How to open a rental management company?
There's no doubt that starting a rental management company requires a lot of work, but with expert planning, you'll be well on your way to creating a profitable business venture.
This guide will give you a low down on all of the major steps involved, from choosing a legal structure to creating a financial forecast and registering your business.
We will also walk you through the process of checking whether or not your idea can be viable given market conditions.
Let's embark on this exciting journey together!
What is the business model of a rental management company?
Before thinking about starting a rental management company, you'll need to have a solid understanding of its business model (how it generates profits) and how the business operates on a daily basis.
Doing so will help you decide whether or not this is the right business idea for you, given your skillset, personal savings, and lifestyle choices.
Looking at the business model in detail will also enable you to form an initial view of the potential for growth and profitability, and to check that it matches your level of ambition.
The easiest ways to acquire insights into how a rental management company works are to:
- Speak with rental management company owners
- Undertake work experience with a successful rental management company
- Participate in a training course
Speak with rental management company owners
Talking to seasoned entrepreneurs who have also set up a rental management company will enable you to gain practical advice based on their experience and hindsight.
Learning from others' mistakes not only saves you time and money, but also enhances the likelihood of your venture becoming a financial success.
Undertake work experience with a successful rental management company
Gaining hands-on experience in a rental management company provides insights into the day-to-day operations, and challenges specific to the activity.
This firsthand knowledge is crucial for effective planning and management if you decide to start your own rental management company.
You'll also realise if the working hours suit your lifestyle. For many entrepreneurs, this can be a "make or break" situation, especially if they have children to look after.
First-hand experience will not only ensure that this is the right business opportunity for you, but will also enable you to meet valuable contacts and gain a better understanding of customer expectations and key success factors which will likely prove advantageous when launching your own rental management company.
Participate in a training course
Undertaking training within your chosen industry is another way to get a feel for how a rental management company works before deciding to pursue a new venture.
Whichever approach you go for to gain insights before starting your rental management company, make sure you familiarise yourself with:
- The expertise needed to run the business successfully (do you have the skills required?)
- How a week of running a rental management company might look like (does this fit with your personal situation?)
- The potential turnover of your rental management company and long-term growth prospects (does this match your ambition?)
- The likely course of action if you decide to sell the company or retire (it's never too early to consider your exit)
At the end of this stage, you should be able to decide whether opening a rental management company is the right business idea for you given your current personal situation (skills, desires, money, family, etc.).
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Assembling your rental management company's founding team
The next step to opening your rental management company is to think about the ideal founding team, or to decide to go in alone.
Starting and growing a successful business doesn't have to be a solo journey and setting up a rental management company with several co-founders is generally easier. The business benefits from a management team with a wider skillset, decisions are made together, and the financial risk is shared among the partners, making the journey more collaborative and less daunting.
But, running a business with several partners brings its own challenges. Disagreements between co-founders are quite common, and these can pose risks to the business. That's why it's crucial to consider all aspects before starting your own business.
We won't go into too much detail here, as this is a complex topic that deserves its own guide, but we do recommend that you ask yourself the following questions:
- What is the ideal number of co-founders for this venture?
- Are you on the same wavelength as your potential partners in terms of vision and ambition?
- How will you deal with potential failure?
Let's look at each of these questions in more detail.
What is the ideal number of co-founders for this venture?
To answer this question you will need to consider the following:
- What skills do you need to run the business? Are you lacking any?
- How much startup capital do you need? How much do you have?
- How are key decisions going to be made? - It is usually advisable to have an odd number of partners (or a majority shareholder) to help break the tie.
Put simply, your co-founders contribute skills, capital, or both. Increasing the number of partners becomes advantageous when there is a deficiency in either of these resources.
Are you on the same wavelength as your potential partners in terms of vision and ambition?
Your business partners should share the same short and long-term vision, be it business expansion or social responsibility, to avoid future frustrations and simplify decision-making. Different views are natural, but alignment is ideal.
