If you have a passion for cars and enjoy interacting with people, you might consider starting a car rental business. There is high demand for vehicle rentals; you should be able to make good money in the field if you plan carefully.

That said, a car rental business requires significant investment and has high overhead costs so you should do your research before jumping in. This guide explains how to start a car rental business, from choosing a business model to acquiring your first customers.

Experience Needed to Start a Car Rental Business

You don't need any formal training or education to start a business for car rentals. That said, knowledge of cars is useful. You should be able to confidently answer potential customer queries about vehicles. You can consult car publications and blogs to ensure your knowledge is up to date.

Basic auto repair skills are also helpful. If you can handle small fixes, like changing the oil or replacing a tire yourself, you can ensure your fleet of vehicles is always in top condition (and spare the expense of a mechanic). You might want to gain job experience in auto repairs beforehand.

You might also consider gaining experience as a car rental clerk. This will give you a chance to learn about the daily business processes that maintain a rental company, like what software systems are used to track and maintain a fleet.

First Steps When Planning a Car Rental Business

A written business plan will serve as a guidebook for your car rental business. According to the U.S. Small Business Administration (SBA), this document should include the following sections:

  • A description of your business: What type of car rental business will you have?
  • Market analysis: What's the demand like for this type of car dealership in this particular area?
  • Organization and management structure: What business model will you establish, who will own the car dealership (e.g., will you have a partner?), and who will run daily operations?
  • Product or service description: What types of cars will you carry in your fleet?
  • Marketing and sales plan: How will you attract new customers?
  • Funding request: If you want external funding, how much do you need?
  • Financial projections: How much can you expect to earn?

As you formulate your business plan, consider the following points:

What Type of Car Rental Business Do You Want to Set Up?

There are various types of rental businesses to choose from. You can start an independent rental company, open up a rental office at an existing car dealership, take over an existing car rental business, or invest in a franchise.

When you start a franchise, you're buying the rights to use an established brand and business model. This saves you significantly on overhead costs and setup time. You pay a fee for the rights to have the franchise but you get access to a recognized brand, tried-and-tested processes, built-in advertising and branding, and more.

Who Is the Target Audience for Your Car Rental Business?

Do your market research to ensure there will be sufficient demand from your target audience. Your fleet, price point, and location should be in line with your potential customers' requirements. Identifying your ideal customer will help you determine everything from the best cars for your fleet to how to market your services. It can also help you choose a logical location.

For example, if you're setting up shop at an airport, your target audience might be business travelers. Are you setting up shop at a transport hub near a major family attraction, like Disney World? You'll need safe, family-friendly cars on hand.

How Much Startup Capital Will You Need?

How much will it cost you to start a car rental business? Here are some startup costs business owners should consider:

  • Vehicles for your fleet
  • A space to safely house the vehicles
  • Vehicle maintenance tools
  • Office supplies like computers, printers, and internet
  • Security systems like closed-circuit cameras
  • Employee wages and salaries
  • Marketing and branding
  • An insurance policy for the business and vehicles

A franchise can help save on some costs, like branding and marketing. That said, you will have to pay to get franchise rights, and most car rental companies have minimum financial requirements. For example, Hertz requires a net worth of at least $500,000 and liquid capital of at least $150,000. Other franchise options include Dollar, Thrifty, and Budget.

What Will Your Pricing Structure Look Like?

Come up with a set pricing structure to ensure consistency in your rental business operations. Factors that typically influence car rental prices include:

  • When a person books: The earlier a person books, the better the rate. Last-minute bookings generally cost more.
  • When the rental takes place: Weekends cost more than weekdays.
  • Pickup location: For example, airport rental locations tend to charge more.
  • Drop-off location: It generally costs extra to drop off a car at a different location than where it was picked up. Car rental companies may charge intercity fees or drop charges.
  • Length of rental
  • Type of vehicle
  • Refueling: Is the customer required to refuel the vehicle before returning it?
  • Renter age: Rental companies generally charge added fees for those under 25.
  • Extra fees (e.g., added insurance)

If you establish a franchise business, you will probably be provided with set pricing guidelines. Otherwise, you might get an idea of what prices should look like based on local competitors.

What Insurances Will You Need?

Every vehicle in your fleet should be insured in case of an accident. Insuring a fleet of vehicles can be anywhere from hundreds to thousands of dollars a year depending on the size of the fleet and the types of vehicles.

