These days, many of us are contemplating new entrepreneurial ventures. While we all have different passions, interests, and skills, it is helpful if our new businesses have low startup costs and offer fairly certain gains. While no business can be considered an automatic moneymaker, some are wiser than others. Coupled with low startup costs, many entrepreneurs want their companies to offer low up-front costs and high demand. Here, we will shed some light on every aspect how to start a taxi business.
The good news is that starting taxi services comes with these advantages and more. Out of the list of never-ending business options and opportunities, choosing to start a taxi business is generally a smart way to become a business owner and safer than many other options. However, there are many different ideas to consider before starting a cab company. When you’re ready to start your tax service business, please use our checklist for starting a business. At anytime you need help starting a business, please contact Nakase Wade business attorneys in California for a free consultation.
Brad Nakase, Attorney
Becoming a Taxi Business Entrepreneur: An Overview
Some taxi companies get their start based on a single vehicle or “cab,” while others begin with a small fleet of cars. The key, as with any other business, is to start relatively small and then grow your business gradually from the ground up. If you do not have enough capital gathered when you start, you can even begin with your own home serving as a home office and then expand when you see fit. Research tells us that you only need around $15,000 to get off the ground and running. So, whether this is a brand-new venture or starting a taxi business has always been a dream of yours, let’s get moving.
1. Know Your Competition—and Your Market
Although rideshares are exceedingly popular, each day, more taxicabs fill the streets of our cities and even transport people to and from more isolated, rural areas. In this age of interconnectedness, we are all going somewhere, and often, we need a ride. From one vantage point, this is a good thing for your business. Why? Because this means demand is ever-present, and if you make wise decisions, you should be able to provide the public with rides and make a profit.
However, this also means that your business will need to compete with the other cab companies out there. We have all been standing on the street, hailing a cab, and wondered: should I go for the red cab or the yellow? Which has the better rate, and which offers the more comfortable ride? These questions have to do with advertising and publicity, which we will get to later. Let’s focus now on surviving the competition that comes your way and actually thriving. There are a few key ways you can stay competitive right from the start.
First, make sure that you have the correct information concerning your specific market, as well as location. Make a list of questions, even if you know the area. Where do people search for rides most often on the weekends? What streets are busiest? Studying the location and being familiar with the other local taxi companies—your competition—is paramount to your success. Use the internet, local newspapers, and other resources to not only scout out your competition but become familiar with the rates and services of the other companies. This will help show you where and how your new venture stacks up.
Next, scout out the area. Some streets, neighborhoods, and even cities are already saturated with taxis, and you may want to avoid those. What areas need another cab service? If there is demand and you are certain, then why not begin by offering lower rates or discounts? Perhaps you can offer some sort of promotion or find a specific niche such as airport rides or large vehicles for big groups.
The question remains, however: how will you find customers, and how will you keep them coming back? Without riders, your company will simply not work. Here is where marketing and advertising come into play. What would you like your taxi company to be known for? For example, you specialize in airport rides, or you are the company that offers candy and water to passengers. Perhaps your taxis are painted blue, just to stand out! The world is your oyster, as long as your unique traits and ideas fall within the parameters of business and traffic laws. If you need help with your marketing plan and can afford it, contact a proven company that can help you figure out how your business will create revenue. Think about it: at first, your expenses will be low. You will not have many cars or drivers, and your office space can be limited. If you can create capital at this point, your venture will be off to a speedy start.
Now, it is also prescient to remember that many businesses struggle at first. If this is the case, you may have to deal with some adversity. You also might have to rethink your business or advertising plan. Don’t worry; it’s good to identify problems early as opposed to dealing with them later.
2. Purchasing Vehicles and Equipment
Let’s talk about startup costs. For most first-time cab companies, the initial hurdle is obvious:
buying the cars or SUVs that are being used. Since we have estimated that your average starting budget will be in the area of $15,000, you will not be buying a brand-new fleet of cars or trucks. However, it is time to think creatively. Check online, and visit local dealerships to locate used vehicles that fit within your budget. Remember, you only need a few (1-3) cars to start out, depending on your amount of capital and number of drivers. Cab companies often begin small, and as they grow, the company head builds them up.
