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How to Start a Car Rental Business

Written by:

Edited by:

Reviewed by: Daniel Javor

Published on November 24, 2021

Updated on September 20, 2022

How to Start a Car Rental Business

Disclaimer: Step by Step Business’ content is for informational and educational purposes only. It’s not intended to be a substitute for professional legal or tax advice. All of our articles are thoroughly reviewed and fact-checked by our editorial team. Read our editorial guidelines for more details.

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Fast Facts

Investment range

$48,050 - $97,300

Revenue potential

$137,000 - $1.5 million p.a.

Time to build

6 Months

Profit potential

$14,000 - $150,000 p.a.

Industry trend

Growing

Commitment

Full-time

How to Start a Car Rental Business

People are always going to travel, and many will need a vehicle while on the road, which means a car rental business has steady demand and can be a lucrative entrepreneurial venture. It’s a large and growing industry, and if you’re able to capture just a tiny sliver of the $100 billion global market you’ll do just fine.

But of course, you’ll have to work hard and be patient. It’s crucial that you arm yourself with the relevant knowledge, as detailed in this step-by-step guide, before you set out on the road to car rental business success!

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a car rental business, just like every entrepreneurial journey, has its pros and cons. You need to carefully consider these to decide if a car rental business is right for you.

Pros

  • High Demand – Steady demand from travelers and people getting car repairs
  • Profitable – Sizable fleet can mean big money
  • Simplicity – People pay to use your cars

Cons

  • Startup Costs – A fleet of cars is a huge up-front expense
  • Maintenance – Need to keep your fleet road-ready
  • Damage – Accidents happen

Car rental industry trends

The US car rental industry has recovered strongly and surged past pre-pandemic levels. 

The broader economy has a direct impact on car rentals, as a recession means fewer business trips and vacations. When corporate profits are strong, companies spend more on business travel, boosting the car rental market.

Industry size and growth

car rental industry size and growth

Trends and challenges

Car rental trends include:

  • Increasing use of car booking apps that also manage the fleet and monitor the location of vehicles
  • Revenge travel after the pandemic lockdowns will boost car rental sales

Challenges in the car rental industry include:

  • Competition from on-demand transportation services like taxis and passenger vehicles
  • High fuel prices are deterring road trips and car rentals
car rental industry Trends and Challenges

What kind of people work in car rental?

car rental industry demographics

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

Startup costs for a rental business with a five-car fleet could be as low as $50,000 or higher than $100,000. The main expense is of course the cars themselves, and by starting with just two or three cars you could cut your costs significantly.

Startup CostsBallpark RangeAverage
Setting up a business name and corporation$150 - $200$175
Business licenses and permits$200 - $300$250
Insurance $1,000 - $5,000$3,000
Business cards and brochures$200 - $300$250
Website setup $1,000 - $3,000$2,000
Initial marketing budget$500 - $1,000$750
Fleet of 5 cars$40,000 - $75,000$57,500
Office location deposit$2,500 - $5,000$3,750
Office equipment$2,500 - $7,500$5,000
Total$48,050 - $97,300$72,675

How much can you earn from a car rental business?

The profit margin for a car rental business averages 5% to 10%, while the average daily rate to rent a car is about $100.

If you have 5 cars and rent them an average of 275 days per year, you’ll bring in revenue of $137,000 and see nearly $14,000 in profit, assuming a 10% margin. As your brand gains recognition and you expand to 15 cars, you may be able to rent them 300 days per year. This would mean annual revenue of $450,000 and $45,000 in profit. You could then begin to reinvest those profits, expand your fleet to 50 or even 100 cars and start making real money!

Assuming you maintain a 10% profit margin, having a fleet of 50 cars that are rented out 300 days in a year will bring in $1.5 million in annual revenue and a cool $150,000 in profit.

car rental business earnings forecast

What barriers to entry are there?

There are a few barriers to entry for a car rental business. Your biggest challenges will be:

  • Startup Costs – Cars are expensive; you’ll have a large up-front cost
  • Competition – It’s a competitive market, takes time and $$ to build a brand

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Step 2: Hone Your Idea

Now that you know what’s involved in starting a car rental business, it’s a good idea to hone your idea in preparation to enter a competitive market.

