A Step-by-Step Guide to Starting a Limousine Company in a Down Economy

Posted on October 1, 2001 by LCT Staff - Also by this author

Every month in this country, a minimum of 100 entrepreneurs open a limousine company. Despite a national economic slowdown and what many operators call the worst economy since 1991, ambitious people continue to open luxury limousine companies.

A down economy means a smaller pool of potential business. A survey of 460 corporate travel managers, published in the August 14 edition of USA Today, showed that more than 65 percent of those travel professionals reported that they were under strict orders to reduce spending on travel in the coming year. Though only five to seven percent of total corporate travel budget is spent on ground transportation, according to the National Business Travel Association the cuts have been felt by limousine companies nationwide who cater to business travelers. There are clearly fewer business travelers. On the retail side, Americans continue to go to the prom, get married, “do the town” and even go away on vacation. But a down economy means everything gets scaled back.

In any event, if you are determined to start your company despite the economic conditions, there are a number of steps to take to give yourself the best possible chance at success.

STEP 1: Clean Up Your Credit

Start-up companies will almost never be deemed creditworthy. The most common scenario is that the new business owner will be forced to obtain credit under his or her own name. Go to the Web site www.experian.com or call them at (800) 301-7195. Get a copy of your credit report, and find out what your credit score is. Get the negative information resolved on your report as quickly as possible. This may involve writing letters to old creditors, or in some cases it may involve paying off some old debts.

If you have negative credit information that can be explained, document the explanation. For example, you were incapacitated in 1996 with a back injury, and due to lost wages you were chronically late on your mortgage. Provide documentation on these circumstances, and you may still be deemed creditworthy. It is very important to remember that in a down economy, banks and other lenders are eager to connect with solid prospects.

Make yourself an attractive borrower. Should you take a home equity loan for start-up capital for your business? That is a very difficult question. In some instances, the rate for this loan is significantly lower than any other rate that the borrower may be able to obtain. But potential pressure from your spouse may make it more attractive to get financed another way.

Figure on a minimum of six months before you could possibly take any money from your business. If you need money sooner, consider becoming an owner-operator for a reputable company. If your credit score is so poor that you will clearly be a D-rated borrower, you probably would be wise to delay going into business. Save some money. Get your financial life in order. There is nothing wrong with letting common sense defer your dream.

STEP 2: Write a Business Plan

It is a difficult but necessary task. Every entrepreneur needs a clear plan for success. A business plan has many uses. The most important one is a roadmap for you and any potential lenders to follow. If you have never written a business plan before, then you should either get a business consultant to help you or search your local library or bookstore. The book “Turn Your Passion Into Profits: How to Start the Small Business of Your Dreams” by Jane Allon gives an excellent step-by-step method on writing a business plan. If you want to create a business plan with the help of some great software, consider purchasing Business Plan Pro 2002 by Palo Alto Software for approximately $100. LCT included a sample business plan for a small limousine service in the November 1999 issue. Remember, in a down economy your margin for error has been reduced. You must make good decisions from the outset.

Your business plan will force you to do some serious market research. Learn as much as you can about the business and about how to deliver quality service. If you learn to do things the right way, you will put yourself in a position to compete for customers. Buy a set of professional chauffeur videotapes and testing materials from LCT at (310) 533-2400. Get a copy of the current LCT Fact Book, go to the back and find the Editorial Index. There is a list of articles on every industry topic you can imagine. Get the reprints and do your homework.

Research the type of vehicles in your immediate area and the basic price structure of your competitors. Develop an idea of what your market niche will be. Set your prices in the middle of the market. Often, start-up limousine companies are started by a man or woman with a traditional 9-to-5 job. Being available at nights and on weekends dictates that you will be a special-occasion type company. Write your business plan accordingly.

The Small Business Administration (SBA) is a government agency that aligns itself with local lending institutions around the country. Its mission is to lend money to entrepreneurs interested in starting or expanding a business. Most large banks are SBA-approved lenders. The SBA requires borrowers to submit a business plan. It also can connect the borrower with a volunteer business consultant who is most likely a retired executive working with an agency called S.C.O.R.E.

When you are in the planning stages, do the necessary research on the correct permits and licenses that your city requires. Avoid the temptation to take shortcuts. Getting into business without the proper licenses definitely increases your likelihood of failure. Your local limousine association can provide you with this information, as can the National Limousine Association at (800) 652-7007.

STEP 3: Set Up Your Home Office

Designate a specific part of your home as your office. Get a separate phone line, and start answering that line the same way every time, “limousine service, may I help you?” Get into the habit of logging every call. If you cannot have the phone answered by a live person from 8 a.m. to 7 p.m., set up a voice-mail system that assures the caller a fast callback. If you decide to forward your calls to a cell phone, maintain the consistency and professionalism when you answer each call.

Invest in an inexpensive computer. Set up a Web site with basic information on you and your company. Use the site as a potential customer’s information source. Set up deals that link your site to other related vendors, such as florists and wedding planners.

STEP 4: Buy the Best Vehicle(s) and Warranty That You Can Afford

Through my four and a half years writing in this magazine and my “Limousine 101” classes at the LCT Show, I have spoken to countless start-up operators. The biggest question they always have is what vehicles to buy. The answer is, there is no absolute answer.

If you are going into the corporate transportation business, you probably are going to purchase a new or nearly new Cadillac Sedan de Ville or Lincoln Town Car. Often the owner will use this as a personal car in the beginning to save some money. A special-occasion type company will most likely start with a stretch or super-stretch limousine or an SUV such as a Cadillac Escalade or Lincoln Navigator. A sedan or SUV probably needs to be a dark color. However, white is still the color of choice in most of the country for stretch customers.

Try and finance your first vehicle for three years or less, especially if you have opted to purchase used. You will more than likely be covered for a good part of the loan under a warranty. If an extended warranty is available, buy it! Keep a close watch on the mileage driven and on maintenance. Develop a relationship with your local dealer. Learn as much about your vehicles as possible. Your vehicle is your storefront, so make a commitment to keeping it in pristine condition.

STEP 5: Hire and Train the Best Employees Possible

A down economy means a better quality of applicant for full- and part-time positions. Take advantage of this by being selective. An applicant with a clean driving record and experience in hotel or customer service should be given strong consideration. Many experienced industry people believe it is a plus to find applicants without industry experience. In the beginning, drive your clients as often as possible. You will learn the business and get to meet many people. When you have more work than one driver can handle, hire the best driver you can find. If you are asking an employee to commit to being available for a full-time schedule, then make them some modest guarantee as far as their wages. You will become frustrated if you simply tell your driver to “be available” as a substitute for a work schedule.

STEP 6: Create Selling Opportunities

This is the most difficult part of the plan for start-up business owners to comprehend. It takes a mind-boggling number of potential customers to keep even a one-car operator busy. You have to meet people who are legitimate prospects for your service, and you have to keep meeting them every single day. In a down economy, there are fewer people in your pool of potential customers. Your job as an entrepreneur is to create wealth for you, your family and eventually a team of employees. You are in a battle every single day. You must put yourself in a position to meet potential customers every day!

Here are some of the ways to create selling opportunities:

... for more on this topic, check out the October issue of LCT!

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