Another option is to purchase cars that are new but can be leased or have options that allow the buyer to defer their payments. Then, the buyer would use some of the profits from the taxi company to pay the monthly fees until he/she can buy the car outright. This type of financing has become more and more common. However, it is recommended that the entrepreneur make sure that they have received a fair deal and are not paying excessive interest fees each month.
Once you have purchased your vehicle or group of cars, it is time for the fun part. At this point, you or your marketing team should have come up with a clear yet eye-catching logo. This should be painted onto or affixed to your taxi. You will also need to make sure that the car is inspected and passes inspection (especially if it is used), and you will want to add some specific details. These might include top lights, interior lights, meters in the front seat, signs that show the driver’s license and other information, safety warnings, and other pertinent information. It is also a good idea to check in with the department of motor vehicles in your state, too, to make sure that your vehicles are outfitted and, more importantly, registered correctly. While all of these details may sound expensive, they should only cost in the vicinity of $650-750 per car when all is said and done.
3. Insurance and Business Licenses
When you acquire your business license, your company has officially started. This journey begins at the city clerk’s office, and typically, licenses cost around $800. Once you procure the license for your business, double-check your car’s registration and inspection history. If you are not only the owner but also plan on being a driver, then you will need to apply for a commercial driver’s license, too. Dealing with all these documents and registrations at once will make things easier, so let’s keep moving.
We also recommend applying for fully comprehensive automobile insurance. Checking in with the local regulatory agencies first makes a lot of sense because these are things you do not want to deal with later when you are focused on delivering passengers to their destinations safely and making your first profits. Some cities and states require a minimum amount of car insurance or a specific type. If the state you will be driving in does not have many requirements, or you cannot track down the relevant information, speak with an insurance agent from a national company such as Geico, and see what they suggest. Make sure to tell them that you are operating a taxi business. Another avenue would be to reach out to your friendly competitors to see what insurance they find is best. If a company has been operating in your area for some time, they probably have all the bases covered and won’t mind sharing a few tips. If you’re starting a business in California, learn more on how to get a business license in Los Angeles or California. Also, you may learn more on how to register a business name.
4. Start A Home Office and Paying Attention to Location
Regardless of the industry or business sector, when most small companies start out, they are working with a small budget and have their eye on saving money and making up some of their capital. Taxi companies are no different. After purchasing cars and paying for insurance and registration, it might make sense to start the business from your own home and then move on when the time is right.
If you only have 1-3 cars, this might be an easy option, especially if you already own a garage or live in a warm climate. However, if you are ready to make an investment, then look for a small office with an adjacent garage. This will give your taxi company a chance to grow.
Usually, you can find a starting location for affordable rent, but this depends on the city where you are operating, so use discretion. Remember, you need to be able to park and store the cars safely and legally, and you also need an office for the dispatcher.
Lastly, think about the location of your office in relation to the area you most want to serve. Does the location make it easy to get your drivers out and about? Does it make it convenient to pick up rides? If your office is in a city or town, you might consider a central location. Or, perhaps you want your office near a particular attraction, such as a popular baseball field, concert hall, restaurant row, or amusement park. Learn more on how to start a home business.
5. The Details of Starting a Taxi Business
One of the reasons starting a cab company right now might be the right choice for a motivated entrepreneur is that demand is rising. As rent prices dip in our cities and more people head to the suburbs, younger crowds are moving into these urban areas. The result is that people everywhere are requesting rides in markets and areas across the country.
It is also possible to get more specific in terms of locating the business. It may help to consider the best places in the US right now for starting a business and do some market research regarding startup costs. The key is to find a market that will be easy to enter, alongside low startup costs and taxes. With lower entry barriers and costs, it will be easier to get your new taxi business up and running.
Here is a quick checklist for running a taxi business:
1) Write a Business Plan
2) Estimate Company Costs
3) Select a Business Structure
4) Name Your Taxi Business
5) Register the Business
6) Purchase Equipment/Vehicles
7) Open Bank/Credit Accounts
8) Market and Advertise
6. Write A Business Plan
If this is beginning to sound like a lot of information, we recommend crafting a business plan. A concrete plan for starting up your cab company with a vision for the next 3-5 years will offer your employees and yourself a sense of direction and guidance. It will also give you the chance to document financial information, so everything stays on track fiscally.