In any case, you should think of having an exit mechanism in place in case one of the partners wants to move on.
How will you deal with potential failure?
We wish you nothing but success when starting up and growing your rental management company, but it's always wise to have a backup in case things don't go as planned.
How you deal with a potential failure can vary significantly based on the relationship you have with your business partner (close friend, spouse, ex-colleague, etc.) and the personal circumstances of each of you.
For instance, starting a business with your spouse might seem appealing, but if it doesn't succeed, you risk losing 100% of the household income at once, which could be stressful.
Similarly, going into a partnership with a friend can put pressure on the friendship in the event of failure or when you need to make difficult decisions.
There is no wrong answer, but it is essential to carefully evaluate your options before starting up to ensure you're well-prepared for any potential outcomes.
Conducting market research for a rental management company
The next step in launching a rental management company is to carry out market research. Let's take a look at what this involves.
The objectives of market research
The objective here is very simple: to assess the level of demand for your business and whether there is an opportunity for it to thrive in your chosen location.
The first step will be to check that the market is not saturated with competing offers and that there is room for a new player: your rental management company.
Your market analysis will also help you identify a concept and market positioning that has every chance of being successful in your target market, thereby helping increase your business's chances of success.
Carrying out market research for your rental management company will also enable you to better understand the expectations of your future customers and the most effective ways to communicate with them in your marketing plan.
Analyse key trends in the industry
Your market research should start with an industry analysis in order to gain a good understanding of the main players and current trends in your sector.
Once you've delved into the current state of the market, it will be time to assess what proportion of your target market can be seized by your rental management company. To do this, you will need to consider both the demand and supply side of the market.
Assess the demand
After checking out the industry, let's shift our focus to figuring out what your potential customers want and how they like to buy.
A classic mistake made by first-time entrepreneurs is to assess demand on the global or national market instead of concentrating on their target market. Only the market share that can be captured by your company in the short term matters.
Your demand analysis should seek to find answers to the following questions:
- Who are your target customers?
- How many are there?
- What are their expectations?
- What are their buying habits?
- How much budget do they have?
- What are the different customer segments and their characteristics?
- What are the main distribution channels and means of communication for reaching each segment?
The aim of the demand analysis is to identify the customer segments that could be targeted by your rental management company and what products and services you need to offer to meet their expectations.
Analyse the supply side
You will also have to familiarize yourself with the competing rental management companies on the market targeted by your future business.
Amongst other things, you’ll need to ask yourself:
- Who are the main competitors?
- How many competitors are already present?
- Where are they located?
- How many people do they employ?
- What is their turnover?
- How do they set their prices?
- Are they small independent businesses or national players?
- Do they seem to be in difficulty or are they flourishing?
- What is their market positioning?
- What types of products and services do they offer?
- What do customers seem to like about them?
The aim of the competitive analysis is to identify who your competitors will be and to gather information that will help you find a differentiating commercial positioning (more on that later in this guide).
Regulations
Conducting market research is also an opportunity to look at the regulations and conditions required to do business.
You should ask yourself the following questions:
- Do you need to have a specific degree to open a rental management company?
- Do you need specific licences or permits?
- What are the main regulations applicable to your future business?
Given that your project is at an early stage, your focus should be to clear that there are no roadblocks from a regulatory standpoint before you deep dive into the planning process.
Once your project is more advanced, you will have the opportunity to talk about regulation more in-depth with your lawyer.
Concluding your market research
By the time your market research is completed, you should have either:
- Pinpointed an untapped business opportunity
- Or arrived at the realisation that the market is saturated, prompting the search for alternative business ideas or models.
If the conclusion is that there is an opportunity in the market to cater to one or more customer segments currently overlooked by competitors, that's great!
Conversely, if you come to the conclusion that the market is already saturated, don’t panic! The good news is that you won’t spend several years working hard on a project that has little chance of success. There is no shortage of business ideas either - at The Business Plan Shop, we have identified more than 1,300 potential business ideas!
