How to Start a Bike Rental Business
Are you a biking enthusiast? Maybe you know how to work on bikes as well. If so, a bike rental business could be an opportunity for you to use your skills, make some money, and be your own boss.
Bike Rental Business Overview
A bike rental business rents bikes by the hour, usually to tourists to travel the area and see local landmarks and destinations. They may also rent to college students or anyone who needs short-term, short-distance transportation.
According to Markets and Markets, the bike and scooter rental industry totaled $2.5 billion in sales during 2019 and is expected to grow to $10.1 billion by 2027. Specifically, the bike rental industry is the largest and is expected to grow at the fastest rate. Increasing traffic congestion and the desire for emission-free travel options are factors behind the growing demand.
The dockless segment of the bike rental market is expected to grow at the fastest rate. With the dockless (or e-bike) model, bikes can be found and unlocked using a smartphone application. Offering dockless bikes expands your geographic market and provides more convenience and flexibility for customers.
Your target market will be mainly tourists to your area or college students if you are close to a university.
Skills, Experience, and Education Useful in Running a Bike Rental Business
There are several specific skills that you will need to open a bike rental business.
- Experience. Experience with bikes and some knowledge of how to maintain and repair them is a must.
- Local knowledge. Knowledge of local tourist attractions and the general history of your area will help you with customer service.
- Business knowledge and experience. You will need to have at least some basic knowledge of marketing, finance/accounting, and human resources.
- People skills. You’ll need to be able to build rapport with your customers so that you retain them as customers and keep them coming back.
Checklist for Starting a Bike Rental Business
So you’ve decided to start a bike rental business, and are ready to take the next steps. There are a few things you need to do before you can open your doors for business. This checklist will help get you started.
Step 1: Write your Business Plan
After coming up with the idea, the next step in starting your bicycle rental shop should be to write a business plan. The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, tourism trends, projected income and expenses, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be and what your ongoing expenses will be.
Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you to think through all the aspects of the business and then serves as a guide as you begin.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect bike rental company name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name. Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.
Step 3: Form a Legal Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a bike rental business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: 3 steps to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!
Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!
Step 4: Select your Location
Your location is critical to the success of the business. You need to be located in an area where tourists frequent, such as near hotels and other tourist attractions. You may even be able to partner with a hotel to rent bikes from their location.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
Several cities require specific licensing for a bike rental business.
Additionally, there will be general small business licenses and permits your business may need, such as a business license, sales tax permit, and an Employer Identification Number.
Step 6: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a bike rental business is another. In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business.
Step 8: Get your Marketing Plan in Place
A bike rental business will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a bike rental business include using social media accounts like Facebook and Yelp and online advertising, as well as brochures and flyers. Developing a website can be a significant expense, but it can also give your bike rental business greater visibility online and the ability for customers to book a rental online.
Step 9: Get Business Insurance
Especially considering the customer of bike rental business is likely an inexperienced rider, be sure to look into the purchase of insurance to protect the business:
– General liability insurance can help protect you from third-party claims of bodily injury and property damage.
– Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.
The cost for insurance policies will vary based on a number of factors. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Related: Common types of insurance a business may need
Step 10: Hiring Employees
You will need employees such as a bike rental manager and bike mechanic to help run your bike rental business. Make sure that you select people with appropriate experience.
In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your bike rental service is critical to the long-term success of your business.
Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.
How profitable is a bike rental business?
The prices for bicycle rentals are generally between $8-10 per hour, depending on where you are located. If you rent 20 bikes 6 hours per day two-thirds of the year for $9 per hour, you would make $262,800 in revenue per year.
Some bike rental shops will add additional services to increase revenue, such as hosting guided tours or providing bike repairs.
Be sure to plan for ongoing expenses for maintenance and bike and equipment replacements as rental equipment is usually treated roughly.
In addition to looking at the profit potential of a bike rental business, you will also want to estimate cash flows as many bike rental businesses are very seasonal. A bike rental business catering to events or tourists visiting during the summer will want to be sure to have enough cash on hand to still pay the rent during the slow season.
How much does it cost to start a bike rental business?
Here are the typical costs you will face when you open a bike rental business.
– Bike fleet, part inventory, and related equipment (helmets, bike locks, etc.) $7,000 – $40,000
– Furniture, fixtures, racks, stands, etc. – $5,000 – $25,000
– Space rental $1,500 – $3,000 per month
– App development for a dockless system $1,000 – $5,000
– Initial deposits (rent, insurance, utilities, etc.) $200 – $2,000
Are there grants to start a bike rental business?
It’s extremely rare to find a grant to start a bike rental business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a bike rental business?
The NAICS code for a bike rental business is 532284, which also includes renting other recreational gear such as canoes, motorcycles, sailboats, beach chairs, and umbrellas.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.