Table of Content

    Car Rental Business Plan for Starting Your Own Business

    Do you want to start a car rental business? Well, for a startup you will just need to purchase some automobiles to give them on rent to people for a few days or weeks. Moreover, the business doesn’t require a specific skillset, so you can easily step in this domain without having any relevant degree.
    So, if you have decided to thrive in this domain, you will need to make a car rental company business plan first, to have a clear view about what you will need to do. Just after the required registrations and licensing, you will also be needing a marketing plan for car rental business, so it is better to already include that in your initial plan.
    To assist you in writing a business plan, we are providing one here for a startup, Detroit Car Rentals, based in Detroit.

    Executive Summary

    2.1 The Business

    Detroit Car Rentals will be based in Detroit, Michigan. The company will be owned by Stephen Mark and will provide its customers with fully insured and licensed automobiles ranging from simple cars to luxury ones. The company will also be offering an exceptional online management system for customers to rent its cars from anywhere.

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    2.2 Management of Car Rental Company

    In your starting car rental business plan, you must include the details about how will you manage all your system. Ensuring that you are getting the cars in the exact conditions in which you rented them out, is only possible if you have a good management system.
    Detroit Car Rentals will have extensive personnel support. Though the owner will be supervising all the works by himself, the company will still hire managers alongside IT experts, administrators, and general workers just for the smooth running of the business. Later in this sample business plan car rental company, you will be knowing the exact number of hired-employees along with their job descriptions.

    2.3 Customers of Car Rental Company

    While making a car rental agency business plan you must keep in mind the customers and market in which you will be servicing. As for Detroit Car Rentals, customers will mostly be the residents, tourists, students, and senior citizens.

    2.4 Business Target

    The company aims at providing the best car rental services to its customers. Monetarily, the company’s goal is to balance its startup costs with the earned profits by the end of the first year.
    Car Rental Business Plan - 3 Years Forecast

    Company Summary

    3.1 Company Owner

    Stephen Mark who is an MBA from Harvard University will be the owner of ‘Detroit Car Rentals.’ From the last two years, Mark had been working in an insurance company as a manager, but now he has decided to start his own business in which he will have the freedom to take major decisions as well as to generate huge profit.

    3.2 Why the Car Rental Business is being started

    Besides just earning a profit, the business is intended to make people’s life easier by providing them unmatchable services. One of Mark’s friend who gave him the idea is an owner of an automobile showroom. After collaborating with him and other owners of automobiles showrooms, Mark decided to invest the amount he had got from his legacy in something that can benefit him for long.

    3.3 How to Start a Car Renting Business

    Before taking any initiative it is good to review a car rental business startup guide to have an idea of what you will need to do. This detailed sample business plan car rental can also prove out to be a great help for you.
    Mark has contacted the big automobile dealers to include every detail and possible consequences in his business plan for car rental company. Though his main office will be residing near Oakwood Blvd, however, he has decided to rent different locations in the same city to provide instant service. Responsible employees, technicians, and record keepers will be hired by Mark which all will remain under the vigilant supervision of experienced managers.
    Moreover, an online system for booking cars and record-keeping will be created. Users will be able to select the car or vehicle through the online website. After the contract, they will be assigned an id and a password which will expire after the contract had ended. The website will also be awarding discounts to the users who had made frequent deals with the company while maintaining a good record.
    The costs for the startup are as follows:
    Car Rental Business Plan - Startup Cost
    The startup requirements are as follows:

    Start-up Expenses
    Legal $155 500
    Consultants $0
    Insurance $76 000
    Rent $64 000
    Research and Development $87 000
    Expensed Equipment $34 000
    Signs $3 400
    TOTAL START-UP EXPENSES $419 900
    Start-up Assets $543 000
    Cash Required $634 000
    Start-up Inventory $67 000
    Other Current Assets $374 000
    Long-term Assets $413 000
    TOTAL ASSETS $2 031 000
    Total Requirements $2 450 900
    START-UP FUNDING
    Start-up Expenses to Fund $613 000
    Start-up Assets to Fund $2 932 000
    TOTAL FUNDING REQUIRED $3 545 000
    Assets
    Non-cash Assets from Start-up $877 000
    Cash Requirements from Start-up $764 000
    Additional Cash Raised $56 000
    Cash Balance on Starting Date $73 000
    TOTAL ASSETS $1 770 000
    Liabilities and Capital
    Liabilities $74 000
    Current Borrowing $0
    Long-term Liabilities $0
    Accounts Payable (Outstanding Bills) $45 000
    Other Current Liabilities (interest-free) $0
    TOTAL LIABILITIES $119 000
    Capital
    Planned Investment $3 545 000
    Investor 1 $0
    Investor 2 $0
    Other $0
    Additional Investment Requirement $0
    TOTAL PLANNED INVESTMENT $3 545 000
    Loss at Start-up (Start-up Expenses) ($1 894 000)
    TOTAL CAPITAL $1 651 000
    TOTAL CAPITAL AND LIABILITIES $1 770 000
    Total Funding $3 545 000

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    Services for Customers

    If you are to be owning a car rental business you must first carry out a thorough research on who will be your customers. Knowing your customers before starting your rent a car business can help you a lot in deciding your services as well as for deciding the number of employees who can help you in smoothly running your business. Determining the services before time can also assist you in acquiring the required permits and licenses.
    We will be having luxury cars, standard cars, economy cars, and mini-vans, to give them on rent to people in various packages given below:

    • One Day Car Rental: We will be offering all our cars to the customers for one day in exchange for rent. The user will have the option to select a pickup position after which our drivers will take the car to the appointed place.
    • One Week Car Rental: We will provide our cars to the clients for one week on 5-day charges instead of 7. Option to select pickup location will still be available for them.
    • One Month Car Rental: Cars for one month will be provided on 24-days fare but the clients, in that case, will need to come to our main office for booking, as we’ll not be providing one-month rental service online.
    • Car Drivers: The service which mainly differentiates us from others is our offering of the car drivers. Customers will have a choice to get our drivers in affordable charges for the three of our services.

    Regular and potential clients will receive several discounts and packages. However, no customer, except they who acquired the services of our driver, will be exempted from the recovery charges if the car given to them is found with some damages.

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    Marketing Analysis of Car Rental Business

    If you are looking for how to start a car renting business that will have almost no chances to end up as a failure, you must research on your market first. If you are starting in a market full of competition, then – either you will have to provide your services at a relatively lower price or – you have to offer your clients something more than others.
    The best option, however, is to explore the market and pick up a commercial location for rent-a-car business, a location which is not saturated by already established rental car dealers. So, after having the best possible location, you can think upon several car rental business ideas that will influence that community. You will also be able to make an effective marketing plan for car rental business only after you have a clear idea of the market and market trends.
    In this sample car hire business plan we have provided the marketing plan of Detroit Car Rentals for anyone who want to benefit.

    5.1 Market Trends

    More than 22,000 car rental businesses are running in the United States. The business is expected to expand in the coming few years as IBISWorld has reported the annual growth rate of 2.4 percent for car rental services. The huge revenue generated by the industry in 2019 also demonstrates people’s interest in renting cars. According to the report, revenue of $45 billion has been generated in 2019. The industry has also proved itself a source of employment for about 148,412 people.

    5.2 Marketing Segmentation

    Knowing your customers and their mindset before making your car rental business proposal can be a plus point for you. It’s the only thing that can help you in devising your advertisement strategy as well as for deciding which sort of cars could have the most demand in the market.
    Mark carried out a detailed survey asking random people about how they think a car rental company could help them. People’s response was that – at certain situations they need a car they couldn’t afford to buy or maintain and also there are situations when they think they need to hire an automobile for a certain event such as a wedding ceremony, because it is uneconomical to buy a luxury vehicle to use for just one or two times.
    Based on his research, Mark divided his target customers into three groups which are given below:
    Car Rental Business Plan - Marketing Segmentation
    The detailed marketing segmentation of our target audience is as follows:

    5.2.1 Tourists: The first group of our customers comprises of the tourists who come to our city to explore different areas of historic and aesthetic importance. Several tourists prefer to hire a car instead of traveling on local buses. By availing our services, they will not have to even bother about finding a car rental store because we will be dropping our cars on their said location.