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Choosing the right concept and positioning for your rental management company
Once your market research is completed, it's time to consider the type of rental management company you want to open and define precisely your company's market positioning in order to capitalise on the opportunity you identified during your market research.
Market positioning refers to the place your product and service offering occupies in customers' minds and how they differ from competing products and services. Being perceived as the premium solution, for example.
There are four questions you need to consider:
- How will you compete with and differentiate yourself from competitors already on the market?
- Can you join a franchise to reduce the risk?
- Is it better to start or buy a rental management company already in operation?
- How will you validate your concept and market positioning?
Let's look at each of these in a little more detail.
How will you compete with and differentiate yourself from competitors already on the market?
When you choose to start up a rental management company, you are at a disadvantage compared to your rivals who have an established presence on the market.
Your competitors have a reputation, a loyal customer base and a solid team already in place, whereas you're starting from scratch...
Entering the market and taking market share from your competitors won't happen automatically, so it's important to carefully consider how you plan to establish your presence.
There are four questions to consider here:
- Can you avoid direct competition by targeting a customer segment that is currently poorly served by other players in the market?
- Can you offer something unique or complementary to what is already available on the market?
- How will you build a sustainable competitive advantage for your rental management company?
- Do you have the resources to compete with well-established competitors on your own, or would it be wiser to explore alternative options (more on that below)?
Also, think about how your competitors will react to your arrival on their market.
Are there franchises available for you to join?
Opening a new rental management company from the "ground up" is exciting because you'll enjoy more freedom and flexibility. However, you'll need to put in extra effort to establish a trustworthy brand and attract customers.
On the other hand, joining a franchise might limit your personal flexibility, but you'll be operating under an established brand name. This is likely to bring significant benefits in terms of operational processes, supplier relationships, recruitment, and more.
Of course, joining a franchise is not free: you will have to pay an entry fee and an annual royalty (generally as a percentage of sales).
And franchising opportunities vary from country to country and region to region, so there's no guarantee that you will be able to find a franchise to join.
Nevertheless, where possible, joining a franchise is generally a good way of reducing the risk associated with setting up a rental management company, and is well worth considering.
Is it better to start or buy a rental management company already in operation?
Another alternative to opening a new business is to take over a rental management company already trading.
Purchasing an existing rental management company means you get a loyal customer base and an efficient team. It also avoids disrupting the equilibrium in the market by introducing a new player.
A takeover hugely reduces the risk of the business failing compared to starting a new business, whilst giving you the freedom to change the market positioning of the business taken over if you wish.
This makes buying an existing rental management company a solid alternative to opening your own or operating under a franchise.
However, here again, buying a business requires more capital compared to starting a rental management company from scratch, as you will need to purchase the business from its current owner.
How will you validate your concept and market positioning?
Regardless of how you choose to establish your business, it's crucial to make sure that the way you position your company aligns with the expectations of your target market.
To achieve this, you'll have to meet with your potential customers to showcase your products or services and get their feedback.
Explore the ideal location to start your rental management company
The next stage in our guide on how to start a rental management company: choosing where to set up shop.
Setting up your business in the right location will have a direct impact on your chances of success, so it's a good idea to think things through before you launch.
To help you decide where to set up your business, we recommend considering the following factors:
- Visibility and foot traffic - This is important for a rental management company as it can attract potential renters and increase exposure for available properties.
- Parking space, road and public transport accessibility - This is crucial for both employees and clients to have easy access to the rental properties.
- Proximity to target customers - Being close to the target market can make it easier for the rental management company to reach and communicate with potential renters.
- Competitor presence - It is important to consider the competition in the area to ensure the rental management company can stand out and offer unique services.
These criteria will need to be refined according to the specific features of your project.
After weighing the factors mentioned earlier, it's crucial to focus on your startup's budget. Look for a location that suits your business needs while being affordable, especially in the short term.