Why? Identify an opportunity

Research other car rental services in your area. Is there a type of car rental business that’s missing or rare? There may be no bargain rental service or luxury car rental service. You can also look for areas that have no car rental business. You’re looking for gaps in the market that you can fill.

What? Determine your products or services

First, you need to determine the types of cars you’ll offer. As a bargain rental service, you’ll buy less expensive cars. As a luxury service, you’ll need more expensive vehicles. Then determine what other services you’ll offer customers, such as pick-up and drop-off.

How much should you charge for car rentals?

Average car rental prices have increased lately due to increased demand and are averaging around $100 per day. Budget car rentals can be as low as $35 per day, while luxury rentals can be as high as $250 per day. 

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will depend on whether you choose a bargain car rental service, a luxury rental service, or somewhere in between. If you choose a luxury rental service, your target market will probably be professionals and executives, so targeting them on LinkedIn might be your best bet.

Where? Choose your business premises

In the early stages, you may want to operate your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers and may also need to rent out an office and storage facility for your fleet. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
car rental business idea rating

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better
  • The name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “car rental”, boosts SEO
  • Choose a name that allows for expansion: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your car rental services in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assess their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.

what to include in a business plan

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to car rental. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your car rental business will shape your taxes, personal liability, and business registration requirements, so choose wisely.

Here are the main options:

  • Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
  • C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
  • S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.

types of business structures

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
  • Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
  • Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best options, other than friends and family, for funding a car rental business. You might also try crowdfunding if you have an innovative concept. 

Step 8: Apply for Licenses/Permits

Starting a car rental business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your car rental business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.
types of business insurance

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You may want to use industry-specific software, such as Chetu, Bluebird, or Navotar, to help you with fleet management, scheduling, and payments.

Accounting 

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Marketing

Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness. 

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products: 

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area. 
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Rent Now”. This can sharply increase rentals. 
  • Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.

Kickstart Marketing

Take advantage of your website, social media presence, and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Signage – Put up eye-catching signage at your store and website. 
  • In-Person Sales – Offer your car rental services at bus terminals and airports.
  • Sponsor events – You can pay to be a sponsor at events that are relevant to your target market
  • Post a video – Post a video about your fleet. Use humor and maybe it will go viral!
  • Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
  • Press releases – Do press releases about new products, sales, etc.
  • Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
  • Payper-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.
  • Testimonials – Share customer testimonials about how your car rental services helped them.
  • Create infographics – Post infographics and include them in your content.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your car rental service meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your car rental business could be:

  • Reliable discount rentals
  • The perfect luxury experience
  • Family owned and operated
unique selling proposition

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a car rental business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in car rental for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in car rentals. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a car rental business would include:

  • Customer Service – greet customers, make reservations
  • General Manager – hiring and firing, scheduling, fleet management
  • Marketing Lead – SEO strategies, social media marketing

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn or Facebook. You can also use free classified sites like Jobs and AngelList. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Start Making Money!

Car rentals are big business and getting bigger. It takes real money to get started and patience to start seeing significant profits, but you could grow to be the next Hertz! It’s a business that can offer you a nice lifestyle, and – a bonus if you’re a car lover – your choice of vehicles in your fleet. It might be a good idea to create a niche for yourself to jumpstart your word-of-mouth marketing.

You should now know all you need to get started, but there’s always more to learn. It’s time to hit the road and launch your car rental business!

Car Rental Business FAQs

Is a car rental business profitable?

A car rental business can be very profitable, although it can take some time to build a large enough fleet of cars and a good brand to make significant profits. It’s a $100 billion industry globally, so it definitely has potential!

Do I need a special license to run a car rental business?

There generally are no specific license needs for a car rental business, but different states and localities require various licenses and permits. Check with your state and local governments for requirements.

How should I buy cars for my car rental business?

You need cars that are reliable, but buying new cars is expensive. You should find reliable used cars and have them thoroughly checked by a professional to make sure they don’t have issues. Sometimes car rental services sell off part of their fleets, so buying those cars could be an option.

How long does it take to start a car rental business?

It will take you some time to find a location and to acquire enough cars to get started. You should be able to get up and running within three to six months.