How to Start a Limousine Company

The limousine business has grown by an average annual rate of 2.7% over the last 15 years and brings in revenues of over $12 billion in the US alone.http://www.ibisworld.com/industry/default.aspx?indid=1951 While this means there is more...

Part 1 of 4:

Planning Your Limousine Company

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    Know what you're getting into. The limousine business isn't right for everybody. It is based on customer service and availability. If you're not a people person, look elsewhere. If you want a 9-5 job, think again. People rent limos at all hours of the day, and the most lucrative jobs take place on the weekends. Be sure you're comfortable with long, erratic hours before getting started in the business.
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    Consider the costs of starting a company. If you want to start with your own car, insurance, and website, you're looking at $50-100,000, plus the monthly costs of gas and maintenance.[2] If you're starting a virtual call center, with only business cards, a toll-free number, and a website, you can get started for anywhere from $500-5,000, depending mostly on how much you invest in your website.
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    Decide the type of company you will start. You don't even need a limousine to start a limousine company. Depending on how much you are willing to invest, you can start by building a customer base as a virtual call center, by buying a vehicle or two, or launching an entire fleet.
    1. Virtual Call Center – All you need for this is a business card, website, and toll-free number. You will field calls or internet request for rides and subcontract them to limo services, taking up to a 20% commission. This is an inexpensive way to build a customer base and accrue capital.[3]
    2. Drive A Vehicle – You will need to start with a black sedan (usually a Town Car) and/or a limousine (white is preferable at first), both of which will require a significant investment. On the other hand, driving your own vehicle will allow you to increase your revenue substantially.
    3. Fleet – Launching a fleet is the riskiest way to start your business, as it requires a large outlay of capital to purchase multiple sedans and limousines. You will also have to hire a dispatcher and chauffeurs, who will typically pay a flat fee to use lease your vehicles ($75-$150 a day) or give you a percentage of their fares (usually one third). More vehicles on the road can mean more money, but it can also mean bigger losses if business is slow.
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    Write a business plan. Whatever type of limousine service you decide to launch, your business will benefit from a strategic plan that will guide you in achieving your goals. You can find more details about how to write a plan here, but broadly, you will want to include:
    1. Your business concept: what you are offering, your strengths and weaknesses, long term goals, and performance indicators, beyond the bottom line, which will let you know you are succeeding or failing. These last might include important measures like the number of repeat customers and the number of inquiries you convert into sales.
    2. Market research: the nature of the industry, who are your customers (business men, airport traffic, weddings, etc), who are the other limousine companies you will be competing with, what prices are charged. Remember that the goal is to sell service. This is a luxury business; being the cheap limousine company is not a good business model.
    3. A marketing plan: how you will communicate with customers and grow your customer base.
    4. An operations plan: identify the individual projects that will lead to completing your larger goals. To begin with, these might include things like: hiring a designer, registering your domain, and finding a webhost – all to build a website; or finding livery insurance, buying a car, and choosing billing options – all to prepare your vehicle for service.
    5. Financial projections: these include a list of assets before you start the business; start-up costs such as building a website, getting insurance, obtaining permits, and purchasing a vehicle; marketing costs; and revenue projections. You will need to know how much business you need to do at what price in order to show a profit, and how long you can perform at a loss.
    6. You can find a sample business plan for a limousine service here.
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    Consider hiring a consultant. There are consultants who specialize in the limousine business. They can help you identify lucrative markets, set rates, and advertise effectively. Particularly if you are new to the business, a consultant can make you money in the long run, despite the initial cost.
Part 2 of 4:

Taking Care of Legal and Tax Matters

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    Consider hiring a business lawyer familiar with the industry. A lawyer can help you decide on the most advantageous legal structure for your business and walk you through tax procedures and the necessary licenses and permits in your area.[4]
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    Determine the legal structure of your business. This will have implications for how you file taxes and how much you will need to pay. Most small businesses are sole proprietorships, which are the easiest to set up and require the least paperwork. If you are considering another legal structure, you may wish to consult a lawyer who can help you pick the structure best for you.[5]
    1. Sole proprietorship – An unincorporated business run by an individual. No special steps are needed to form a sole proprietorship, and since there is no distinction between the business and you, the owner, the income from the business is reported as your income. You pay self employment tax.[6] Because you will be personally liable for your business, this form is not recommended.
    2. Partnership – A business where two or more people share ownership. To form one you must choose a name and register your business with your state. You must also register with the IRS and get a tax ID. Profits are passed through to the partners, who pay taxes on them on their individual tax return. This includes self employment tax. Partners are liable for their own actions and those of their partners.[7]
    3. Limited liability company (LLC) – To start an LLC, you must, at a minimum, choose a name and file articles of organization with your state, often for a fee. LLC owners pay taxes on profits through their individual income tax returns and have to pay self employment tax, but are protected from personal liability for the decisions and actions of the company.[8]
    4. Corporation – An independent legal entity owned by shareholders. To register your corporation you must choose a company name and file articles of incorporation with your state. You will also need to register with the IRS and get a tax ID. Corporations file taxes separately from their owners. This may prove advantageous, allowing owners to take advantage of the corporate tax rate, but it may also lead to double taxation. You should speak with your lawyer or accountant to see if this form of business will benefit you.[9]
    5. S Corporation – An independent legal entity owned by shareholders, like a typical corporation, except that to avoid double taxation, profits and losses are passed through to the owners' personal tax returns, instead of the company paying taxes.[10]
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    Choose your business name and register it with your state government.[11] A DBA (Doing Business As) is needed whenever you are doing business under a name other than your own. If you are working as an independent contractor under your own name, you don't need one. But if your limousine business has a name other than your own, you will need to register that name as a DBA.[12]
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    Determine if you need to get a tax identification number for your business. Corporations that must file tax returns will need one, as well as partnerships, which don't file taxes, but do have to file business information annually with the IRS[13] You will also need a tax ID if you have employees. Drivers are usually hired as independent contractors who cover their own payroll taxes, but for a dispatcher or other employees, your company will be responsible for half their payroll taxes, and must thus have a tax ID with which to pay them.
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    Register to pay taxes in your state and understand local tax laws. Most states and some localities levy a business or corporate income tax. If you are a sole proprietor, you will pay this tax as part of your personal income return, while LLCs and corporations will be taxed separately from their individual owners. If you have employees, you will also need to pay state worker's compensation insurance and unemployment insurance taxes. You can find more information on tax laws for businesses in your state here.
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    Obtain the necessary licenses and permits. Depending on the laws in your area, you will need to obtain permits for your business, vehicle, yourself, or all three in order to operate a limousine or black car, and sometimes another permit to pick up passengers at the airport. Depending on the locality and how competitive the market is, these permits will cost from around $100 to several thousand dollars.
Part 3 of 4:

