What I will need for starting a tool rental business?

Description of Job

  • Rent specialized tools to hobbyists and professionals.
  • Rent testing, measurement, and configuration equipment.

The Need

Do you need to own a high-powered brush cutter for a one-time clearing of a patch of ground on your property? Does it make sense to purchase an electronic testing device for a one-time installation? Or modification of a new feature for an automobile you are working on in your driveway? Can you justify purchasing an extra computer and monitor for a weeklong special project?

The answer in each case and many others is that it often does not make sense to make a capital expenditure for a one-time or occasional use of an expensive piece of equipment.

That’s the rationale behind equipment rental companies; they spread the cost of a unit over many users. If the rental unit is managed and maintained properly. The owner may write off the depreciation over time and then sell the used equipment to recover some of its original cost.

Challenges for starting a tool rental business

Don’t try to compete against the major national franchise tool rental companies, at least at the start. These operations require a major up-front investment in equipment, training, retail operations, franchise fee, and mass-market advertising. Instead, concentrate on renting out expensive and hard-to-find tools and equipment. Your business plan should be built on a high per-device fee for a low volume of daily or weekly rentals.

Research the cost and life expectancy for specialized equipment before you make any purchases. Some tools have an almost unlimited life; other pieces of equipment are so specialized or unusual that they may become outmoded or unusable after a very short period of time. Your business plan should be based on a realistic estimate of the number of times a device can be rented while in your possession; the total yield plus any resale value has to produce a profit.

In most agreements, you are responsible for the maintenance of equipment and must bear the cost of any equipment that breaks in normal use. However, your rental agreement should spell out situations where the customer must pay for repair or replacement of the equipment because of negligence or misuse. The customer is also responsible for replacement if the equipment is lost or stolen.

Know the Territory

If you have a special interest or hobby, you may already possess some unusual tools or equipment that others may want to “borrow”—for a fee—from time to time.

Learn as much as you can about the demographics, hobbies, and activities in your region. Look for clubs for hobbyists and special-interest groups; become familiar with shows and demonstrations aimed at hobbyists and do-it-yourselfers. Attend meetings and ask about the sorts of tools and equipment members would like to use from time to time.

Look into selling insurance policies to customers to cover them against loss or theft of rented items and other unexpected costs. Some rental companies self-insure, applying extra payments made by customers to a pool of funds earmarked for the replacement of equipment.

How to get starting a tool rental business

Post flyers and ads on community bulletin boards, in retail stores, and at community centers. Place ads in newspapers, shopping guides, and special-interest newsletters. Attend meetings of clubs and make members aware of your interest in acquiring and renting the equipment they may need.

Up-front Expenses

Your principal up-front cost will be for the purchase of equipment. You may be able to buy some used or reconditioned equipment; be sure the items come with a warranty and a ready supply of parts for repairs. Other costs include advertising and promotion.

How Much to Charge

Your business plan should include a realistic estimate of the demand for each item and its life expectancy. Calculate a price based on the expected revenues an item will generate over a reasonable period of time. Taking into account the cost of the equipment, its possible resale value, and the cost to you for the money you have invested in inventory.

As an example, consider a $500 tool that you think will be rented once a month and that should have a value of $200 at the end of two years of use. Your real cost for the item is perhaps $350; rented 24 times in two years, your breakeven price for the equipment alone is about $15. You’ll also want to add in a portion of the cost of operating your business and paying for repair or replacement of items that break. And you should make a profit for your time and effort. In this example, you could justify charging about $50 for short-term rental of the tool.

Legal and Insurance Issues for starting a tool rental business

Special notes: You’ll want insurance on your equipment; don’t expect to collect if a single power sander is stolen or if a wrench breaks. But you should be covered in case of a major loss of expensive equipment at your site or while rental items are in the possession of clients.

See our other small business Idea tips from here.

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