Take your time as you write your plan so that you pen your ideas down clearly. Make sure to spend time on the issues that are still unsolved because now is the time to anticipate future problems and do your best to figure out how you will solve them. The other aspects that are essential to a solid business plan are to figure out the best types of registration and insurance for the business, determine the target market and more adeptly understand the customer base you are shooting for. Remember, the business plan is not only an important aspect but provides a map of your new business. It is a testament to the potential of the company, and good business plans go hand-in-hand with great companies. Please read our article on how to write a business plan. We also have a business plan template.
7. Find a Business Structure
Next, it is time to select a structure for your business. Many taxicab company owners choose either a limited liability company, known as an LLC or what is called a sole proprietorship. One of the simplest ways to start a business begins with a sole proprietorship since they do not come with startup costs, and usually, employees are not included. Also, it is possible to begin the taxi business as a sole proprietorship and then adjust the structure later as your business grows.
However, it is also important to think about tax structure and how that will impact the new business. LLCs inherently offer more tax advantages as well as legal advantages because there are established separation between the business and the owner’s personal taxes and financial situation. However, a sole proprietorship is not considered a separate entity from the entrepreneur’s personal taxes and finances. This means that sole proprietors must report their losses and profits on their personal tax returns. It also means that a lawsuit against the business could target personal property, assets, and finances.
On the other hand, if a business owner starts an LLC, he/she is not personally liable if there is a lawsuit against the company. Choosing a business structure for a taxi company can be complex, and there will be different demands and decisions to make if you are considering starting a ride-sharing business, such as Uber or Lyft. If you have questions about what business structure might be most appropriate and suitable for your new business, consider contacting a business lawyer. Learn more on how to incorporate a small business. Also, learn more on what is the difference between S Corp vs C Corp. Ready youre ready to start a taxi business, please contact business formation attorney at the Nakase Wade law firm.
8. Calculate Costs of Vehicles, Accessories, and More
Figuring out and adding up the costs of your new business is another key move to make as you get started. If new cars are too expensive for your price plan, consider buying used and keeping the numbers in your fleet low to start. In addition to locating your vehicle or vehicles, think about the accessories you may need.
Commonly used accessories include:
- Dispatch system: Quality software helps create routing strategies for drivers and passengers, ensuring they reach their destinations safely.
- Taxi meters: These are used in most cabs and help both customers and drivers keep track of the fair.
- Roof lights: Lights placed on the roofs of taxis are ubiquitous in the ride-sharing community and maybe the most important accessory. Top lights or taxi lights let customers know if the ride is available or already in progress.
For such specific equipment, it may be helpful to find a taxi business vendor online. There are many companies that cater to these specific taxi needs out there, and some even offer deals for first-time companies.
One of the great aspects of starting a taxi cab company is that a savvy business owner can start small and then add cars and hire drivers as time goes by and the company flourishes. An individual can start with a small home office or garage and then slowly grow the business and acquire more resources.
9. Naming Your Taxi Business with Style
As is true with any new company, taxi business owners should find a name that is unique and eye-catching and corresponds to their specific interest in the field. While the name search may begin with several exciting options, it is important to first check that the names you are considering are different from other LLC names in your state. Check Google for the names of nearby cab companies, but also all small businesses, so there is no overlap. You can also go online and run a search through the Secretary of State’s website. Next, check similar trademarks with the US Patent and Trademark Office. Learn more on how to come up with a business name.
Once you clear your ideas, choose the name that best fits your personality, aims, and company culture. For a taxi company, it is also important to remember that your name and logo will be painted or stuck on the side of your car, so length is a factor. If you can budget it out, it might make sense to consult with a graphic designer regarding this step.
10. Tapping Social Media and Other Networks
Even a brilliant name is only as good as the marketing and advertising plan that takes it to the next level, and these days this includes social media. If you have the funding, a digital marketing firm can help promote your company as it launches, which is one of the most important times to get the word out. However, there are plenty of things you can do without the help of a firm. We recommend setting up profiles on social media for your new taxi company. LinkedIn, Facebook, Instagram, and Twitter are all likely candidates where you can not only post and connect with current and prospective customers but also begin an advertising campaign. Advertising on Facebook, for example, is relatively inexpensive and allows you to choose a location, target market, demographic and more.
