things.
You can figure out who your customer is by asking yourself “Who will you be renting your vehicles out to?” Individuals, small businesses, peer-to-peer car rental companies, etc.
Note: By understanding who your customer is will help answer other business plan questions with more clarity.
Once you’ve defined who your target market will be, find your local and/or online competitors in the market you will be operating in and study them.
Identify what they are good at and what they can improve on.
When studying them, ask yourself things like:
- How much do they rent their vehicles out for?
- What are their most popular and unpopular booked vehicles?
- What does their marketing look like? How do they acquire their customers?
- Do they offer discounts, if so, how much? And for what? When?
- Do they have a website? How does it look?
- Are they on social media?
- Do they have a physical location? If so, where are they located? Why did they choose that location?
Once you decide who your customers are (who you’re renting the vehicles to), the type of vehicles in your fleet will become obvious.
To give you an idea, here are a few of the most common rental vehicles a car rental business offers:
- Compact economy vehicles
- Exotic/luxury vehicles
- Transportation vans/SUVs
Will you be starting out with a fleet of vehicles (10 or more) or just a few?
You have a few options on how to acquire the vehicles. This will depend on what financially makes more sense to you and your business.
Will your rental vehicles be (1) parked on the lot of your business’s storefront, (2) stored in a garage when not booked, or (3) parked on the street?
What will your renters approval process be like?
The insurance company you insure your fleet with will ultimately want to know what your vetting process is like, which could impact that insurance company willing to take the risk of insuring your vehicles or not.
Things to consider besides having a valid driver’s license:
- Minimum age limit?
- Accidents? How long since the last one?
- Previous DUI’s?
- Background checks?
Tip: Too strict of criteria, you risk losing customers. Too loose of criteria, you increase the risk of an accident and insurance companies not willing to insure your vehicles.
Deciding if your party rental business will have a physical storefront or run the business out of your home can be a tough decision.
Unfortunately, operating a car rental business without a physical storefront can be challenging unless you consider putting your vehicles on a peer-to-peer car rental marketplace like Turo.
[ Related Article: Turo Host Review: Pros and Cons – Is Turo Worth It? ]
Choosing a good name for your business means good branding.
To successfully launch a car rental business, you will need (1) startup funds and (2) a few months of operating costs until your business can start to pay for itself. Here are some things to calculate estimates:
- Purchasing inventory
- Property down payment (if any)
- Website setup
- Filing fees
- Legal fees
- Paying employees (if any)
- Property rent (if any)
- Business insurance
- Garage storage for vehicles (if any)
While you’re still in the business planning stage, get an idea of the expected costs and profits so you know what it’s going to take for your business to be profitable and what your break-even number is so you know where to set the bar at.
- Estimated Operating Costs? How much will it cost you to run the business month-to-month?
- Rental Price? How much will you rent the vehicles out for?
- What is your break-even number? How many rentals need to be booked per month to cover the operating costs each month? (so you’re not losing money)
#2. Form The Business Entity
Before you do anything else, you’ll want to register the company within the state the business will be operating in.
Will you be forming a (1) sole proprietorship, (2) partnership, or (3) corporation?
If you’re unsure of which type of business entity you’re looking to form, consider consulting with a business and commercial law attorney first or reading up on business structures on IRS.gov, here.
You can register the business yourself through your state website or use an online filling company, like LegalZoom.
Filing will cost between $40 to $500 plus annual/biennial fees, depending on the state you’re registering in and the type of business structure.
Note: 76.2 percent of all registered businesses in the U.S. are sole proprietors.
#3. Open a Business Bank Account
Setting up a separate bank account for your car rental business is important for keeping your business and personal income and expenses separate. It also helps with organizing and adding structure to your business for tax purposes, payroll (if any), etc.
Documents you’ll need to open a business bank account:
- Employer Identification Number (EIN) (or a Social Security number, if you’re a sole proprietorship)
- Your business’s formation documents
- Ownership agreements
- Business license
If your going into business by yourself (single-member LLC), having a business bank account may not be necessary but still, highly encouraged.
Note: If you’re starting this business with partners, opening a business bank account is critical for tracking spending, owner’s draw, and salary, etc.
#4. Secure Funding
By now, you should have a good understanding of (1) how much you’ll need to start with and (2) what you’ll need it for. Once you know this, it will give you a good idea of the type of funding you’ll go after.
Every business is different and will require more or fewer startup funds than the next. A car rental business can become operational with a few thousand dollars or hundreds of thousands of dollars. It just depends on how big you’re looking to grow and how quickly.
