George Harrison
Hannah Nemeth
From tourist transport to wedding day hire, there are many reasons why you might rent a car on a short-term basis. There are also many reasons why starting a car rental business could be a lucrative opportunity.
But first, let’s be clear: Car rental is not car leasing.
Renting is a short-term arrangement, whereas leasing involves the customer taking on the car as their vehicle for a longer time. Leasing can lead to ownership while renting cannot.
So if event car hire or renting out cars for brief business trips fires up your engine, you’re in the right place. You’ll need some capital to get started – after all, cars aren’t cheap – but you’ll more than make up that initial outlay if you can make your business a success.
As with any business, you’ll give yourself the best chance of success if you plot your route in advance. That means conducting thorough research, choosing a niche with a lot of potential, determining a budget, and, if necessary, getting adequate funding.
Why start a car rental business?
Here are three great reasons to start a car rental business:
- Make your passion your profession: If you know your carburettor from your crankshaft, what better way to indulge your love of cars than to make it your business? Your knowledge and passion for all things automotive will be a massive benefit.
- Be your own boss: With a car rental business, you will be free to work how and when you want and to build a business that is yours.
- A range of niches: Within the car rental category, there are some niches, including leisure, business and corporate hire, so you have plenty of scope to choose the one that most appeals to your tastes and skill set.
Start a car rental business in 5 steps
1. Research and choose your market
Your car rental business needs to be grounded in thorough market research.
Even if you consider yourself something of an automotive expert, a hobbyist’s knowledge won’t cut it. You need to know the ins and outs of the car rental market, including the size of your potential customer base, your main competitors, and their strengths and weaknesses.
You can split this into desk (internet) and field research. The latter could involve customer surveys and interviews, or, even better, visiting competitor businesses and hiring a car.
Your research will help you choose a promising and profitable niche for your car rental business. This decision can be partly informed by your interests but must be driven by demand.
For example, unless you’ve got a good unique selling point (USP), you would be unwise to start a new car rental place in the vicinity of an airport that’s already well supplied with similar businesses.
You could choose from the following car rental niches:
- Leisure hire: Ideal if you’re located in a popular holiday destination, leisure rental companies hire out vehicles to tourists. This can be great for customers who need a car to give them the freedom to explore for the duration of their stay.
- Event hire: From weddings to corporate affairs, event hire involves renting out unique or luxury cars to people who want something special, typically for anything from a few hours to a day. These are often limousines, classic cars or supercars.
- Business: Employees arriving in a foreign city for a work trip sometimes need a suitable car to get around in. These will often be cars designed for executive purposes, offering comfort and a professional image.
- Transport and logistics: Sometimes, people just need a vehicle to get them – or their goods – from A to B. The kinds of vehicles rented out by transport and logistics companies are practical and functional, like a moving van. One thing to bear in mind is that, if a customer is renting a car for a single trip from one location to another, you need to be able to offer different pick-up and drop-off locations, which means multiple premises and adds to your costs.
- Premium car hire: Luxury vehicles and supercars are too expensive for the average person to buy outright, but renting them out for a day or two is much more affordable. This type of rental business requires a much larger initial investment and higher levels of insurance.
2. Create a budget for your car rental business
Cars are expensive, and you’ll need a fleet to get started. But the vehicles are just one of many costs when starting a car rental business.
To help you work out how much start-up capital you need, you should create a detailed budget for your car rental business. This can be part of writing your business plan and will be essential for securing funding.
For a more detailed guide, you can read our article on how to write a business plan.
You should factor the following costs into your car rental business budget:
- A fleet of cars: You have several options for acquiring your fleet. Leasing cars on a long-term basis from dealerships or manufacturers is common. You could also purchase cars in large quantities directly from a manufacturer, where fleet sales programmes may offer significant discounts for bulk orders. Another option is to buy used but well-maintained cars from auctions. Don’t forget that even with regular maintenance, you’ll still need to periodically sell and replace your fleet. According to the British Vehicle Rental and Leasing Association, rental and leasing companies spend over £30 billion upgrading their fleets each year, and buy 83% of vehicles produced and sold annually in the UK
- Maintenance: Regular service, maintenance and repair (SMR) is essential to keep your cars safe and efficient. It also minimises downtime, maximises time on the road, and keeps customers happy. Some rental companies have an SMR contract with a fleet management company. This involves paying a fixed monthly amount per vehicle to cover tyres, wear and tear, and breakdown, regardless of whether they’re hired. This reduces admin but is not always cost-effective. Instead, you could opt for a pay-as-you-go model, which involves a lot more admin, but means you only pay for necessary repairs
- Premises: Another major cost for your car rental business is your premises, which will need to be large enough and secure enough to store your fleet safely. You could either rent or buy your premises. Renting is more flexible and has a smaller financial commitment, which can be a good option in the uncertain early days, but buying is more stable and can be a good investment in the long run. You should also factor in electricity, heating and water bills for your premises
- Employee salaries: Employee salaries will be a big part of your budget. According to recruiting site Glassdoor, the average salary for a car rental agent in the UK is just shy of £22,000.
