The Ultimate Checklist for Launching a Rental Startup

Ultimate rental checklist for startups

The rental industry is set to grow from $15 billion in 2014 to $335 billion by 2025. Considering investing?

The rental industry has tremendous potential for profits but starting a rental business isn’t easy. You need to play the long game to come out on top. With a million things to sort out, you need answers.

Our rental checklist has got them!

Based on our experience with customers across the globe, we will break down how to create the right business action plan, how to stock your rental inventory, and how to start taking orders! Read the only rental checklist you will need for launching your rental business.

Contents

1. Study the market to find your niche
2. Figure out all your costs
3. Register yourself as a legal business entity
4. Check if you need licenses and permits
5. Register for taxes
6. Open a business bank account
7. Pick your rental store location
8. Stock up your inventory smartly
9. Apply for insurance
10. Find the right inventory tracking system
11. Figure out your pricing system
12. Establish inventory maintenance processes
13. Create an online presence
14. Clarify terms of the rental agreement
15. Hire your first employees
16. Order business cards
17. Time to take your first orders

1. Study the market to find your niche

We start the rental checklist off with studying the market! Before you blindly jump into investing your hard-earned dollars in lawn movers or garden tools, you need to assess the demand for your products. Along with this, it is critical to study the market and your target audience.

This helps you understand who your consumers are and how to market your products or services to them. Creating a catalog that caters to customer needs is a surefire way to business success.

There are several types of rentals you can set up a business in. Here are some top ideas you can invest in:

8 rental business ideas to invest in

There are several other factors to consider as well when choosing the right niche for your business.

If your starting capital is limited, you might want to invest in inexpensive items. If you want high profit margins, you can invest in novel or luxury items. You can also derive inspiration from your personal interests. If you’re a photography fanatic, your love for cameras might drive business innovation for a camera rental!

Lastly, look at regional interests. For example, if you’re in a city that’s a popular tourist destination, then bike rentals are great to capture the tourist market!

Once you choose which vertical you want to dive into, the next step is to dig a bit deeper.

Study and understand all the trends prevalent in the market. This is important so you know what sort of rental items to offer. For example, for a costume rental business, you need to know if people want to rent Marvel costumes more than Disney princess costumes.

The simplest way to study the market is to talk to the audience. Ask them questions such as:

  • What sort of items are they looking for – basic or high-end?
  • Which brands do they prefer/think are better?
  • How much are they willing to pay?
  • What do they expect from a rental business?
  • Do they prefer an online store or an in-store experience?
  • Do they prefer promotional coupons, seasonal discounts, and bundled deals?

2. Figure out all your costs

As a new company, you won’t have a bottomless bank account to dip into when you want. So, make a robust budget from the get-go.

A hefty bit of your budget will go into procuring the rental fleet since that is the core competency of your rental business.

However, there are several other aspects that will require an outlay of money that you need to consider. Expect the following additional expenses:

  • Fee for creating a legal business entity (either LLC or Corporation)
  • Cost of buying or renting the store space
  • Equipment maintenance and replacement costs
  • Employee salaries
  • Storage costs
  • Website launching and maintenance costs
  • Advertising costs
  • Cost of various insurances
  • Tax expenditures involved
  • Additional expenditure (discounts and promotions)

In order to start off your legitimate business, you need to opt for the legal structure that best suits your case. Then comes filling out the paperwork to establish your company as a legal entity.

a. Articles of Incorporation or Organization

If you want to create a corporation, file the Articles of Incorporation.

In order to establish a Limited Liability Company (LLC), you have to file the Articles of Organization. Both articles must be filed with your State’s commercial-services department.

Differences between LLC and corporation

There are some similarities in the information that both articles contain. Both must include the company name, purpose of business, mailing address and principal officers.

b. Certificate of Assumed Name

If neither of the two options above is what you’re looking for, then you can form a proprietorship. Proprietorship is the easiest type of company to form. This is a business with only one owner who is not separated from the professional tax liabilities of the company.

In order to set up a proprietorship, all you have to do is visit the County Clerk’s office, fill out a Certificate of Assumed Name, pay a fee, and you’re good to go. The assumed name as written on the certificate becomes the legally recognized alias of the business owner.

4. Check if you need licenses and permits

Depending on your industry, you may need a professional trade license. This also varies within states. Most small businesses require the city government to issue a local operating license to start operating. To find out more, the best thing to do is to visit your state’s business services office to check if you require a special license or permit.

