How to start a car rental or leasing company
Looking to start a car rental business? Or maybe you want to lease cars out? Whether you're interested in wedding car hire or business fleet leasing, our guide will help you get started...
The key steps in learning how to start a car rental business are:
- 01 | Evaluate car renting vs leasing as a business model
- 02 | Consider the types of car rental ideas and markets
- 03 | Understand the costs of renting or leasing out cars
- 04 | Consider BVRLA vehicle rental regulations
- 05 | Get the right insurance
- 06 | Write your car rental business plan
- 07 | Plan your pricing
In recent years, there has been a stark rise in entrepreneurs setting up their own vehicle rental or leasing businesses.
Why? Despite it being an incredibly competitive market, it can also be lucrative – and it presents a whole host of opportunities to provide stellar customer service, build a great reputation and make good returns. After all, with the cost of buying and owning a car climbing ever higher, demand placed on the car hire industry is growing fast.
But starting a car rental or leasing business is not an easy venture. With so much competition, it’s vital that you identify a niche, and determine whether there is a suitable gap in the market for the services you’re hoping to offer.
People rent or lease vehicles for an array of reasons, and so you’ll need to carefully consider the demographic of customer you’re trying to connect with – whether it’s corporate executives or tourists. You’ll also want to closely examine how your future competitors are operating.
Ready to get started? Read on to find out how to start a car hire business in the UK…
Finding your niche
1. What’s the difference between leasing and rental?
If you’re looking to start up in this industry, the first thing you’ll need to understand is the difference between leasing and renting a car. Then, you can decide which of these models you’d like to offer.
In short, leasing a vehicle is classed as a longer-term commitment wherein a customer will use the car as a regular vehicle for personal use.
On the other hand, renting a vehicle generally involves a smaller commitment. The vast majority of customers will rent a car for a shorter term; usually for a business trip, a holiday, an event or even as a replacement car while their own undergoes repairs or maintenance.
But that’s not all. Leasing and renting come with very different financial arrangements too – and all entrepreneurs looking to tap into this market should be aware of them.
Here’s a look at some of these key differences:
- Leased vehicles typically come from car dealerships, whereas specialist car rental agencies are responsible for renting out vehicles.
- Many car leasing establishments will sell cars too, whereas most car rental agencies will not.
- Leasing a car can lead to a level of ownership on the customer’s part at the end of the lease, whereas renting a vehicle involves no potential for ownership.
2. Deciding on your niche
Once you’ve decided whether you want to rent or lease cars, you’ll need to choose what your niche (or unique selling point) will be. In other words, think about:
- For what purpose would you like to provide vehicles?
- What type of car would you like to work with?
- What type of customer would you like to provide vehicles for?
This list of potential niches and business ideas might help you decide on what you’d like to do:
- Transport and logistical services – for example, providing vans for removals or otherwise transporting heavy goods, renting cars for trips to and from airports, leasing fleet cars to companies whose workers need them, and more.
- Leisure services – for example, providing cars to tourists who are visiting your area and want to explore (of course, this will only work if you launch in a holiday destination), or holidaymakers who plan to drive the car to their destination and use it throughout their trip. Or, you could start a luxury car dealership and lease/rent premium brand cars or supercars to people who’d like to drive them for fun.
- Events services – providing vehicles for transport to and from events, such as luxury wedding cars, limousines, and more.
- Corporate services – providing cars to workers for long commutes from city to city or for business trips, renting cars for transporting business personnel from meeting to meeting or to and from airports and stations, etc.
- Individual services – providing everyday-use cars for people who would rather lease or rent a vehicle than buy their own.
Of course, we’ve only scratched the surface with these ideas. There are a whole host of other car business ideas, which, if managed in the right way, could set you up for a healthy return on investment.
When it comes to deciding what your car rental or leasing business is going to do and how it’s going to operate, conducting thorough market research is crucial to ensure you come up with an offering that can compete in the market by offering something unique.
Richard How of management consultancy firm How Associates suggests:
“You need to look at who is already doing this in the area. Look at the extras they offer, pick up and drop off etc. and see if you can find something that you can do that they don’t.
“If you are doing short term rental then ring your local hire places and ask how much notice they generally need to rent you a car. If they say there’s always a car available, then they may have too many cars or the market may be saturated already.”
Business models for a car rental or leasing business
In order to set up a private limited company, one of the first things you will need to do is register your business with Companies House. To do this, you must have one director and shareholder.
At the same time, you will also have to consider best set up method for your business idea.
Here’s a look at the different ways that you can set up your business:
Widely recognised as one of the easiest and most cost-efficient options when it comes to setting up a car leasing or car rental entity, this option allows you to create a business without the need for legal representation.
However, a major downside to this option is that you might find it difficult to secure funding from investors, and you will also be financially liable for all areas of your business.
