If you plan to open a rental agency, it is possible! But you will have to think carefully about your project, differentiate it because the competition is strong, and prepare a solid business plan to finance it.
It is an obstacle course, for which we have prepared this practical guide in which we review each of the major steps to create a car rental agency.
Car Rental: A Resilient Market
It seems that the crisis is not reaching the car rental industry. Between 2012 and 2013, the number of rented vehicles increased by 7% at the heart of the storm.
Indeed, cars are hired, even in times of crisis. But this same crisis has accentuated competition, to the detriment of people who start as an independent.
Open a Franchise Car Rental Agency: Less Risky Than Independent
In this context, starting as a self-employed person is risky; unless you specialize in a niche, setting up a competitive car rental agency may prove to be very complicated.
A less risky substitute is to create a franchised car rental agency. By joining a network, you will benefit from recognizing the latter's brand, prices negotiated with suppliers, support, and promotional tools.
Of course, the franchise at a cost, financial (entry fee, royalty), but also in terms of the freedom you will enjoy to manage your business (you can only offer vehicles selected by the brand, and must respect the prices imposed by it).
Independent: Your Car Rental Agency Must Stand Out
Opt for the creation of an independent agency. It will be essential to find a differentiated value proposition to face competition from networks and new practices (rental between individuals, in particular).
For example, you can specialize in unlicensed car rentals, utility rentals, or luxury or vintage car rentals.
Market Research: A Must Before Opening a Car Rental Agency
Whether you choose an independent agency or a franchisee, you will have to go through the market research box anyway.
The market research of a car rental agency aims to verify that there is indeed a business opportunity in the establishment area.
To do this, you will need to:
Assess demand: is there a significant flow of tourists or business customers likely to be interested to rent a car in Islamabad (from a station or an airport, for example)? Is there a need among the local population (urban population not having a vehicle, and potentially interested in a one-off rental for vacations, for example)? What are customers' expectations in terms of both services and prices?
Evaluate the existing offer: how many car rental agencies are already established in your city? What services do they offer? Are your competitors' vehicles waiting in the parking lot, or are they all rented? Are the big names in the sector already established in your town? If not, why: lack of attractiveness or an upcoming arrival to anticipate?
Find a Proper Commercial Space to Open Your Car Rental Agency
Whether you are a franchise or independent business, you will need a commercial space suitable for your activity exercise.
For the creation of a car rental agency, you will need both:
commercial premises to welcome customers. Ideally, this should be located near an area with a good flow of potential customers (station, airport, hotel, etc.)
an office for the administrative and marketing part, which can be located outside the commercial premises if the surface of the latter is too small (reception desk or the reception desk in an airport, for example)
a parking area to park vehicles, possibly equipped with a technical room for the upkeep and maintenance of vehicles
Note that the presence of competitors near the commercial premises must be qualified according to the segment you have chosen to position yourself. For example, if you specialize in luxury car rental, utility rental companies' presence is not a problem for your business.
Car Rental Agency: The Legal Structure
Opening a car rental agency involves choosing a status for your business.
There are sufficient of them, each with their benefits. Schematically, you will have to choose between:
a partnership: with this type of business, the assets of the company are not dissociated from that of the entrepreneur, which implies that you are responsible for the debts of the business in the event of bankruptcy; the method of taxation is usually that of income tax
a capital company: with this type of business, the entrepreneur's liability is limited to the capital invested; the method of taxation is corporation tax
The Material and Human Needs to Open a Car Rental Agency
The initial investment for setting up a rental business depends primarily on the size and method of financing the vehicle fleet.
To estimate the size of the fleet, you will need to rely on your market research. That said, be careful: if you are missing vehicles, you can always get more. But if you plan too large, you may have to resell some of it, possibly at a loss.
In any case, get information from different: dealers, lessors, and companies offering long-term rental to acquire your fleet.
In addition to this, you will need to fit out and equip your premises with offices and IT. Renting your cars may require specific computer tools. For example, if you want to be able to geolocate your vehicles in real-time. This will require the intervention of professionals. For all this, ask and compare quotes.
It will also be essential to create a website allowing the agency to be known and take reservations online.
In terms of human needs, you will need staff to welcome customers, take orders, and carry out vehicle inventory during rental and returns. It may be good to plan at least two people per time slot (one person at the reception and one to take care of the handing over of the keys and inventory of fixtures).
You will also need staff to manage the marketing part (search for partners, develop website traffic) and the administrative part (fleet management, payroll, accounting, schedule management, etc.).
Create The Marketing Plan for a Car Rental Agency
If you create a franchised car rental agency, you can rely on the network's distribution strategy. Conversely, putting together a marketing plan for an independent car rental agency is not an easy task.
The main trouble comes from the fact that most vehicle reservations are made remotely, especially when preparing for a trip.
Although communication close to the point of sale can help you capture part of local demand and part of reservations at the last minute, to reach the heart of the market, you will have to succeed in creating partnerships with travel agencies and reservation centers used by large companies.
However, at this level, the self-employed are strongly disadvantaged compared to national networks:
your brand is unknown, and it is difficult for a travel agency to recommend you to its customers without having reliable information on the quality of your service
for online travel agencies; for example, a partnership with a national network is attractive because it very quickly makes it possible to cover the whole of range of standard services and prices (which is easy to integrate on their site). Conversely, integrating freelancers on the site would require adding a catalog of prices and different services for each company/city, which is much more complex and therefore less attractive.
However, you can consider the following actions:
Prospecting for SMEs likely to have needs during business trips
Independent travel agencies canvassing
Placement of internet advertisements (rental searches on Google and Bing, for example)
Price comparison site canvassing
Write The Business Plan of a Car Rental Agency
Once you have gathered all the information mentioned in the previous parts, you can move on to drafting the business plan for your car rental agency.
A business plan is a complete document describing your project in detail: it contains a written part to highlight the strengths and risks associated with creating a business and a financial forecast highlighting the need for financing and the profitability potential of your business.
Your business plan must have no flaws. It must show that your project is viable, from all points of view. And this is very important because the business plan is used to convince the funders to follow you in the project.
If you are not used to writing business plans, a good solution is to use business plan software.
Using professional software has several benefits:
You are directed in the drafting by detailed directions and example for each part of the strategy
You can take inspiration from business strategy models already written
You easily realize your financial forecast by letting the software take care of the accounting aspects for you
You get a professional document, formatted, and ready to be sent to your banker
If this solution interests you, know that you can try our software for free by registering here.
Find Funding To Open a Car Rental Agency
Once your business plan is ready, you can tackle the last step in setting up a rental car agency: finding financing.
You will first need a contribution in equity (i.e., the money invested by the shareholders); you can then seek additional financing from a bank or a specialized institution (especially if you wish to finance the fleet by LLD or leasing).
Finally, also remember to find out about government aid; depending on your situation, you may benefit from a subsidy, a tax credit, or relief from charges.
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