Apart from professional trade licenses, there are also local licenses and permits you may require. For example, you may have to acquire a permit to work within certain zoned communities. Other examples include a building permit if you’re renovating a building or a fire department permit if you’re dealing with flammable items.

In order to learn about whether you need a license or not in your state, visit the Small Business Administration’s (SBA) section for state licenses and permits.

5. Register for taxes

Once you create the business as a legal entity, the next step is to apply for an Employer Identification Number (EIN). An EIN is your company’s federal tax ID.

When you try opening up a bank account for your business, many banks and commercial lenders will require an EIN. Moreover, an EIN helps you to avoid using your social security number. This reduces the risk of identity theft.

The Internal Revenue Service issues all EINs. You can find the application online and it is free of any cost.

Read more: A Quick Guide on Filing Rental Sales Tax

Now that you have your tax ID, it’s important that you learn of all federal, state and local tax requirements for your business. The legal entity structure you choose for your business determines the taxes you have to pay.

Most startups opt to create an LLC. An LLC makes taxes much simpler, with its “pass-through” taxation structure. This means that you only have to pay tax on your personal income. This income tax varies for each state and locality, so you will have to find the requirements specific to where you operate.

Then there is property tax, which again varies depending on where your store is located. Lastly, you’re going to need employees of course. This is where employment taxes come in, which are a federal requirement. Employment taxes include Social Security and Medicare taxes, etc.

6. Open a business bank account

open a rental business bank account

Don’t make the mistake of using your personal account for your business finances. Here’s why:

  • It saves you from having your personal and business transactions muddled up into a complex web.
  • Separate accounts make for cleaner and more accurate bookkeeping.
  • Using your personal account implies that you’re only running the business as a hobby and don’t take it seriously. This reflects poorly on you if you apply for loans or funding.

IRS requires businesses to have separate bank accounts.

7. Pick your rental store location

Your rental store location can make or break your business. Be mindful of the following before you set up shop:

  • Zoning: ensure that the chosen area/locality is zoned for your commercial business.
  • Accessibility: determine if your store is in an easily accessible area for your target audience.
  • Traffic analysis: ensure that the store is in a high traffic area, to increase footfall.
  • Competition: keep in mind that the nearby stores should not be in direct competition with your business.
  • Appearance: make sure the location is safe and welcoming.

Apart from all these factors, perhaps the most important aspect of all is to consider your budget. Check your budget before you get your heart set on a location you can’t afford. It’s best to look for stores that don’t require many renovations and have an easy-to-navigate floor plan.

In addition to all these aspects, don’t forget about storage. You want a store with ample storage and display cases. If you’re thinking of opening up a costume rental business, then changing rooms are also a must-have. If those don’t exist already, you will have to consult a contractor to add them.

8. Stock up your inventory smartly

A common mistake that most rental businesses make is that they think buying more is the way to go. Without tracking demand, they’ll just stock up on more and more inventory as a precautionary measure. This actually has dire consequences.

Instead, buy smartly!

Idle inventory means greater investment, lesser stocking space, and greater cost of ownership. Unless your items are being rented out adequately, more items will just translate to financial losses.

It’s also easier to buy additional equipment as demand spikes rather than get rid of excess inventory.

Here are our recommendations:

  1. Buy in bulk! Keep an eye out for the best deals on relevant equipment.
  2. Invest in affordable solutions if your customers favor those. High-end equipment isn’t always the answer.
  3. Consider investing in second-hand items where appropriate.
  4. Sub-rent from your vendors when your existing stock can’t cater to equipment demand.

Rental inventory

Pro Tip: Maintain a good relationship with your vendors and avail the best deals they have to offer.

9. Apply for insurance

A rental company needs several kinds of insurance including:

  • Property insurance: covers your store in case of natural disasters, theft, and weather damage in some cases.
  • General liability insurance: protects you and your business assets from any lawsuits that may arise as a result of bodily harm incurred from item use.
  • Workers’ compensation insurance: protects your business in case of employee injury or illness from work-related exposures.
  • Rental equipment insurance: covers your rental items in case of loss in natural disasters or breakage.

Read more: How to Find Insurance For Your Rental Business

10. Find the right inventory tracking system

Rental businesses cannot operate without adequate rental management. You have to track your inventory and orders, manage item life-cycles, send equipment for maintenance, monitor your finances, and so much more.