One of the issues that will also come up is the long-term future of your location, particularly if you opt to rent your premises rather than buy. In this case, you will need to consider the conditions for renewing the lease (duration, rent increases, etc.).
Lease agreements vary widely from country to country, so make sure you check the terms applicable to your situation and have your lawyer review your lease before you sign.
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What legal form should I choose for my rental management company?
The next step to start a rental management company is to choose the legal form of your business.
The legal form of a business simply means the legal structure it operates under. This structure outlines how the business is set up and defines its legal obligations and responsibilities.
Why is your rental management company's legal form important?
Choosing the right legal form for your rental management company is important because this will affect:
- Taxation: your tax obligations depend on the legal structure you choose, and this principle applies to both personal income tax and business taxes.
- Risk exposure: some legal structures have a legal personality (also known as corporate personality) and limited liability, which separates them from the owners running the business. This means that the business would be liable rather than the owners if things were to go wrong (lawsuit, debt owed in case of bankruptcy, etc.).
- Decision-making and governance: how you make key decisions varies based on the legal form of your business. In some cases you might need to have a board of directors and organise general assemblies to enable shareholders to influence major decisions with their voting rights.
- Financing: securing funding from investors requires you to have a company and they will expect limited liability and corporate personality to protect them legally.
- Paperwork and legal formalities: the legal structure you select determines whether certain obligations are necessary, such as producing annual accounts, or getting your books audited.
Popular business legal forms
The specific names of legal structures vary from country to country, but they usually fall within the two main categories below:
- Individual businesses
- Companies
Individual businesses
Individual businesses, like sole traders or sole proprietorships, are made for self-employed entrepreneurs and freelancers rather than businesses which employ staff.
They benefit from straightforward administrative requirements, minimal paperwork to start, simpler tax calculations, and streamlined accounting procedures.
However, the downside is that there's typically no legal distinction between the business and the person responsible for day-to-day operations. This means the owner's personal assets are at risk if the business faces problems or goes bankrupt.
There is also no share capital in such a structure, meaning that individual businesses cannot raise equity from investors which seriously limits funding options.
Companies
Companies are versatile structures suited to projects of all sizes in terms of number of founders, number of employees and amount of capital.
They are a bit more complex to operate than individual businesses with more formalities, stringent accounting requirements, more complex tax implications, etc.
In return, they offer stronger protections to their shareholders. They usually benefit from having their own legal identity and limited liability, meaning co-founders and investors can only ever lose the amount of money they have put into the company.
For instance, if things were to go south (the company files for bankruptcy or there is a legal issue), the company would take the hit, safeguarding the personal assets of the founders and investors.
How should I choose my rental management company's legal structure?
Deciding on a legal form is easy once you've estimated your sales, decided whether or not you need employees and figured out the number of co-founders joining you.
It's essential to remember that a solid business idea will succeed no matter which legal structure you pick. Tax laws change regularly, so you can't rely on specific tax advantages tied to a particular structure when starting a business.
A proven approach is to look at what legal structures your top competitors are using, and go with the most common option as a working assumption. Once your idea is mature enough, and you're getting closer to officially registering your business, you can get advice from a lawyer and an accountant to confirm your choice.
Can I switch my rental management company's legal structure if I get it wrong?
Yes, changing your legal structure later is possible, though it may involve selling the old entity to a new entity in some cases, which adds further expenses. If you want to save on such costs, it makes sense to pick the correct legal form for your business the first time around.
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How much money do I need to start a rental management company?
To answer this key question, we first need to look at the resources you'll need to launch your rental management company and keep it running on a daily basis. Let's take a look at what that entails.
Since each venture is distinct, providing an average budget for starting a rental management company is impossible.
We strongly advise careful consideration when reading estimates on the web. It’s best to ask yourself the following questions:
- Is my project similar (location, concept, planned size, etc.)?
- Can I trust where this information is coming from?
- Is the data fresh or stale?
Your thinking behind the investments and human resources required to launch and operate the business will then enable you to cost each item and include them in your financial forecast (which we'll look at later in this guide).
