How to Start a Parking Lot Business
A parking lot in the right location can be a lucrative business with relatively low ongoing expenses. If you are looking for a business to start, a parking lot can be a good opportunity to make a living and be in control of your future.
Parking Lot Business Overview
A parking lot provides spaces to park in a convenient location for a fee. Parking lots can be exterior lots or parking garages. Owners can rent space for their vehicle by the hour or day or can be leased on a monthly or yearly basis. Generally, they are in an area with high traffic and a lack of on-street parking. Some are managed by the owner, and some parking lot owners hire a management company to handle day-to-day operations.
According to IBIS World, the parking lot and garages market size is $9.1 billion as of 2021 and is expected to increase 12.6% during the year. From 2016 – 2021 it declined at an average of 2.6% per year, which was faster than the overall economy.
The industry is expected to increase this year, in part due to the winding down of the pandemic and people emerging to attend events such as sporting and music events and also getting back to work. As the unemployment rate goes down, the revenue in the industry is expected to increase.
Your target market will be work commuters, event attendees, or visitors to businesses near your specific location.
Skills, Experience, and Education Useful in Running a Parking Lot
There are a few specific skills that you will need to open a parking lot.
- Experience. Knowledge of how a parking facility or garage operates will be very useful.
- Business knowledge and experience. You will need to have at least some basic knowledge of marketing, finance/accounting, and human resources.
Checklist for Starting a Parking Lot Business
If you’re thinking about starting your own parking lot business, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.
Step 1: Write your Business Plan
After coming up with the idea, the next step in starting your parking lot 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, projecting sales and expenses, your value proposition to use for marketing, 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 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 parking lot 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 Business 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 parking lot 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!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 4: Select your Location
Location is the most important factor in a parking lot business. You need to find an area with constant heavy traffic. Locations near tourist attractions are ideal, such as sports arenas, downtown shopping, convention centers, airports, and cruise ship lines.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
Depending on where the business is located, zoning laws will need to be researched. Each city is different, however, a parking lot permit may be required from the city to operate a parking lot, in addition to possibly paying a tax on parking.
In addition, there are likely general business license requirements such as a 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 parking lot 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 parking lot will need to set aside a budget to cover advertising costs on a continuous basis. Your marketing will mainly be your signage to direct people to your lot, but you can also have a website, social media, and app that help people find lots when they are searching for a place to park.
Step 9: Get Business Insurance
A parking lot needs several types of insurance to protect the business. The most common ones include:
– General liability insurance can help protect you from third-party claims of bodily injury and property damage.
– 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.
Insurance policies will vary. 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.
Step 10: Hiring Employees
Labor is typically the largest operational expense for a parking lot. You will need employees to help run your parking lot to take payments and help with maintenance. Parking lots are moving to an automated payment system to take payments instead of parking attendants to save on staffing costs.
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 parking lot 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.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost to start a parking lot business?
Here are the typical startup costs you will face when you open a parking lot.
– Setting up a business name and entity formation costs approximately $200 – $1,000
– Land prices to lease of buying a lot or a garage can vary greatly. Leasing could be $2,000 – $5,000 per month. Purchasing could be $20,000 up into the millions for a garage.
– Preparation of the lot (new asphalt, signage for accessible parking spaces, parking space striping, etc.) $5,000 – $100,000
– Equipment such as payment machines, parking meters, gates, security cameras $5,000 – $20,000
– Renovations or construction of a parking structure and/or office building – $5,000 – $1,000,000
– Initial insurance $200 – $1,000
How profitable is a parking lot business?
Your revenue is dependent on how many spaces you have and how often they are filled. If you have 20 spaces and they are rented by 4 people per day each at a $7 per day parking fee, you would make $560 per day in revenue, which is $204,400 per year.
When deciding on pricing, also consider competition unless you are the only convenient parking for a specific location, so you will need to make sure that you are highly visible and charge competitive prices.
Some lots have added ancillary services such as car detailing, charging, or minor service such as oil changes to generate additional revenue.
While the profit margin for a parking lot is high, be sure to watch cash flow and analyze the seasonality of people potentially using your lot. For example, if your lot is located close to a university, the summer is typically not going to generate a lot of income. You will want to make sure there is enough cash from the good months to cover the slower ones.
Are there grants to start a parking lot business?
It’s extremely rare to find a grant to start a parking lot 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 parking lot business?
The NAICS code for a parking lot business is 812930, which also includes parking garages and valet parking services.
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.