How to Start a Limo Business
The limousine industry appeals to many people. Maybe you appreciate fine luxury vehicles, or maybe you enjoy providing top-quality service. When you take the step to start your own limo business, you’ll enjoy the opportunity to drive your success and grow your business. While there will definitely be some challenges along the way, a well-managed limo company can grow and expand into an exciting business.
Business Overview
Limo businesses provide transportation services to the public, offering convenience and luxury. Customers may include corporate customers using the services for business people, customers using the limos for special occasions like birthdays, weddings, or proms, and even celebrities who may use limos as a more standard mode of transportation. Limo companies are also used for funerals.
Limousine service can be equipped with a wide range of vehicles, from the impressive stretch limo to more reserved yet equally luxurious town cars, SUVs, and luxury sedans. A limo business owner may be the only chauffeur, or businesses can grow to encompass entire fleets of limos and drivers.
Industry Summary
From 2014 to 2019, the taxi and limousine industries, which are frequently lumped together for analysis purposes, have undergone steady growth. According to IBIS World, the limo industry experienced an 8.3 percent annual growth rate during the period, and the number of businesses increased to 1,229,702. Industry employment also grew to 1,117,925, and by 2019, the taxi and limousine industry is expected to bring in $28 billion in revenue.
Related Industries
Industry Trends
The limousine and taxi industry have been largely affected by the development of apps like Uber and Lyft, which have allowed more independent operators to enter the market in the place of traditional taxi services. Additionally, the industry is largely affected by increases in consumer spending and disposable income. With the economy improving over the last five years, the limousine industry has seen corresponding growth.
A tragic limousine crash in Schoharie, New York, in October of 2018 resulted in the deaths of 20 people and prompted an increased focus on safety and regulations in the limousine industry. The industry is likely to see more rigorous limousine inspections, the possible impounding of vehicles that fail inspections, and potentially even the requirement for all limousines, no matter their age, to be equipped with seat belts. Numerous bills have already been proposed – including a potential ban on stretch limousines altogether – in response to this tragedy.
Target Market
A limousine business will often target affluent adults in need of transportation to special events, like concerts, awards ceremonies, and even business meetings or airport transfers. Occasionally, teens may also be a target market for events like proms.
Most customers hire a limo business only on occasion. While the same customer may use the same service again in the future, limo businesses typically need to develop a wide customer base to stay profitable. Some limo businesses may develop specialized markets by providing transportation for celebrities or targeting private plane owners who need transportation to and from a local airport.
Checklist for Starting a Limo Business
If you’re thinking about starting a limo business, it’s important to do your research first. Here is a checklist to help you get started.
Step 1: Write a Business Plan
After coming up with the idea, the next step in starting your business should be to write a business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Form a Business Structure
A business structure (sometimes called a legal entity) refers to how a business is legally organized to operate. There are four primary business structures 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 limo 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 to minimize liability risk 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 that 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: Guide 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:
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Step 3: Name the Business
Finding the perfect name for a business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 4: Select your Location
Many limo businesses operate out of the owner’s home or in a rented garage or storage facility. If the vehicle is stored on your property, be sure to review your homeowner’s policy as any damage may not cover business assets.
It’s typically preferable to have a location that is close to the market, which is often corporate executives, as the cost to operate and wear & tear can be high.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
Limo businesses must hold several licenses and permits to operate and vary depending on where the business is located. Besides possibly needing a livery license and general business registrations such as a business license, sales tax permit, and others, limo business owners need to ensure that drivers have valid driver’s licenses, chauffeur’s licenses, and any other additional licenses or permits required for the type of vehicles being driven.
Related: Common business licenses, permits, and registrations by state
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 limo business is another. Funding to start a limo business can be difficult. In order to get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
Because most customers will only have an occasional need for limo services, a successful limousine company needs to embrace an ongoing, broad marketing push.
Many limo businesses focus on paid advertising and targeted online advertising, social media platforms, and Yellow Pages, while others may sponsor local events, hand out business cards at networking events, use radio advertising, or even send out direct mailers. Some businesses may develop partnerships or referral arrangements with local complementary businesses, like banquet halls, event planners, hotels, or airports.