Once complete, the forecast will give you a precise idea of the initial investment required and profitability potential for your business idea.
Startup costs and investments to start a rental management company
Let's start with the investments. To set up a rental management company, initial working capital and investments can include the following items:
- Property Renovations: This includes any major renovations or upgrades to the rental properties such as new flooring, kitchen or bathroom renovations, or roof repairs. These are considered fixed assets as they add value to the property and have a useful life of more than one year.
- Furniture and Appliances: As a rental management company, you will need to purchase furniture and appliances for your rental properties. These items are considered fixed assets as they are necessary for the operation of the business and have a useful life of more than one year.
- Office Equipment: This includes any equipment that is necessary for the day-to-day operations of your rental management company, such as computers, printers, and office furniture. These items are considered fixed assets as they are necessary for the operation of the business and have a useful life of more than one year.
- Maintenance and Repairs: While not a traditional capital expenditure, it is important to budget for ongoing maintenance and repairs of your rental properties. This could include things like plumbing or electrical repairs, painting, or landscaping. These expenses can add up over time and should be included in your expenditure forecast.
- Property Acquisitions: As your rental management company grows, you may decide to acquire new properties to add to your portfolio. These acquisitions are considered fixed assets as they add value to your business and have a useful life of more than one year.
Of course, you will need to adapt this list to your company's specific needs.
Staffing requirements to operate a rental management company
You'll also need to think about the staff required to run the business on a day-to-day basis.
The human resources required will vary according to the size of your company.
Once again, this list is only indicative and will need to be adjusted according to the specifics of your rental management company.
Operating expenses of a rental management company
The final point to consider when analyzing the resources required is the question of operating costs.
Operating expenses for a rental management company may include:
- Staff costs: Includes salaries, wages, benefits, and payroll taxes for employees such as property managers, maintenance staff, and administrative personnel.
- Accountancy fees: Covers the cost of hiring an accountant to handle financial statements, tax preparation, and other accounting tasks.
- Insurance costs: Includes property insurance, liability insurance, and workers' compensation insurance to protect against potential risks and losses.
- Software licenses: Covers the cost of software programs used for property management, such as accounting software, customer relationship management (CRM) software, and property management software.
- Banking fees: Includes charges for maintaining bank accounts, wire transfers, and other banking services used for rent collection and other financial transactions.
- Advertising and marketing expenses: Covers the cost of promoting rental properties through various channels, such as online listings, print ads, and signage.
- Maintenance and repair costs: Includes expenses for regular maintenance, repairs, and upgrades to rental properties to ensure they are safe and well-maintained for tenants.
- Utilities: Covers the cost of electricity, gas, water, and other utilities used in rental properties.
- Property taxes: Includes taxes paid to local authorities on rental properties.
- Legal fees: Covers the cost of hiring an attorney for legal advice and representation in legal matters related to property management.
- Office expenses: Includes the cost of office supplies, equipment, and furnishings needed for day-to-day operations.
- Professional development and training: Covers the cost of training and development programs for staff to improve their skills and knowledge in property management.
- Travel expenses: Includes the cost of travel for property managers and other staff to visit rental properties, attend meetings, and conferences related to property management.
- Cleaning and janitorial services: Includes the cost of hiring cleaning and janitorial services to maintain the cleanliness of rental properties and common areas.
- Property management fees: If you are outsourcing property management to a third-party company, this expense will cover the cost of their services.
Here also, this list will need to be tailored to the specifics of your rental management company but should be a good starting point for your budget.
Create a sales & marketing plan for your rental management company
The next step to launching your rental management company is to think about the actions you need to take to promote your products and services and build customer loyalty.
Here, you'll be looking at the following issues:
- What is the best method to attract as many new customers as possible?
- How to build customer loyalty and spread word of mouth?
- What human and financial resources will be required to implement the planned actions?
- What level of sales can I expect to generate in return?
