Limousine companies are expected to remain in strong demand despite the fact that there are now a number of ride sharing applications. In fact, it can be expected that at some point one of the major ride sharing applications may have integrated functionality so that limousines and related large vehicles can be called upon on demand. This is actually a good thing for the limousine industry given that it will drastically increase the amount of business that is provided to limousine services. One of the biggest issues that many people have when calling a limousine is that they need to have a substantial amount of marketing in place in order to generate revenues. With the advent of ride sharing applications – limousine and taxi companies – can instantly receive customers for a percentage of the revenues generated. The barriers to entry for new limousine service are considered to be moderately low given that any individual can lease one of these vehicles and hold themselves out as a limo driver once they receive the necessary licenses. Typically, a simple commercial driver’s license is needed in order to provide these services to the general public.
The capital required to start a new limousine service can vary greatly by the number of vehicles that are going to be acquired at the onset of operations. Usually, most limousines have a cost ranging anywhere from $50,000 to $100,000. A typical fleet held by a limousine company typically ranges anywhere from $100,000 all the way to several millions of dollars depending on the number of vehicles are required at the onset of operations and through the course of business. It should be noted that many limousine companies will often turn to leasing companies rather than direct purchase.
The benefits of using a leasing company are that the vehicles can required quickly and with minimal upfront expense. Usually there is some form of capital cost reduction that is associated with a new lease, but this is small as compared to the overall acquisition of a new limousine vehicle. One of the other benefits of leasing is that it creates a much cleaner balance sheet for the limousine company as a seek additional capital to grow. During times of economic recession, this is important given the fact that lease rates do not increase while in some cases interest rates do rise for vehicle loans. It should be noted that it is somewhat uncommon for limousine company to have variable rate auto loans associated with their limousine fleet.
One of the drawbacks to a lease is that it is simply renting on a long-term basis for all intents and purposes. However, in the event that business is not do as well as planned, leases can be returned in some cases. As such, leasing is often considered to be a lower risk way of starting a new limousine company. The benefit of acquiring a limousine and fleet of limousine vehicles with borrowed money is at depreciation charges and interest charges can drastically reduce the overall tax liability associated with the business. At all times, a highly qualified certified public accountant should be hired in order to assist the limousine company with making the appropriate determinations as to which method of financing is typically the best way to go forward. It should also be noted that in the event that an individual is going to be purchasing limousine vehicles, they can expect that they are going to be required to put down 10% to 20% of the total cost of the vehicle as a down payment. The return on investment for most limousine companies is substantial – and ranges in the 20% to 50% range – given the fact that this is a service focused business.
As it relates the corporate structure, most limousine companies are structured as limited liability companies or S-corporations provided that it is a limited number of owners or single owner developing this business. Of course, there are benefits and drawbacks of each different type of corporate structure that could be employed when developing a new limousine company. The best way to go about this is to work closely with a certified public accountant or qualified tax attorney that can assist an entrepreneur in determining which corporate structure is most appropriate. There are also considerations regarding whether or not owned vehicles are going to be kept in a separate corporate entity rather than in the operating business themselves. Again, while this does translate into higher cost – the liabilities associated with a potential accident can be reduced in the event that multiple corporate structures are used when developing this type of business. Only a qualified attorney to determine whether or not several entities should be used for one specific operating business. This type of structure is commonly used with real estate investment firms that placed individual properties into limited liability or corporate holding entities.
A number of licenses are going to be required by the limousine company from both the federal government (for interstate travel) as well as state governments. Some municipalities also require that limousine drivers receive licensure from them in order to provide services to residents and businesses within the area. Many websites on the Internet have a plethora of information specific to what licenses, taxes, and registrations must be provided to municipal, state, and federal entities when working as a professional transportation company. Most local business attorneys will also be able to source this information for you and provide a significant amount of information about what ongoing registrations and filings must be made with the appropriate authorities.
Most limousine companies also require significant number of employees in order to render services. Although most of these businesses start by having the owner-operator drive limousines, increased demand requires that staff drivers are hired. As always, a large-scale employee handbook should be developed by both the entrepreneur in conjunction with the attorney in order to make sure that all employees are aware of the rules and regulations that guide the business on a day-to-day basis. Most importantly, for limousine business, these regulations include when an individual must show up to work, what licenses they must maintain, professional dress, as well as being informed of all other policies that guide the operations of the business. As it relates to cost, most limousine drivers can be hired for about $30,000 to $40,000 per year depending on the location. In major metropolitan areas, and with the popularity of ride sharing applications, some limousine companies have taken the paying substantially more to their limousine drivers in order to retain top talent. One of the ways that employees can easily be retained and motivated to provide great services by offering them not only a plethora of benefits including health insurance but also a profit-sharing program that allows them to earn additional income as a provide a greater degree of services for the company. Most limousine companies also hired dispatcher which typically runs around $27,500 to $40,000 a year. This is important to note especially among the missing companies are going to have a large fleet at the onset of operations. Administrative assistants, part-time bookkeepers, and related personnel are typically hired once a business or generating a significant amount of revenue usually in the hundreds of thousands of dollars.
Marketing is one of most important aspects of for any limousine company given the fact that these businesses must be able to secure ongoing usage of their vehicles in order to turn a profit. Many limousine companies will develop ongoing relationships with wedding planners, event planners, venue companies, and related entities in order to have their clientele use the business on an ongoing basis. Depending on the state, referral fees may be paid to third parties that successfully placed clients with the limousine company. Again and as discussed above, ride sharing applications are also becoming popular ways in which limousine companies can maximize the revenues generated from their fleets. As such, by enrolling the vehicles and drivers in applications like Uber and Lyft, limousine companies can aggressively produce additional income during weekly hours and during times where the use of a limousine is not often found.
In fact, many of these businesses will hang around areas where there are nighttime entertainment venues – like bars and nightclubs – in order to have large parties transported safely to and from their destinations. The ongoing relationship with corporate specialist as well is also an important marketing tool for many limousine companies given that executives and high-profile clients may require specialized transportation. Major corporate events such as golf outings, wine tastings, and large-scale parties typically require this type of transportation arrangement.
The outlook of the limousine industry is going to remain strong moving forward. People love to go out and limousines are not common vehicles that are purchased by individuals and as such the risks regarding ride sharing applications taking a substantial portion of the market are somewhat limited. In fact, these ride sharing applications are going to be a huge boon to many people within limousine industry as a can substantially increase the return on investment associated with the leasing or acquiring these types of vehicles. In was every economic climate, the demand for limousine services remains moderately strong. Even during an economic recession, people are going to have weddings and events that do require large-scale transportation arrangement. As such, these businesses are typically able to remain profitable and cash flow positive at all times.