- Insurance: You can insure your entire fleet under a rental fleet insurance policy. This should include accidents, wear and tear, and damage caused by renters or third parties, as well as theft and injuries to rental drivers. Fleet insurance policies can also include other essential cover, such as employers’ and public liability, as add-ons, so you can meet all your insurance needs with one provider. Expect to pay anything between £10,000 and £30,000 to insure a fleet of 20 vehicles
For a detailed guide, explore our five-step guide to creating a small business budget.
3. Register your car rental business
The next step towards getting on the road is formally registering your car rental business. You’ll also need to choose a business structure, taking time to weigh up the pros and cons of each and considering which structure will work best for you and your business.
- Sole trader: If you set up your car rental business as a sole trader, you’ll be the exclusive owner, keeping all post-tax profits. But there is no separation between sole traders and their businesses – making the owner personally responsible for any losses their business may make. Sole traders need to register for self-assessment to pay their taxes to HM Revenue & Customs (HMRC).
- Partnership: A business partnership is when two or more people share the responsibilities, risks, profits and losses of a business. A ‘nominated partner’ is responsible for filing the partnership tax return. If that’s you, then you must also register with HMRC. Partnerships come in three forms: general business partnerships, limited partnerships and limited liability partnerships. Bear in mind that all partners still need to submit their tax returns as individuals as well.
- Limited company: If you choose to run your car rental business as a limited company (or limited liability partnership), each of you will be legally and financially distinct from your business. Operating as a limited company means you’ll have shares and shareholders. It also means you can keep any post-tax profits. You can register as a limited company at Gov.uk.
» MORE: Should I register as a sole trader or limited company?
The car rental industry is not bound by any statutory regulation. This type of business also doesn’t require a specific licence to operate.
However, if you have certain hire agreements in place, such as those that would constitute a consumer credit arrangement, you may need to register with the Financial Conduct Authority.
4. Fund your car rental business
With your budget written and your company structure in place, it’s time to source the funding you’ll need to get your car rental business up and running.
As you will already know from your research, starting a car rental business is likely to be a capital-intensive process, so you may need to combine various funding options and explore multiple sources of investment.
Look into the following options and make sure you settle on the funding sources that are right for your car rental business now and in the long term:
- Personal savings: Using personal savings will allow you to retain full ownership of your car rental business – provided you can afford it. However, if you go down this route, be careful not to endanger your own financial health.
- Friends and family: Borrowing money from friends and family can be tricky and may lead to disagreements further down the line, so it would be wise to draw up a written agreement before so much as a penny changes hands. You wouldn’t be the first person to use money from your relatives to start a business, with one in five UK start ups funded by inheritance money and a further 19% using cash from parents.
- Small business grants: There are a range of non-repayable and partially repayable start-up business grants across the UK. Grants are also available for businesses in Scotland, Wales and Northern Ireland.
- Government business loans: Various government business loans may be available to your car rental business, depending on where it is in the UK.
- Business loans: A traditional small business loan might be difficult to secure when starting any kind of business since lenders generally prefer to back more established ventures with an existing track record. Still, securing a business loan for a start up is not impossible. Research your options and see what’s out there.
- Angel investors: Angel investors tend to be wealthy individuals looking to invest in new businesses in exchange for equity or convertible debt. They may be fellow entrepreneurs or more experienced business owners who can take a hands-on approach to mentoring you in return for a minority stake in your car rental business.
- Crowdfunding: This involves securing funding from multiple sources – usually lots of individuals – in exchange for rewards, such as equity or early access to products. Crowdfunding often takes place through an online campaign.
Once you have secured the capital, you may need to open a business bank account to keep track of the funds.
If you are a sole trader – and if your bank allows it – you can continue using your personal bank account for business transactions. However, limited companies and partnerships are legally required to keep their personal and business finances separate.
Either way, opening a business bank account will make it easier to keep on top of earnings and outgoings throughout the life of your car rental business.
5. Find your first car rental customers
Effective marketing is informed by in-depth market research.
Thanks to your research, you should already know who your target car rental customers are – be they tourists, corporate clients or supercar enthusiasts – and you can tailor the channels you use and the nature of your messaging accordingly.
Setting up an SEO-optimised website and social media channels is an essential first step, which will help people find you online when they’re looking for a car rental.
Be sure to use lots of specific keywords in your copy, like ‘wedding car hire’ if you’re planning to run a car rental business that caters to weddings. Keeping your website fresh with blog posts about topics relevant to the car rental market is a great way to remain competitive in the search engine rankings.
Targeted advertising via services such as Google Ads and Facebook Ads is another great option for car rental businesses, as it allows you to be highly specific about the demographics you’re targeting. For example, if you’re renting out supercars, you might target high-net-worth individuals in their 30s and 40s.
How much do car rental businesses charge?
Refer to your competitor research to decide how much to charge for car rental services.
A leading car rental company charges around £60 per day to rent a basic hatchback from Heathrow Airport, while longer-term rentals (for a week or so) may result in lower per-day prices of £30 or less. Prices go up to over £300 per day for larger or more premium vehicles.
That doesn’t include optional extras, like protection plans, which in this case cost between £33 and £42 per day. The amount you charge will probably also depend on your location.
One-off event hire companies typically charge more for their services. For example, a wedding car hire company in the South East charges £430 to £470 for a Rolls-Royce Silver Cloud 1 for the day.
And premium supercar hire companies charge even more – from £800 to £1,000 a day for top-of-the-range Lamborghinis and Ferraris.
Image source: Getty Images
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