    5.2.2 Students: Our second biggest target category will be the students who belong to higher schools and universities. Most students don’t own a car, so whenever they are off to a trip or break from work, they need to hire a car to enjoy their plans.

    5.2.3 Residents & Senior Citizens: Our last category will comprise of the senior citizens who usually require a person to drive for them. They also choose to travel locally and in hired cars instead of owning and maintaining their own. Besides them, residents will also be needing our services, especially in certain events.

    The detailed market analysis of our potential customers is given in the following table:

    Market Analysis
    Potential Customers Growth Year 1 Year 2 Year 3 Year 4 Year 5 CAGR
    Students 45% 31 433 33 344 35 255 37 166 39 077 15,32%
    Tourists 39% 22 334 23 344 24 354 25 364 26 374 12,42%
    Residents & Senior Citizens 16% 10 865 12 433 14 001 15 569 17 137 13,43%
    Total 100% 64 632 69 121 73 610 78 099 82 588 10%

    5.3 Business Target

    Detroit Car Rentals’ financial business targets are as follows:

    • To become the best rental service in the whole city within a year of the launch
    • To earn the net profit margin of $10k per month by the end of the first year and increase that profit margin by 150 percent by the end of the next year
    • To recover the investment group for business plan and startup costs by the end of six months of the launch

    5.4 Product Pricing

    As Detroit Car Rentals will be coming with certain competitive aspects and benefits for the customers thus it doesn’t need to keep its prices low to attract the target customers. Despite that the company will have almost the same prices as of its competitors, Mark is certain about his success in the business.

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    Strategy

    An essential component of a business plan car rental company is its sales strategy. Every new startup has to do something to grab public attention. If you just focus on how to start a car renting business without paying attention to what you will have to do more than your competitors – you, yourself will be reducing the chances of survival for your startup.

    Detroit Car Rentals will come up in the market with full preparation and competitive aspects, a few of which are given here.

    6.1 Competitive Analysis

    Our biggest competitive advantage lies in our online portal which allows our customers to get a car anywhere at any time. Through our online system, we will be providing convenience to our customers as they can also pay in advance through their online account. Secondly, we will be providing driving services to those who don’t want to drive our rented car or their cars by themselves.

    Lastly, our crew and our policies all will be meant to comfort our customers. The value which we’ll give to our clients will soon be evident to them if they try our services for at least once.

    6.2 Sales Strategy

    To get introduced to the groups of our target customers, we will be adopting the following strategies to advertise ourselves:

    • We will advertise our services through our website and social media
    • We will award 50 percent discount on all our services for the first week of our launch
    • We will provide our drivers without any charges for a whole month after our launch

    6.3 Sales Monthly

    Car Rental Business Plan - Sales Monthly

     

    6.4 Sales Yearly

    Car Rental Business Plan - Sales Yearly

     

    6.5 Sales Forecast

    Our sales are forecasted in the following column charts:

    Car Rental Business Plan - Unit Sales

    The detailed information about the sales forecast is given in the following table:

    Sales Forecast
    Unit Sales Year 1 Year 2 Year 3
    One Day Car Rental 8 450 9 760 12 500
    One Week Car Rental 7 800 8 450 10 560
    One Month Car Rental 5 400 6 200 7 960
    Car Drivers 4 600 5 800 7 350
    TOTAL UNIT SALES 26 250 30 210 38 370
    Unit Prices Year 1 Year 2 Year 3
    One Day Car Rental $50,00 $50,00 $50,00
    One Week Car Rental $59,00 $59,00 $59,00
    One Month Car Rental $65,00 $65,00 $65,00
    Car Drivers $85,00 $85,00 $85,00
    Sales
    One Day Car Rental $422 500,00 $488 000,00 $625 000,00
    One Week Car Rental $460 200,00 $498 550,00 $623 040,00
    One Month Car Rental $351 000,00 $403 000,00 $517 400,00
    Car Drivers $391 000,00 $493 000,00 $624 750,00
    TOTAL SALES $1 624 700,00 $1 882 550,00 $2 390 190,00
    One Day Car Rental Year 1 Year 2 Year 3
    One Week Car Rental $31,00 $31,00 $31,00
    One Month Car Rental $35,00 $35,00 $35,00
    Car Drivers $42,00 $42,00 $42,00
    Eatables $51,00 $51,00 $51,00
    Direct Cost of Sales
    One Day Car Rental $261 950,00 $302 560,00 $387 500,00
    One Week Car Rental $273 000,00 $295 750,00 $369 600,00
    One Month Car Rental $226 800,00 $260 400,00 $334 320,00
    Car Drivers $234 600,00 $295 800,00 $374 850,00
    Subtotal Direct Cost of Sales $996 350,00 $1 154 510,00 $1 466 270,00

    Personnel plan

    Before starting your car rental business it is necessary to start interviews and tests so that you can have the best personnel as soon as you launch your car rental agency.

    7.1 Company Staff

    Mark will supervise all the works of the company by himself, however, he will be hiring the following people.

    • 2 General Managers to manage different locations of Detroit Car Rentals
    • 3 Accountants to maintain the financial records
    • 1 Freelance Software Engineer to create the company’s online portal
    • 2 IT Experts to manage companies’ software, websites and social sites
    • 3 Technical Assistants to maintain the cars
    • 1 Front Desk Officer to receive customers
    • 1 Sales Executive to advertise the company
    • 2 Cleaners to upkeep the company’s office and equipment
    • 2 General Workers for day-to-day works
    • 4 Drivers
    • 1 Security Guard

    7.2 Average Salary of Employees

     Personnel Plan
    Year 1 Year 2 Year 3
    General Managers $53 240 $58 564 $64 420
    Accountants $33 275 $36 603 $40 263
    Freelance Software Engineer $39 930 $43 923 $48 315
    IT Experts $26 620 $29 282 $32 210
    Technical Assistants $19 965 $21 962 $24 158
    Inventory Manager $26 620 $29 282 $32 210
    Front Desk Officer $46 585 $51 244 $56 368
    Sales Executive $33 275 $36 603 $40 263
    Cleaners $26 620 $29 282 $32 210
    General Workers $46 585 $51 244 $56 368
    Drivers $33 275 $36 603 $40 263
    Security Guard $66 550 $73 205 $80 526
    Total Salaries $452 540 $497 794 $547 573

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    Financial Plan

    If you have decided to start up car rental business and have gone through the phases of exploring car rental business ideas and making marketing and personnel plan, there is just one thing left. Now you have to make a detailed financial plan for your business. As you will be requiring a significant amount to buy cars, getting them insured and creating a management portal – you must have a perfect sort of financial plan to make sure that things are going in the right way.
    Knowing its importance, Mark had decided to get this task done by an experienced financial planner who can also tell him the strategy to recover his investment and advertisement costs. The financial plan of Detroit Car Rentals is given here in detail for your help:

    8.1 Important Assumptions

     General Assumptions
    Year 1 Year 2 Year 3
    Plan Month 1 2 3
    Current Interest Rate 13,00% 14,00% 15,00%
    Long-term Interest Rate 10,00% 10,00% 10,00%
    Tax Rate 28,48% 28,84% 29,20%
    Other 0 0 0

    8.2 Brake-even Analysis

    Car Rental Business Plan - Brake-even Analysis

     

     Brake-Even Analysis
    Monthly Units Break-even 4330
    Monthly Revenue Break-even $124 000
    Assumptions:
    Average Per-Unit Revenue $278,43
    Average Per-Unit Variable Cost $0,77
    Estimated Monthly Fixed Cost $198 463