You also need business insurance to protect your commercial property and protect against potential liability issues (e.g., if a customer is hurt or their property is damaged on your business premises).

What Legal Paperwork Will You Need?

A car rental business will require detailed contracts outlining the car rental company's and the customer's obligations when they rent a car (in terms of maintenance, insurance, cleaning, refueling, etc.). Drafting template agreements in advance will save you time and hassle later.

Since car rental agreements inherently deal with high-value objects, it's best to have a business attorney review all potential contracts. You want to make sure you are in line with state and federal guidelines while protecting your business interests.

Getting Your Car Rental Business Off the Ground

With the above points addressed and your business plan finished, you can start going through the steps to start your car rental business. Here's what you'll have to do.

Legal Requirements for Starting a Car Rental Business

The insurance requirements mentioned above aren't just "nice to have." You will legally be required to take out a minimum amount of coverage for your fleet and your business to open a car rental business.

To legally operate, you will also need to meet certain licensing, permit, and records requirements. Details vary depending on location, so check with your area regulator to confirm what you'll need. Here's a general overview of what requirements you may need to fulfill:

  • Business license: This is usually granted at the local level. You fill out paperwork with your local government agency to get a certificate of permission to run your car rental business. When you submit your application, you will likely have to provide certain documentation, such as proof of insurance coverage, and pay a licensing fee.
  • Business permit: A permit to run a car rental business may be issued by the state. This usually involves providing proof of insurance to the state insurance commissioner. You also have to demonstrate compliance with local regulations regarding zoning laws and waste disposal. For example, you probably can't set up a rental car lot in a residential neighborhood or dump car oil into the general garbage. If you open up shop at an airport, you will likely also have to pay extra fees.
  • Proof of records: Most states require car rental businesses to provide detailed records of ongoing insurance coverage. Records must also be kept for each vehicle, including identifying information like vehicle identification number (VIN), make, model, color, license requirements, depreciation value, and more.

You should further establish your car rental service as a legal business entity that's registered with the state (limited liability company, sole proprietorship, etc.). Again, guidelines vary between states, so check your local laws to confirm how business registration works.

When you legally register your business, think carefully about the official business name you select. This official name should also appear on your business signage, website, and other branding and marketing materials. You want a title that's catchy and memorable. Note that car rental industry franchises will generally have naming requirements you have to abide by.

With your business registered, you can take care of a few other formalities, like opening a business bank account (to separate your business and personal finances) and registering for state and federal tax ID numbers for your business.

Marketing Suggestions for Your Car Rental Business

If you opt for a franchise car rental business, you will be provided with marketing and branding materials. If you aren't part of a franchise business, it's up to you to steer your own marketing campaign. Here's a quick step-by-step guide for how to market your car rental business:

  • Create a website. You can do this yourself using tools like Wix or Squarespace or by hiring a professional using a platform like Upwork.
  • Solidify your brand. Choose a logo, color palette, and slogan. Implement that brand across all marketing and branding materials, like signs, business cards, uniforms, social media, etc.
  • Set up your business pages on platforms like Google My Business and Yelp. Customers can provide testimonials, offering valuable referrals that will help attract new customers.
  • Set up social media profiles. This guide to social media marketing for car rental businesses can help.

With these tools in place, you can then start promoting your new business. Digital marketing tools like your website and social media are a great starting point. You can also boost your brand through local business collaborations, like tourism agencies.

Daily Management of Your Car Rental Business

It's important to keep strict oversight of your car rental's financials. This is critical both for tax filing purposes and your personal bookkeeping. You need to keep track of all payments received from customers, as well as any expenses your business incurs, such as auto mechanic fees. There are also regular overhead costs to consider, like commercial rent and employee wages.

Skynova's accounting software can help you stay on top of such money matters. You may also benefit from Skynova's business templates for purchase orders, receipts, and more. If you require your customers to pay a deposit when renting a car, you also need to document this paperwork.

Investing in car rental fleet management software can help you organize rentals in a single system. Note that if you decide to open a franchise, there may be certain software systems that you are required to use.

Skynova Can Help Your Car Rental Business Thrive

A successful car rental business can be a rewarding way to make a living, allowing you to pursue your passion for vehicles while also interacting with people from all over the country (or even all over the world). You want to focus on the fun parts - not the paperwork.

Skynova's software products take the tedium out of administrative tasks, leaving you more time to focus on other business areas.