Another marketing consideration is getting a toll-free number. Companies like Phone.com and Grasshopper have pricing around $10-$25 per month, and vanity numbers are available.
Related: Low-cost ideas to market a new business
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Step 9: Get Business Insurance
There are several types of insurance to consider when starting a limo business. A few of these include:
– General liability insurance protects the business if a customer is ever injured while on a trip or while getting into or out of the limousine.
– Commercial auto insurance is also a must for a limo business. This insurance offers protection against damage and liability that extends beyond the coverage of a personal auto insurance policy and may cover vehicle repair costs, medical fees, and legal fees that result from an accident.
– Worker’s comp insurance is required if a business hires drivers and employees and covers expenses like lost wages or medical bills if an employee is injured while on the job.
The cost to insure a limo business will vary according to a business’s location, the vehicles’ value, and the value of its property, such as the garage. To get the most accurate idea of insurance costs, request quotes from multiple companies. When reviewing the quotes, compare variables like deductibles, coverage limits, exclusions, and the overall cost of each policy.
Step 10: Hire Employees
Starting a limo business can be an expensive undertaking, so many business operators start by serving both as the business owner and as the limo driver. This strategy can work to an extent but be prepared for a busy schedule as your business becomes more popular. Nights and weekends usually have the highest demand for limo services, so your personal schedule will need to change to keep up with the business needs. Corporate clients tend to use limo services Monday through Friday, but if you focus on weddings, tours, etc., weekends will be busier than during the week.
Working as your own driver will also only work for so long, and if multiple customers request transportation on the same day at the same time, you might be turning down business until you’re able to expand.
According to PayScale, limo drivers make an average wage of $11.69 per hour or an annual salary of $45,000. Hiring employees means more expenses than just salaries, though. Be sure to also budget for workers’ comp insurance, unemployment insurance, health insurance contributions, and paid time off for full-time drivers.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your limo 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.
StartingYourBusiness.comHow much does it cost to start a limo business?
The cost to start a limo business will vary depending on the business size, the limousines used, whether you rent or buy vehicles, and whether you hire a fleet of drivers or keep the business small at first. A small business with a few vehicles and drivers can cost $150,000 and up, while a business with a fleet of five or six vehicles and drivers will cost closer to $500,000 to start.
Some common startup costs for a limo business include:
– Vehicle purchase or rental
– Driver uniforms
– Garage or vehicle storage property rental
– Auto detailing supplies
Related: How much does a limo cost to buy?
How much can a limo business owner make?
The income of a limo business will depend on the number of vehicles in the fleet, the business’s location, competition, and more. Limo services can command between $90 and $130 per hour per vehicle, and most require rentals to be a minimum of three to four hours. A business’ rates, bookings, and expenses will all affect its profitability.
What skills are needed to run a limo business?
While it’s possible to start a limo business without formal business education, certain skills and experience can increase a business owner’s chances of success.
Driving skills and experience. Strong driving skills and a clean driving record are a must for anyone driving a limo. Drivers of super-stretch limousines will need a commercial driver’s license. In most states and situations, limousine drivers need a chauffer’s license, which usually involves reviewing the applicant’s driving record and a background check.
Interpersonal skills and etiquette. The limo business is service-based, and expectations are high from the booking to the actual transportation. Good interpersonal skills and etiquette are essential in building a limo business, and the ability to solve problems and think on your feet is also important.
Navigational skills and knowledge of the area. Knowledge of the local area is important, whether taking reservation calls or driving passengers to their destination. Limo drivers should have the ability to use navigation systems and read road maps to find locations they may be unfamiliar with, especially on long-distance trips.
Attention to detail. A limo business is all about details. Whether cleaning and maintaining a vehicle or ensuring that the driver arrives on time, a business owner needs to have attention to detail to succeed.
Auto knowledge and skills. A business owner who can do basic maintenance on their own vehicles will save money over the cost of sending vehicles out for maintenance at a garage. Auto knowledge is also essential when buying new vehicles and being able to spot a good deal.
Are there grants to start a limo business?
It’s extremely rare to find a grant to start a limo 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 limo business?
The NAICS code for a limo business is 485320.
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.
Related: What is a NAICS code?
Resources:
Minority Limousine Operators of America
National Limousine Association