Extremely similar to a sole proprietorship, this option allows individuals to join or contribute to the funding of your car rental business at any stage in your company formation.
A limited company is a separate and distinct legal entity, which will allow you to trade, open a bank account and obtain a tax identification number – all under your business name.
However, if you decide to set up your business in this way, it’s important to recognise that you will be held personally liable for company liabilities or debts.
Car rental franchise
Another option for tapping into the car leasing or car rental market is to buy into a franchise. A car rental franchised dealership is an auto seller that sells new and used cars for different car manufacturers. They are also known as new car dealers, used car dealers, automobile dealers.
3. Buying cars to rent or lease
The biggest expense you’ll face when starting your business is buying cars to lease or rent out. You’ll have to buy them outright rather than lease them yourself, as Paul Griffin of Stone Car Leasing explains:
“It is highly unlikely that you will be able to lease a car and then sub-lease it to a client; this is strongly frowned upon by most leasing companies and will also make you liable for everything!”
To save money on buying cars, it’s a good idea to start with second-hand models. You can find these on websites such as Gumtree and eBay, or visit used car dealerships in your area.
If you’re confident enough to start off with several cars, try visiting online used car wholesalers such as Car Craft, Car Giant and The Car People.
Richard How, of management consultancy firm How Associates, says market research is crucial when choosing which cars to buy:
“Drive past other business’ depots and see if you can get a look at their vehicles; if they have been in business a long time they should have worked out what the best vehicles for the area they operate in are.
“This could save you from buying five Astras and finding out the hard way that the Ford Focus is the favourite vehicle in your area. If this happens you will only get business when the others are fully booked and you want that to be the other way around.”
As an example, a Startups Forum member discusses the vehicles they rent for their wedding car business:
“The business is mostly seasonal (people like to get married in spring or summer). I use Rolls Royces, but vintage – so not vastly expensive (you can find a wedding car for sale by looking on eBay for second hand classic cars), but they look the part – so I have a little more to offer that other businesses can’t.
“I also have a black Daimler which I do funeral work in when weddings dry up.”
4. Car rental and leasing regulations
In terms of legal regulations, while renting or leasing cars to customers your priority must be adhering to product liability legislation under the Consumer Protection Act. In short, this means ensuring that all of the cars you supply are completely safe to drive.
While your cars’ manufacturers are also responsible for this, it’s a legal requirement that you do your part to minimise any risk to your customers’ safety – by:
- Warning customers about any potential risks that come with the vehicle, and ensuring they thoroughly understand these risks (of course, you shouldn’t rent or lease a car at all if it has a fault that could lead to your customer getting hurt)
- Constantly monitoring the safety of your cars
- Taking action to solve safety problems whenever they’re found
Alongside this, you’ll also need to be aware of the regulations that fall under the Consumer Rights Act – which is intended to make sure consumers have fair, transparent and positive experiences with traders.
To make sure your business adheres to this act, you’ll need to:
- Make sure each one of your cars is of a satisfactory quality (i.e. they can’t be damaged – unless the consumer is already aware of the issue and has agreed to rent/lease it anyway), is fit for purpose, and comes exactly as you’ve described or advertised it.
- Accept your customers’ legal right to return a car – and get a refund, partial refund, replacement or repair for it (depending on how long they’ve had it) – if it’s of an unsatisfactory quality, has been found to be unfit for its purpose, or isn’t how your business had described it would be.
- Make sure the rental/leasing contracts your draw up for customers are entirely fair and transparent. They must not put you in a significant position of power over your customer, and they cannot hide fees and charges in small print, limit your customer’s legal rights, or demand disproportionate default or early termination charges.
A key business insurance policy you’ll need to look into is self drive hire insurance – this is designed for companies which rent/lease cars to customers who then drive the cars themselves.
You’ll also need to insure the driver renting/leasing your car so they can drive it, and get it insured against third-party incidents and also any losses your business might suffer if accidents or damage happens. NB: In this case, the driver will pay the insurer excess on any damage, not you.
However, as mentioned earlier, you can have your customer effectively pay for this his/herself by factoring the cost of this insurance into how much you charge them for the vehicle.
Aside from this, you’ll need to look into more general business insurance policies, including:
- Product liability insurance
- Public liability insurance
- Employers’ liability insurance (if you hire staff)
The BVRLA recommends the following insurance providers as ones which specialise in providing cover for car rental and leasing businesses:
- Arthur J Gallagher Insurance Brokers
- M&P Insurance Solutions
- MS Automotive (London)
- Rival Insurance
- Sentinel Insurance Solutions
A Startups Forum member advises: “If you operate in a niche or with classic cars, you may want to use a company that offers specialist vehicle insurance insurance, such as wedding car insurance.”
6. Writing a car hire business plan
No business comes without its challenges, and it’s vital that you leave no stone unturned when it comes to identifying potential roadblocks and costs – as well as making financial predictions and planning for growth.
