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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on May 11, 2022
Updated on March 13, 2024
Investment range
$6,550 - $14,100
Revenue potential
$55,000 - $219,000 p.a.
Time to build
0 – 3 months
Profit potential
$50,000 - $197,000 p.a.
Industry trend
Growing
Commitment
Flexible
Millennials are all about DIY, digging into home repairs, upgrades and other projects, but many prefer to rent their pricey drills and saws, rather than buy. This is one reason the US tool and equipment industry has expanded 40% in the last decade. You could start a tool rental company to get in on the trend, run the business from home and make good money.
But before you start building your inventory, you need to understand the business startup process and how to manage and market your company. Luckily, this step-by-step guide has you covered with all the information you need to launch a successful tool rental business.
Looking to register your business? A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple.
Form your business immediately using ZenBusiness LLC formation service or hire one of the Best LLC Services.
Starting a tool rental business has pros and cons to consider before deciding if it’s right for you.
Trends in the tool rental industry include:
Challenges in the tool rental industry include:
Startup costs for a tool rental business range from $6,500 to $14,000. The main cost is the tool inventory.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100-$300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| 10 - 20 tools | $3,000 - $6,000 | $4,500 |
| Software to track tools | $500 - $1,000 | $750 |
| Down payment on a truck to transport equipment | $1,500 - $3,000 | $2,250 |
| Total | $6,550 - $14,100 | $10,325 |
The average tool that you rent will be priced at about $30 per day. Your profit margin will be high, around 90%.
In your first year or two, you could rent five tools a day, bringing in nearly $55,000 in annual revenue. This would mean $50,000 in profit, assuming that 90% margin. As your brand gains recognition and you get referrals, you could rent 20 tools a day. With annual revenue of $219,000, you’d make an outstanding profit of $197,000.
There are a few barriers to entry for a tool rental business. Your biggest challenges will be:
Now that you know what’s involved in starting a tool rental business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research tool rental businesses in your area to examine their products, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a company that rents construction equipment or high-end power tools.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as tile installation equipment or discounted small hand tools.
This could jumpstart your word-of-mouth marketing and attract clients right away.
You could rent any number of items including:
Prices for tool rental vary based on the type of tool. An average price might be about $30 per day. Check your local market prices to make sure you’re competitive. Your ongoing costs will be low, so you should aim for a profit margin of about 90%.
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.
Your target market will be mainly homeowners doing DIY projects. You should spread out your marketing to include sites like Instagram, Facebook, and LinkedIn.
Location may prove crucial to the success of your tool rental business. Choose a location with high visibility and easy accessibility for your customers. A busy commercial district or an industrial area with a high concentration of construction and repair businesses could be a good option.
In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out a storefront. 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:
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:
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.
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:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
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!
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’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to tool rental businesses.
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.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your tool rental business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
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 an 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.
Choose Your State
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’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best option, other than friends and family, for funding a tool rental business.
Starting a tool 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.
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 tool 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.
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:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
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 Rental 360, EZ Rent Out, or Point of Rental, to manage your inventory, schedule, invoices, and payments.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. 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.
Your clients 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.
Here are some marketing strategies that are proven to be effective for a tool rental business:
Unique selling propositions, or USPs, are the characteristics of a product or service that set 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 tool rental business 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 tool rental business could be:
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 tool rental business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in tool rentals 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 tool rentals. You’ll probably generate new customers or find companies with which you could establish a partnership.
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 tool rental business include:
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, Facebook, or Jobs.com. 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.
The popularity of DIY projects is driving increased demand for tool rentals, and you could get in on the trend. It’s an easy business to start – just stock up on an inventory of tools, market your business, and watch the cash start rolling in. As long as you have top quality tools and provide great customer service, you can build a thriving tool rental operation.
You’ve got business skills in your toolbelt now, so it’s time to get to work and launch your successful tool rental business.
A tool rental business can be very profitable since ongoing expenses are low. The key is to have an inventory of tools that people are most likely to rent.
Prices for tool rental vary based on the type of tool. An average price might be about $30 per day. Check your local market prices to make sure you’re competitive.
To ensure that the tools you rent out are in good working condition, establish a routine maintenance schedule. Regularly inspect each tool before and after rentals, checking for any damages or signs of wear. Clean and lubricate the tools as needed. Test their functionality to ensure they are in proper working order. Keep detailed records of maintenance and repairs for each tool to track their condition over time.
Handling maintenance and repairs for your rental tools is essential to keep them in good condition. Have a designated area or workshop where you can perform basic repairs and maintenance tasks. Train your staff or hire technicians who have expertise in tool repair and maintenance.
Starting a tool rental business on the side is possible, but it requires careful planning and management. Research and comply with local regulations and licensing requirements. Consider the initial investment needed to acquire a rental inventory and set up a proper infrastructure for managing reservations, contracts, and customer inquiries. Evaluate the time and resources you can commit to the business to ensure it receives proper attention and customer service.
Managing tool availability during peak seasons or high-demand periods requires effective inventory management. Keep track of customer reservations and utilize a reliable rental management system to monitor tool availability in real-time. Consider implementing a reservation system where customers can book tools in advance, allowing you to allocate inventory accordingly.
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