With your items circulating in these processes, your inventory needs a proper management plan. This will help streamline item tracking, optimize spend, and overall contribute to better customer experiences.

Some businesses still rely on spreadsheets or paper files for this purpose. While these methods are inexpensive, they’re also inefficient and error-prone when dealing with larger inventories. Moreover, they can’t track orders for you because of their static nature.

So, what’s the alternative?

A dedicated rental management solution is your best bet and modern rentals will agree. The software helps automate inventory management and order tracking. It also helps save time and decrease errors.

Rental software comes saddled with several other benefits too, such as the ability to send out alerts to your customers when their return date is approaching. You can also easily keep track of all rent outs and returns, and set up recurring maintenance services so everything is always in good shape.

11. Flesh out the right pricing strategy for your inventory

Your pricing strategy is very closely tied to your startup’s success. This system will help you set rental rates, sale prices, late fees, damage charges, sales tax, different promotions and more. We’ll briefly discuss a couple of these below.

a. Rental rate

Rental rates vary drastically depending on where you’re working and the state you’re in. The first thing you should do is to study the rates of similar rental stores in your area. This will help you get a sense of what the industry standard is, so you don’t charge preposterously high or low.

For example, if you’re looking to open an event rental company in Detroit, then you can rent out a 20×20 foot wedding tent for around $225 per weekend. However, in a wealthier city such as Santa Cruz, the same item goes for nearly double the amount.

After you study the competitive market prices, it’s time to come up with your own. A common formula is to find the difference between the residual and current value of the rental item. Then divide the difference with the number of days, weeks, months, or years the item is rented out. Let’s explore an example.

A customer rents out a $2,500 video camera for 2 years from your AV rental. You want to charge them a monthly rental rate. At the end of the term, the camera might only be worth $1,000. So you can simply subtract $1,000 from $2,500 to arrive at $1,500. Then divide this amount over 24 months to get the value of $62.5. Next, all you have to do is to factor in interest and you’re good to go!

Remember that there isn’t any golden rule to follow, so you can adjust the formula according to what works for your company.

b) Late fee

Next, decide the amount you’re going to charge for late returns. You can charge the fees at a varying rate, per minute or per day, or you can set a flat rate. This is a crucial aspect in avoiding orders that are returned ridiculously late.

c) Damages and security

You can also charge your customers for any damage that your rental items may incur when in their possession. This is important because you shouldn’t have to spend your own money over damages your customers cause.

Another way of dealing with damages is charging a security deposit. If any damages are incurred, you can simply deduct the amount from that deposit.

12. Establish inventory maintenance processes

The success of your rental business depends on the success of your equipment. Well-functioning equipment tends to be rented out more. It improves customer satisfaction and brings you greater profits.

On the flip side, damaged goods make for terrible customer experiences. If customers go through the hassle of renting a camera, only to receive a damaged lens with it that they now have to replace, they will most likely look for a different service in the future.

For this reason, it is very important to invest in the upkeep of your rental fleet.

Most startup owners don’t know that there are two approaches to maintenance.

  1. Reactive maintenance entails sending a rental item out for maintenance only after it breaks down or a customer complains about it.
  2. Preventive maintenance dictates that you send out items for services regularly, irrespective of whether they require it or not.

While reactive maintenance is much more common, it has recently been proven to result in higher maintenance costs.

This is why the much newer preventive maintenance is now recommended for all industries and startups. Routine checks and services help increase the lifetime of your items and identify problems before they require specialist maintenance. Save up to 12-18% in costs!

In addition to this, take note of aesthetics as well! If your equipment works great but looks hideous, no one will rent it. Make sure your equipment both works and looks like its new. First impressions matter!

13. Create an online presence

Time to think about how your customers are going to find you. Gone are the days when a brick and mortar store was all you needed to survive. In today’s world, with customers referring to the internet for all their needs, an online presence is a must.

Open an online rental store

While physical stores are equally important, online stores enable customers to rent around the clock from the comfort of their homes.

In fact, an online store or site can even ramp up your brand image and earnings. Interestingly, the average revenue for a small business is $3.6 million, while that of a small business with a website is $5.03 million.

Creating an online presence doesn’t require a huge investment of money. However, ensuring that people visit the website does require a fair bit of effort.

Before customers place an order with you, the first thing they do is look up your business online. Your job is to make sure they like you! Here are 5 tips to help ensure this:

  1. A sleek website that shows you are a legitimate business that customers can trust.
  2. Relevant information that your customers will want to know, such as how can they rent from you, a rental agreement, or your store location.
  3. An easy to navigate site that doesn’t confuse customers.
  4. Pictures only where they add value, otherwise, remove the clutter – more is not always better.
  5. A conversational tone that isn’t hard to read.