Writing a business plan can help you to do this and might well prove very valuable – especially if you are trying to attract potential investors to take your business idea seriously.
Our advice would be to download a free business plan template, which can be found on this page and will guide you through what you need to include and where.
7. Pricing your car rental or leasing business
It goes without saying that the prices you choose to rent/lease your vehicles out at will be integral to how much profit you make.
This is a difficult balance – you want your prices to be competitive and attractive, but you also want to make a good enough margin that your venture becomes worthwhile financially.
To come up with a plan for what your prices should look like, try the following:
- Research your competitors. What are nearby businesses who provide similar vehicles to you charging? How adds: “Check all the prices they charge, including things like cost per litre for fuel if people return the car without a full tank. If you are looking at long-term leasing then look at miles included and pence per extra mile. Adding 1,000 miles per year to the miles included in the package may not increase your cost by much, but it may make a huge difference to a customer when they calculate the cost of the overall hire.”
- Consider your costs. You’ll need to make sure your prices cover how much you spend on maintaining and insuring your vehicles and renting your premises (if you have one), as well as your marketing costs and anything else you pay to run your business effectively. Remember, buying vehicles and paying for business insurance will be your two largest outlays to start with.
- Consider your customers. Are you targeting money savers or high-earning corporate travellers? You can charge a little more if you know your target customer would be willing to pay it. This is a delicate operation, though, so it’s worth researching carefully.
Remember: The hire price you can charge for a car is likely to depreciate over time as the vehicle ages and clocks up more miles.
8. Naming your car rental or car leasing business
Vehicle rental is a competitive, lucrative, and attractive industry to be part of, but with so many people looking to make their name in this flourishing market place, it’s crucial that you come up with a name for your business that will allow you to stand out from the crowd.
So, choosing a name for your business is one of the most important decisions you’ll make while setting up your company. It can be incredibly daunting – but it can also be fun.
Remember, the name of your business is one of your brand’s most important and powerful marketing tools. It’ll need to signal the services you’re offering, and encourage potential customers to resonate with your brand.
It’s vital that you also consider everything from its spelling and pronunciation (is it manageable?) right through to domain name availability (you’ll need your website to be named after your brand) and similarity to other brands (you don’t want to be confused for someone else!).
Above all, you should focus on choosing a name that appeals not only to you but also to your target market; a name that customers can relate to on an emotional level, as well as a name that is short, concise and memorable.
Registering your business name
Once you’ve picked a name that best reflects who you are as a business and how you want to be seen, it’s time to officially register your business name!
To do this, you should:
- Use Companies House to check that the company name doesn’t already exist
- Decide on a company address (don’t worry, this can be your home if you don’t have an official premises yet)
- Appoint your official company director or directors
- Decide on your company share structure
- Register your company with Companies House
9. Marketing your car rental or car leasing business
In such a competitive industry, it’s really important for new and existing car rental/leasing companies to recognise the importance of standing out from the crowd, both on and offline.
But what marketing ideas for your car rental business or car leasing business should you try? Get started with these…
Open social media accounts
If you’re a business that doesn’t use social media, you could well be losing out. For businesses of all shapes and sizes, social media is one of the most powerful communication tools for optimising exposure and brand awareness.
Allowing you to connect and engage with your target market 24 hours a day, seven days a week, social media is recognised as forming the basis of all online marketing strategies for the car rental industry.
Try Instagram, Facebook, Pinterest (especially if you’re providing cars for weddings and events), and Twitter. Share photos of your cars and details of special offers. Make sure your contact details are easy to find.
Launch a website
Every business needs its own website to appear credible and give potential customers a place to explore what you offer, learn about your prices and find out how to get in touch with you.
Don’t worry if you’ve no idea how to build a website – you can either hire a freelance web designer or try a website building tool.
Write a blog
Blogs are another effective marketing resource, enabling you to increase exposure for your car leasing/rental company by writing content which:
- Highlights the benefits of your services
- Discusses industry news, hot topics and popular conversation points
- Features regular case studies and stories from your customers
Remember, all blog content should be SEO enriched to ensure people see your content on Google and click on it often.
Use targeted advertisements
With the potential to reach mass targeted audiences, the power of targeted advertisements should certainly not be underestimated or ignored.
For example, advertising tools such as Google AdWords and Facebook Advertisements will instantly create a heavy traction for the car rental services that you are offering.
Try traditional techniques
Remember, traditional forms of marketing can still be extremely beneficial car rental/leasing advertising ideas when it comes to shouting about your business and the services that you provide.
From sticking flyers through letterboxes and having an ad printed in a newspaper through to setting up at a car industry trade show and attending networking events, there’s a lot to be said for offline marketing techniques, too.
In conclusion, starting a car rental or car leasing business can be difficult because it’s such a competitive industry – but by following the advice in this guide you can tap into the huge demand that’s placed on car hire today.