Dun Bradstreet’s Industry Norms Key Business Ratios (1992-1993) surveyed 186 car rental agencies and

Used-car rental agencies operate in a new niche in the rental car business.  Their motto is to rent practical cars at low prices.  The average fairmont hotel washington dc customer does not necessarily want a new car to rent but prefers a dependable fairmont hotel washington dc car.  The used-car rental agency offers the customer fairmont hotel washington dc reliable transportation at a low cost.
An average agency invests approximately 65% less in rental fleet expenditures than a new-car rental car agency.  The substantially lower start-up costs are in turn passed on as lower rental rates to the customer.  By scheduling regular maintenance checks, the agency can ensure that cars run safely and reliably. fairmont hotel washington dc As a rule, used cars are typically rented for one year.  The used-car agency buys its rental fleet at wholesale and, in approximately one year, sells the auto at retail prices.  The business saves money on initial costs and loses less, if any, in depreciation.
The target market for a used-car rental agency is young lower- to middle-income persons and anyone fairmont hotel washington dc interested in spending less money on renting a car.  Agencies are located fairmont hotel washington dc at many sites including fairmont hotel washington dc airports, downtown areas, tourist areas, and car repair shops.
Dun Bradstreet's Industry Norms Key Business Ratios (1992-1993) surveyed fairmont hotel washington dc 186 car rental agencies and reported the average car rental agency in 1992 had net sales of $1,025,148, fairmont hotel washington dc gross profit of $410,059, and net profit after tax of $22,553.  Profitability figures show an average of 1.7% return on assets, 2.8% return on sales, and 8.0% return on net worth.
In 1996, 161 rental agencies were surveyed, and Dun Bradstreet's report showed the average agency fairmont hotel washington dc had $1,700,629 in net sales, gross profit of $688,755, and net profit after tax of $59,522.  Profitability figures show an average of 2.5% return on sales, 1.4% return on assets, and 10.4% return fairmont hotel washington dc on net worth.
Many used-car rental agencies are located in old gas stations or auto repair shops.  These locations are ideal because they offer existing repair facilities and gas pumps.  An agency not located in an old gas station requires construction of a service area for repairs.
The major cost for a used-car rental agency is the initial vehicle inventory.  An agency starting with an inventory of 20 to 30 cars typically spends an average of $40,000. fairmont hotel washington dc An additional $100 to $200 per car generally is needed for safety checks and repairs prior to renting the used car.  An additional $30 to $50 per car per month may be needed for miscellaneous maintenance and repairs. fairmont hotel washington dc Most used car rental agencies purchase parts as needed.  A typical fairmont hotel washington dc agency keeps only necessary maintenance fairmont hotel washington dc items in inventory:  oil, power steering fairmont hotel washington dc fluid, brake fluid, transmission fluid, antifreeze, and coolant.
New equipment for a used-car rental agency generally ranges from $10,000 to $30,000.  Office equipment fairmont hotel washington dc usually needed to operate an agency includes:  office furniture (desk, chairs), cash drawer or cash register, typewriter or computer, calculator, filing cabinet, stationery, invoices, and security system.
Auto repair equipment generally needed includes:  compressors, tire breakdown stand, grease gun, crankcase drain pot, battery chargers, extinguishers, hydraulic floor jack, frame jackstands, creeper, bench grinder, fairmont hotel washington dc work bench, battery hydrometer, retractable drop cords, parts cleaning basin, shop cleaning gear, trash can, parts cabinet, step ladder, fairmont hotel washington dc tool trays, repair manuals, shop vacuum, hydraulic lift, engine analyzer.  Additionally, a sign for the shop usually is required.
Start-up expenses for a used-car rental agency generally range from $60,000 to $125,000.  Typical start-up expenses include:  first and last months' rent, security deposit, leasehold improvements, utility deposit, telephone deposit, payroll, equipment, inventory, fairmont hotel washington dc licenses, tax deposits, fairmont hotel washington dc advertising, accounting services, legal services, insurance, bonding, and any miscellaneous expenses.
.5 to 1.5 times owner's cash flow (OCF).  When applying this Rule of Thumb, it is extremely critical to allow for the future replacement of vehicles while calculating the OCF, as this is a significant cost of doing business.  Desmond suggests that this Rule of Thumb may not apply to major national fairmont hotel washington dc operations with both rental and reservation cost centers.
Rules of Thumb may or may not be industry averages.  They are usually applied to sales in some form.  They result fairmont hotel washington dc in an example of value for a business having that level of sales.  Please see Section II, Chapter 5, for a discussion of Rules of Thumb and their limitations.
The values of fixed assets fairmont hotel washington dc are generally included in Rules of Thumb; however, they are sometimes fairmont hotel washington dc added in separately.  Working Capital (e.g., cash, inventory, less payables), debt and real estate are many times not included. fairmont hotel washington dc These three are generally valued separately and added to the formula value.  Intangible Assets including goodwill and leasehold may be included, but normally only in Rules of Thumb based on earnings/cash flow.
The valuation of this entity as a going concern is usually accomplished through an Income Approach, most probably with a capitalization of earnings.  Please refer to Section II, Chapter 3, of this book for a discussion of the Income Approach to Valuation fairmont hotel washington dc of a Closely Held Business.  See also Section I, Chapter 5, "How to Value a Service Business."