14. Clarify terms of the rental agreement

No rental checklist is complete without discussing the most important document for rental startups – the rental agreement. Since a lot of customers will interact with your equipment over its useful life, it’s critical that you define the terms of use.

The agreement needs to include all relevant information, so both the rentee and the renter are on the same page. This also helps avoid conflicts in the future.

Here’s what to add:

  • Equipment: Which equipment is being rented out? Does it have any additional attachments? If so, list those down.
  • Term Length: The duration of the rental period. Clearly mention when the rental period starts and ends, and what the due date is.
  • Rent Amount: The cost of renting out the equipment for the set time period. Specify acceptable payment methods too.
  • Termination: Situations may arise under which you or the customer has the right to terminate the agreement. Spell out what these conditions are. For example, a customer orders a particular rental item but you accidentally deliver something else. In such a situation, the customer should have the right to terminate the agreement.
  • Usage Limitations: Rental businesses accept that equipment will undergo “normal wear and tear” in the hands of the customers. However, it is important to define what counts as “normal wear and tear” so no one abuses the leeway.
  • Transport: Who is responsible for transporting the equipment to the site of usage?
  • Contact Information: What should the customer do if something goes wrong? Who should they contact?
  • Penalties: What are the penalties for damage, loss or theft? Also, if you wish to charge any fees for late returns, then specify that as well.

Equipment rental release form

Read more: 15 Things To Include In A Well-drafted Equipment Rental Agreement

15. Hire your first employees

No rental checklist can be complete without officially hiring your first employees. Don’t try handling it all on your own simply because it’s a small business. Doing so so will take you away from focusing on more important things, like strategy building.

Chalk out the main processes of your business. It’s better to have one designated employee for each function/role. So you’ll need one cashier, one stock boy, one salesperson (at least at the start) and so on. You can expand as you grow. Hiring a marketing specialist will also work tremendously in your favor.

Some other things to keep in mind are:

  • Carry out a background check on all prospective employees. This is essential since approximately 40% of all job resumes include false or inflated facts.
  • Design an onboarding process so you can train the new employees and show them all the ropes of the business.
  • Give your employees a feeling of the culture they’re going to work in and clearly communicate your expectations.
  • You should also discuss company values and goals so employees are inspired to excel in their new roles.

Even if the budget is a little tight at the beginning, the extra hands on deck will be well worth the investment.

16. Order business cards

A good idea to build up your company’s credibility is with business cards. They also help with networking, as you can hand them out to potential customers too. Moreover, business cards are an inexpensive way of spreading the word around.

Usually, business cards are going to be the first introduction to your business for most prospective customers. This is why you have to make sure that they are neat and attractive, and have all the necessary information on them. They’re also the most portable form of marketing available to any small business.

17. Time to take your first orders

With this rental checklist coming to its end, we’ve reached the point where you’re all set to start taking orders! Open your rental store right on time and make sure you periodically check your online store as well.

If you’ve done your marketing correctly, then you’ll have plenty of customers visiting. The key is to create some hype about the opening day so you get plenty of orders.

No matter what happens, don’t get frazzled!

Organize your storage room at the back so you don’t spend too much time in there looking for an item the customer wants. We know you might be excited, but don’t come across as too pushy or you’ll scare the customer away! If you stick to this rental checklist, then stay calm because your first day is sure to be a success.

Launch your store now

Start your equipment rental business today

It’s time to put your head down and work to make your business a success. Here’s a quick summary of our rental checklist.

Start off by conducting market research, talking to your potential customers to know what they’re looking for. This serves as a good starting point to build around.

Once that’s done, dive into the nitty-gritty details of your financials. Make a pricing plan, figure out the fee for late returns, set a budget to allocate funds to various operations and stick to it. Once you know how much you can spend on your equipment, start stocking up.

After that, you’re all set to go as long as you keep following the rental checklist. Opening up a rental business may seem like a lot of work to do. But with a little bit of help with our rental checklist, you can truly position yourself for sustainable growth!

About EZRentOut

We are a cloud based rental solution that offers businesses seamless rental management. It also comes with a host of other features like asset lifecycle management, order tracking, personalized maintenance, a customized webstore, and much more.

Try us out today!

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