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.
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 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.
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 lot 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.
Costs to Start a Parking Lot
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.
- Equipment such as payment machines, gates, security cameras $5,000 – $20,000
- Insurance $200 – $1,000
Steps to Starting a Parking Lot
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.
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 a sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of legal entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
Related: Comparison of Business Entities
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, a parking lot permit may be required from the city.
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 that people can find when they are searching for where to park when planning to visit particular places.
Step 9: Get Business Insurance
A parking lot needs several types of insurance for full coverage:
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
You will need employees to help you 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.
How Much Can You Potentially Make Owning a Parking Lot?
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 $7 per rental, you would make $560 per day in revenue, which is $204,400 per year.
Things to Consider Before Starting a Parking Lot
Running a parking lot or any business will have its challenges. You need to be prepared and make sure that you know what you’re getting into.
Your location is key, and the better the location, the more expensive it will be. You need to decide how much you are willing to risk by spending money on a better location to get higher revenue.
You will also face 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.
Talk to other business owners for tips on starting a business and do your homework to determine costs. Research other parking lots to see what they offer and what prices they charge.