Starting Your Business

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    Get insurance. Personal auto insurance usually has a livery exclusion, meaning your passengers and car will not be covered if you are using it for hire. Start searching for a business auto policy that covers livery service early, as it can take 4 to 6 weeks to get in place.[14]
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    Create a website. Most clients find their limousines online, so a website is vital.[15] Unless you are an experienced site designer, you will probably want to hire a professional to create a polished website.[16]
    1. Web designers will build your site and take care of registering your domain name and selecting a webhost. The more you pay, the more input you will have in creating a unique site.
    2. The cost of web design varies depending on whether you use a solo developer in the US ($25-$100/hr), an offshore web company ($10-$40/hr), or an established US agency ($60-$200/hr).[17]
    3. Offshore firms can design sites starting at around $500,[18] while the cost of a US firm will usually range from $5,000-$10,000, with solo developers falling somewhere in-between.[19]
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    Get a toll-free number and print business cards. You will most frequently be charged by the minute for your toll-free numbers. Call around for the best rates. Once you have the number, you can print business cards with it and your website. These cards are a key way to grow your business. You will give them to customers and leave them at clubs and hotels.
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    Purchase your vehicle or arrange contracts with other companies. If you are establishing a virtual call center, you will need to negotiate contracts with existing limousine companies that specify the commission you will receive. Otherwise, you will need to purchase a vehicle.
    1. A black Town Car is a good starter for airport transfers and corporate customers. It is less expensive than a stretch limo.
    2. A stretch limo is necessary for most of the most lucrative services – weddings, funerals, proms and graduations – so you'll want to add one to your fleet as soon as possible. Start with a white limo, as these are most popular for weddings, proms, graduations, and other special events.[20]
    3. If possible, purchase both a black sedan and a limousine so that you can provide the full range of services – airport and corporate business during the week, and special events on the weekends.
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    Choose a payment system. You can install a meter in your car, but limousine drivers are increasingly opting for online services that schedule appointments, notify drivers where to pick up customers, and handle payment.
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    Purchase a navigation system. Even if you know your town like the back of your hand, there will be addresses that you've never heard of. A navigation system will not only ensure that you don't get lost, it can also help you avoid traffic, thereby greatly improving your clients' experience.
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    Advertise your service. Advertising is the key to succeeding in the limousine business. The more inquiries you receive, and the more of those inquiries you convert into sales, the more money you can make. A polished website and business cards are a key starting point. Also consider:
    1. Pay-per-click advertising – Buying internet traffic is the quickest way to bring people to your website. However, make sure you are targeting the right audience. Clicks cost you money, and if tons of visitors leave without purchasing your services or product, you can lose money.[21] The two major advertisers are GoogleAds and Facebook.
    2. Craigslist, the yellow pages, and radio spots – Make sure you have a professional ad in both the yellow pages and craigslist, for those who search there. Radio spots can be effective, though they are more expensive than internet advertising.
    3. Hotels and night clubs – Talk with the manager and drop off your card. Consider giving 5% commission to hotel doormen and club staff. If someone needs a limo, you want to be the person they recommend.[22]
Part 4 of 4:

Running Your Service

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    Do airport transfers for steady business. Profit margins are low on airport clientele, but the business tends to be steady over the course of the year. It thus provides a good base of revenue for your company between weekend wedding hires and the prom / graduation season.[23]
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    Seek out specialized hires for greater profits. Airport transfers and corporate hires will help keep you in the black, but the real money to be made is in special events, which require a limousine.
    1. Weddings - Weddings are a good reason to get a stretch limo. They require a higher level of service – a tuxedo-ed driver, champagne beverage, coordination with the bride – but also pay very well.[24]
    2. Funeral Service - Again, this is a specialized service that takes place mostly on weekends. You will need a pressed black suit and a non-ostentatious black limousine.[25]
    3. Proms and Graduations – Though the season for them only lasts two months, these events provide the greatest profit for limousine companies.[26] Consider increasing advertising before and during the season.
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    Prepare contracts for special event service. For events that book in advance, you'll want the clients to sign a contract that stipulates a non-refundable 20% deposit to protect you in case they back out for some reason. This is not uncommon, particularly with graduations.[27]
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    Buy more cars and hire more chauffeurs as you grow your business. The best way to hire chauffeurs is to go to airports and pick out well-dressed chauffeurs in the baggage area. Offer them your card and ask them to call you if they're not happy working where they are.[28] Have your lawyer write up contracts, and decide on how you will collect money from your drivers: as a monthly fee for leasing your vehicle or as a percentage of their fares.
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    Cultivate repeat business. This is the key to success in the limousine business. Your website should collect client information. Use it to create email and physical mail lists. Send mail to thank customers and encourage them to use your service again. Also, always be sure to hand out your business card to passengers. Most importantly, offer professional, courteous service that makes customers want to return.
Update 24 March 2020
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