    8.3 Projected Profit and Loss

     Pro Forma Profit And Loss
    Year 1 Year 2 Year 3
    Sales $1 624 700 $1 882 550 $2 390 190
    Direct Cost of Sales $996 350 $1 154 510 $1 466 270
    Other $0 $0 $0
    TOTAL COST OF SALES $996 350 $1 154 510 $1 466 270
    Gross Profit $628 350 $728 040 $923 920
    Gross Margin % 38,67% 38,67% 38,65%
    Expenses
    Payroll $452 540 $497 794 $547 573
    Sales and Marketing and Other Expenses $2 300 $2 450 $2 600
    Depreciation $2 070 $2 070 $2 070
    Leased Equipment $0 $0 $0
    Utilities $4 750 $5 000 $5 250
    Insurance $1 800 $1 800 $1 800
    Rent $8 000 $8 500 $9 000
    Payroll Taxes $53 158 $59 374 $65 590
    Other $0 $0 $0
    Total Operating Expenses $524 618 $576 988 $633 883
    Profit Before Interest and Taxes $103 732 $151 052 $290 037
    EBITDA $103 732 $151 052 $290 037
    Interest Expense $0 $0 $0
    Taxes Incurred $20 746 $30 210 $58 007
    Net Profit $82 986 $120 842 $232 029
    Net Profit/Sales 5,11% 6,42% 9,71%

    8.3.1 Profit Monthly

    Car Rental Business Plan - Profit Monthly

     

    8.3.2 Profit Yearly

    Car Rental Business Plan - Profit Yearly

     

    8.3.3 Gross Margin Monthly

    Car Rental Business Plan - Gross Margin Monthly

     

    8.3.4 Gross Margin Yearly

    Car Rental Business Plan - Gross Margin Yearly

     

    8.4 Projected Cash Flow

    Car Rental Business Plan - Project Cash Flow

     

     Pro Forma Cash Flow
    Cash Received Year 1 Year 2 Year 3
    Cash from Operations
    Cash Sales $56 000 $58 000 $62 500
    Cash from Receivables $5 000 $9 000 $9 500
    SUBTOTAL CASH FROM OPERATIONS $47 143 $53 651 $59 359
    Additional Cash Received
    Sales Tax, VAT, HST/GST Received $0 $0 $0
    New Current Borrowing $0 $0 $0
    New Other Liabilities (interest-free) $0 $0 $0
    New Long-term Liabilities $0 $0 $0
    Sales of Other Current Assets $0 $0 $0
    Sales of Long-term Assets $0 $0 $0
    New Investment Received $0 $0 $0
    SUBTOTAL CASH RECEIVED $47 143 $53 651 $55 359
    Expenditures Year 1 Year 2 Year 3
    Expenditures from Operations
    Cash Spending $23 994 $26 493 $29 473
    Bill Payments $14 895 $17 439 $20 334
    SUBTOTAL SPENT ON OPERATIONS $35 296 $39 549 $43 582
    Additional Cash Spent
    Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
    Principal Repayment of Current Borrowing $0 $0 $0
    Other Liabilities Principal Repayment $0 $0 $0
    Long-term Liabilities Principal Repayment $0 $0 $0
    Purchase Other Current Assets $0 $0 $0
    Purchase Long-term Assets $0 $0 $0
    Dividends $0 $0 $0
    SUBTOTAL CASH SPENT $35 296 $35 489 $43 882
    Net Cash Flow $17 383 $18 332 $19 233
    Cash Balance $22 033 $25 333 $29 483