Social media sites also offer groups to join—there may even be a taxi business group in your city, town, or district. Also, print advertising is not dead, so think about business cards and newspaper and magazine ads. Returning to the web, it is important to secure a domain and website and sync those with your new business name, logo, and even motto, such as “Good Rides Fast.” We’re sure you can come up with something better than that! Learn more on how to networking using social media.
11. Creative Ways to Fund a Taxi Business
Once the taxi business owner has everything else in place, he/she must focus on one of the most important aspects of not only the company but the entire entrepreneurial pursuit: funding. Luckily, there are multiple ways to accumulate capital for your taxi company. Consider these ideas:
- Family and Friends: While it can sometimes seem difficult to ask, the people around you can help you raise capital, bit by bit. A well-written business plan can help to convince them, but even more so, make sure that you have a payback plan and you can communicate it effectively.
- Assistance from the Government: Especially in keeping with the fallout from the Covid-19 pandemic, the US is still offering many different relatively low-interest loans for small businesses. Now, these loans still may be difficult to acquire for new companies as opposed to more established businesses, but it is worth a shot.
- Loan Options: Loans are available for startups from local and national banks. However, before you embrace this option, make sure to check interest rates and the terms. It may help to have an attorney go over the loan terms with you as well.
- Credit Cards: We offer this option with a disclaimer. While credit cards can provide a bridge to funding your business, the interest can quickly mount up. Again, beware of the terms and focus on the long-term, not simply the short-term.
12. Registering Your Business and Obtaining an EIN
Momentum is growing for your new business. Your cab business has a name and a structure, and you have secured diverse and helpful funding options. It is now time to open bank and credit accounts if you have not done so yet and register your business under the new, eye-catching name. Once you register the business, you will get your employee identification number (EIN Number), and this will help you along the journey to obtaining decals, licenses, and zoning permits, some of which you cannot get without an EIN. At this point, if you do not have insurance figured out, you will definitely need to do so. Also, you will want to lock down your worker’s compensation insurance in anticipation of hiring employees.
13. Diverse Business Models to Choose From
Taxi businesses are becoming increasingly varied, so as a new business owner, you have various choices to make involving format, structure, emphasis, and organization. Our advice is to start out with the business model that you not only think will be the most lucrative but is manageable at the start. Business owners fare better when they are not overwhelmed, and they can focus on the specifics of the company and their niche and then let the business grow without being under too much pressure.
Taxi company owners might choose from:
- Ride-sharing Companies: Companies like Uber and Lyft have taken over a large part of the taxi business, and they provide a unique structure. Owners are considered contractors in these formats, and while this type of company can be a great moneymaker, operating as a contractor and sharing the profits with other contractors can make it difficult to start off with strong profits.
- Traditional Taxi Businesses: The industry standard is still a popular way to start out in the taxi industry, especially in areas with high foot traffic, such as cities like Boston, New York, and Los Angeles. As the owner of the business, you will be set up for quicker profits, but you will face considerable competition from the Lyfts and the Ubers of the world.
Taxi entrepreneurs may also be able to choose a specific field, such as:
- Senior citizen taxi services
- Taxis for pets and their owners
- Airport shuttles
Whatever you choose, stay positive about your new pursuit because the demand is there. It is up to new business owners to tap into the potential in this industry and grow their companies as they see fit. Good luck out on our roads, avenues, and city streets.
Consult with an Attorney
Starting a taxi business may be one of the most exciting highlights of one’s life. Across the country, eager entrepreneurs raise funds for their Uber rideshare company or traditional taxi business. Once they get started, they provide an invaluable service to the men and women of our country who rely on transport services to get them to destinations safely and on time. If, as you read this, you have questions of a legal nature regarding any step of this process, contact Nakase Wade today. Starting a taxi business in California can be as challenging as it is rewarding. Our business lawyers and corporate attorneys are always here to go over contracts, address legal issues, and go over all your options.