Most common types of small business startup funding are:
- Bootstrapping (self-funding) ***
- Family and friends
- Line of credit
- SBA loan
- Personal loan
Important: The #1 reason why businesses fail (82 percent of all businesses) is because of a lack of cash flow, operating funds, and working capital.
#5. Acquire The Vehicles
Once you decided (1) what type of vehicles you’re going to get, (2) how many you’ll start with, (3) whether you’re going to purchase or lease them, and (4) how you’re going to fund it. It’s time to take those criteria you set during your business planning and acquire them.
#6. Shop Around For Car Rental Business Insurance
The car rental business is a risky industry to operate in and you will want to make sure you are covered in the event of rental accidents, rental damage, property damage, theft, lawsuits, etc.
Insurance can get complicated as to what you should and shouldn’t insure. So, a helpful way to decide what types of insurance(s) you and your business should consider getting is to (1) take inventory of everything in your business, then (2) insure the things you wouldn’t be able to pay for on your own in the event of a loss and lawsuits.
Here are some of the most common business insurance types you may want to consider getting to protect you and your car rental business from a financial loss:
- General liability insurance
- Commercial auto insurance
- Commercial property insurance
- Home-based business insurance
- Professional liability insurance
- Business owner’s policy
If you’re unsure about what coverage to get and not get, consider reaching out to a business counselor over at SBA’s Small Business Development Center.
If your business has employees, the federal government requires that business have workers’ compensation, unemployment, and disability insurance. And on the state level, some state laws may also require additional insurance (go on your state’s website to find out if your business requires any additional insurance in your state).
#7. Pick Your Business Location
If you’re going to lease or buy property to act as the physical storefront for your car rental business, now would be the time to do it.
Some things to consider when hunting down a good storefront location is the cost of rent or mortgage, high foot traffic area, size of the location, zoning, etc.
#8. Get All Necessary Permits And Licenses
A car rental business does require permits and licenses to operate legally, but the types of permits and licenses your business will need vary by state.
To find out what permits and licenses your car rental business will need you can check out SBA’s licenses and permits section.
#9. Draw Up Any Legal Paperwork Needed
When running a car rental business, you will want to have all legal paperwork between you and the customer made clear, to shield your business from any legal liabilities. These may include things like:
- Rental/Service agreements
- Consent forms
- Company policies
Note: You can have a lawyer draw these forms up for you.
#10. Setup Your Online Business Presence
Having an online presence for your business will expand your visibility and reach, attract more customers (organic and paid), add credibility, among other things.
Things you can do now to setup your business’s online presence:
- Create a website for your business
- Create an Instagram and Facebook business account for your business
- Submit your business to be found on google maps and apple maps (if it’s a physical location)
- Add your business to Yelp (if it’s a physical location)
Tip: 6 out of every 10 small businesses in the U.S. in 2018 didn’t have a website for their business, which gives your business an advantage over competitors just by establishing an online presence.
#11. Have A Marketing Plan Ready
Put together a marketing strategy for your car rental business.
Whether you have no budget, limited funds, or unlimited access to throw at advertising – get creative with your marketing. Utilize both free and paid advertising for getting customers.
- Word of mouth/referral
- Peer-to-peer rental marketplaces
- Instagram and Facebook
- Search Engine Optimization (SEO) your website
- Pay-Per-Click (PPC) Advertising your website
- Having a physical location (organic traffic)
[ Related Article: Turo Host Review: Pros and Cons – Is Turo Worth It? ]
Reminder: If your customers don’t know you exist, you have no customers. And if you have no customers, you have no business.
#12. Hire Employees
Employees working in the car rental industry earn a median hourly wage of $16.17, according to the U.S. Bureau of Labor Statistics.
Some important positions to hire for when starting a car rental business are rental sales agents, service agents, and automotive technicians.
Reminder: 76.2 percent of all businesses in the U.S. today have no paid employees.
#13. Launch Your Business
Once you’ve done everything – figured out your business plan, taken care of funding and legal, and set up your business – it’s now time to launch.
Below is a checklist you can use to refer back to.
How To Start A Car Rental Business (Checklist)
Here is a checklist of everything discussed above on how to start a car rental business from start to finish:
Define your target market
Research your competitors and identify what they are good at and what they can improve on
Calculate startup costs, operating costs, break-even number, profitability number, etc.
Pick a name for the business
Registered the business in the state you will be operating business in
Get an EIN number
Open a business bank account
Get a business credit card
Purchase all inventory
Get business insurance
Choose location (if so)
Sign lease for storefront (if so)
Have all necessary permits and licenses
Draw up all rental agreements, waivers, consent forms, policies, etc needed
Create a website for your business
Add your business to Yelp (if it’s a physical location)
Have a marketing plan ready
Hire your employee(s)