The precise sales and marketing levers to activate will depend on the size of your rental management company. But you could potentially leverage some of the initiatives below.
Besides your sales and marketing plan, your sales forecast will be affected by seasonal patterns related to the nature of your business, such as fluctuations during the holiday season, and your competitive landscape.
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Build your rental management company's financial forecast
The next step to start your rental management company: putting your financial projections together.
What is the financial forecast for a rental management company?
A forecast is a quantified decision-making document that shows the initial investment required to open a rental management company and the company's potential profitability and cash flow generation over the next 3 to 5 years.
As you think about your rental management company idea, the main role of financial projections will be to help you decide whether it makes sense to create the company.
Building a financial forecast helps determine the amount of initial financing required to start your rental management company.
In fact, creating financial projections is the only way to assess the amount of initial financing you'll need to open your rental management company, and to make sure your project makes economic and financial sense.
Keep in mind that very few business ideas are financially viable. At The Business Plan Shop, we've seen nearly a million business start-up ideas, and we estimate that less than one in four is economically viable.
Your forecast will therefore require your full attention and constant revision, as your project matures. It's also a good idea to simulate different scenarios to anticipate several possibilities (what happens if your sales take longer than expected to ramp up, for example), so you're ready for all eventualities.
When seeking financing, your forecast will be incorporated into your business plan, which is the document you will use to present your business idea to financial partners. We'll come back to the business plan in more detail later in this guide.
Creating and updating your rental management company's forecast is an ongoing process. Indeed, having up-to-date financial projections is the only way to maintain visibility over your company's future cash flow and cash position.
Forecasting is, therefore, the financial management tool that will be with you throughout the life of your company. Once you've started trading, you'll need to regularly compare the difference between your actual accounts and your forecasts, and then adjust them to maintain visibility over your future cash flows.
What does a financial projection look like?
Your rental management company forecast will be presented using the following financial tables.
The projected P&L statement
The projected P&L statement for a rental management company shows how much revenue and profits your business is expected to generate in the future.
The projected balance sheet of your rental management company
Your rental management company's projected balance sheet provides a snapshot of your business’s financial position at year-end.
The cash flow forecast
A projected cash flow statement for a rental management company is used to show how much cash the business is expected to consume or generate in the years to come.
Which solution should you use to make a financial forecast for your rental management company?
The easiest and safest way to create your rental management company forecasts is to use an online financial forecasting software, like the one we offer at The Business Plan Shop.
There are several advantages to using professional software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- The software helps you identify and correct any inconsistencies in your figures
- You can create scenarios to stress-test your forecast's main assumptions to stress-test the robustness of your business model
- After you start trading, you can easily track your actual financial performance against your financial forecast, and recalibrate your forecast to maintain visibility on your future cash flows
- You have a friendly support team on standby to assist you when you are stuck
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Finding a name and registering your rental management company
The next step in starting a rental management company is to decide on a name for your entity.
For starters, you cannot take a name similar to a name already registered by a competitor or protected by a trademark without inevitably risking getting sued. So you’ll need to find a name available, and reserve it before others can.
In addition, you will probably want to use the same name for:
- Your company’s legal name - Example LTD or Example Inc
- Your trading name - Example
- A trademark - Example ®
- Your company’s domain name - Example.com
The issue is that you’ll need to register your name in three different places almost simultaneously, but with each place having its own timeframes:
- Registering a domain name is instantaneous
- Registering a trademark takes at least 3 months (if your application is accepted)
- Registering a company depends on the country, but it's generally fairly quick
You will therefore be faced with the choice of either registering everything at once in the hope that your name will be accepted everywhere, or proceeding step by step in order to minimise costs, but taking the risk that someone else will register one of the names you wanted in the meantime.
Our advice is to discuss the strategy with your legal counsel (see further down in this guide) and to give priority to your domain names and your registered trademark. You'll always have the option of using a trading name that's different from your company's legal name, and that's not a big deal.