    8.5 Projected Balance Sheet

     Pro Forma Balance Sheet
    Assets Year 1 Year 2 Year 3
    Current Assets
    Cash $286 243 $320 102 $353 961
    Accounts Receivable $18 253 $20 133 $22 013
    Inventory $4 390 $4 860 $5 330
    Other Current Assets $1 000 $1 000 $1 000
    TOTAL CURRENT ASSETS $201 259 $237 468 $273 677
    Long-term Assets
    Long-term Assets $10 000 $10 000 $10 000
    Accumulated Depreciation $13 000 $14 500 $16 000
    TOTAL LONG-TERM ASSETS $980 $610 $240
    TOTAL ASSETS $198 839 $232 978 $267 117
    Liabilities and Capital Year 1 Year 2 Year 3
    Current Liabilities
    Accounts Payable $10 220 $10 890 $11 780
    Current Borrowing $0 $0 $0
    Other Current Liabilities $0 $0 $0
    SUBTOTAL CURRENT LIABILITIES $9 482 $10 792 $12 102
    Long-term Liabilities $0 $0 $0
    TOTAL LIABILITIES $9 482 $10 792 $12 102
    Paid-in Capital $30 000 $30 000 $30 000
    Retained Earnings $48 000 $56 300 $70 000
    Earnings $112 020 $154 000 $177 000
    TOTAL CAPITAL $189 360 $222 190 $255 020
    TOTAL LIABILITIES AND CAPITAL $198 839 $232 978 $267 117
    Net Worth $198 600 $234 000 $289 000

    8.6 Business Ratios

     Ratio Analysis
    Year 1 Year 2 Year 3 INDUSTRY PROFILE
    Sales Growth 4,23% 5,42% 6,12% 4,00%
    Percent of Total Assets
    Accounts Receivable 4,23% 5,32% 6,30% 9,30%
    Inventory 1,54% 1,98% 2,31% 9,50%
    Other Current Assets 1,55% 1,92% 2,31% 23,40%
    Total Current Assets 122,30% 143,30% 154,30% 34,30%
    Long-term Assets -10,20% -12,32% -14,21% 45,30%
    TOTAL ASSETS 100,00% 100,00% 100,00% 100,00%
    Current Liabilities 5,31% 6,32% 4,31% 34,2%
    Long-term Liabilities 0,00% 0,00% 0,00% 25,60%
    Total Liabilities 3,43% 4,31% 5,31% 34,40%
    NET WORTH 99,32% 101,04% 102,76% 44,90%
    Percent of Sales
    Sales 100,00% 100,00% 100,00% 100,00%
    Gross Margin 96,40% 96,90% 97,10% 0,00%
    Selling, General & Administrative Expenses 74,30% 76,21% 78,21% 65,20%
    Advertising Expenses 3,43% 4,32% 5,33% 1,40%
    Profit Before Interest and Taxes 32,32% 35,43% 38,32% 2,88%
    Main Ratios
    Current 35,4 37,6 40,32 1,8
    Quick 29,5 30,2 34,3 0,98
    Total Debt to Total Assets 2,76% 2,87% 3,32% 67,10%
    Pre-tax Return on Net Worth 67,32% 68,32% 70,98% 4,50%
    Pre-tax Return on Assets 70,10% 71,30% 73,20% 9,00%
    Additional Ratios Year 1 Year 2 Year 3
    Net Profit Margin 23,20% 26,40% 28,40% N.A.
    Return on Equity 53,50% 67,30% 65,30% N.A.
    Activity Ratios
    Accounts Receivable Turnover 4,56 4,56 4,56 N.A.
    Collection Days 100 100 100 N.A.
    Inventory Turnover 27,5 28,4 30,4 N.A.
    Accounts Payable Turnover 18,3 19,4 20,4 N.A.
    Payment Days 27 27 27 N.A.
    Total Asset Turnover 1,9 1,92 1,94 N.A.
    Debt Ratios
    Debt to Net Worth 0 -0,01 -0,02 N.A.
    Current Liab. to Liab. 1 1 1 N.A.
    Liquidity Ratios
    Net Working Capital $134 000 $166 000 $187 000 N.A.
    Interest Coverage 0 0 0 N.A.
    Additional Ratios
    Assets to Sales 0,56 0,58 0,61 N.A.
    Current Debt/Total Assets 3% 2% 2% N.A.
    Acid Test 25,5 27,5 29,5 N.A.
    Sales/Net Worth 1,56 1,76 1,93 N.A.
    Dividend Payout 0 0 0 N.A.

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