To check that the name you want is not already in use, you should consult:
- Your country's business register
- The register of trademarks where you wish to obtain protection
- Your preferred search engine
- A domain name reservation company (such as GoDaddy)
If the name you want is available, you can go ahead and register it.
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Deciding upon the corporate identity of your rental management company
The next step in opening a rental management company is to look at your company's visual identity.
Your company's “visual identity” plays a crucial role in shaping your brand image. It helps you to be recognizable and to stand out from your competitors.
Although you can define your visual identity yourself, it is generally advisable to call on the services of a designer or marketing agency to achieve a professional result.
At a minimum, you will need to define the following elements:
- Logo
- Brand guidelines
- Business cards
- Website theme
Logo
Your rental management company's logo allows others to quickly identify your company. It will be used on all your communication media (website, social networks, business cards, etc.) and official documents (invoices, contracts, etc.).
In addition to its design, it's important that your logo is available in a variety of colors, so that it can be seen on all media (white, dark background, etc.).
Brand guidelines
Having brand guidelines enables you to maintain consistency in formatting across all your communications media and official documents.
Brand guidelines define the font (family and size), design and colours used by your brand.
In terms of fonts, for example, you may use Roboto in size 20 for your titles and Lato in size 14 for your texts.
The colours used to represent your brand should generally be limited to five:
- The main colour,
- A secondary colour (the accent),
- A dark background colour (blue or black),
- A grey background colour (to vary from white),
- Possibly another secondary colour.
Business cards
Designing business cards for your rental management company is a must, as they will allow you to communicate your contact details to your customers, suppliers, partners, potential recruits, etc.
In principle, they will include your logo and the brand guidelines that we mentioned above.
Website theme
In the same way, the theme of your rental management company website will be based on your logo and the brand guidelines we mentioned above.
This involves defining the look and feel of your site's main graphic elements:
- Buttons,
- Menus,
- Forms,
- Banners,
- Etc.
Navigate the legal and regulatory requirements for launching your rental management company
The next thing to do in getting a rental management company off the ground is to handle all the legal and regulatory requirements. We recommend that you be accompanied by a law firm for all of the steps outlined below.
Intellectual property
One of your priorities will be to ensure that your company's intellectual property is adequately protected.
As explained before, you can choose to register a trademark. Your lawyer can help you with a detailed search to make sure your chosen trademark is unique and doesn't clash with existing ones.
They'll assist in preparing the required documents and steer you in picking the right categories and locations for trademark registration.
Moreover, your lawyer can offer guidance on additional measures to protect other intellectual property assets your company may have.
Getting your rental management company paperwork in order
For day-to-day operations, your rental management company will need to rely on a set of contractual documents.
Your exact needs in this respect will depend on the country in which you are launching your rental management company, the number of partners and the envisaged size of the company.
However, you will probably need at least the following documents:
- Employment contracts
- General terms and conditions of sale
- General terms and conditions of use for your website
- Privacy Policy for your website
- Cookie Policy for your website
- Invoices
- Etc.
Applying for licences and permits and registering for various taxes
Operating your business legally may require licences and business permits. The exact requirements applicable to your situation will depend on the country in which you set up your rental management company.
The lawyers who advise you will also be able to guide you with regard to all the rules applicable to your business.
Similarly, your accountant will be able to help you take the necessary steps to comply with the tax authorities.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast and write a business plan to help convince investors that your business idea can be profitable.
Create a business plan for your rental management company
The next step to open a rental management company: put together your business plan.
What is a business plan?
To keep it simple, a business plan comprises two crucial components:
- Firstly, a numerical part, the financial forecast (which we mentioned earlier), which highlights the initial financing requirements and profitability potential of the rental management company,
- And a written, well-argued section that presents your project in detail, aims to convince the reader of its chances of success, and provides the context needed to assess whether the forecast is realistic or not.
The business plan will enable you to verify the coherence of your project, and ensure that the company can be profitable before incurring further costs. It will also help you convince business and financial partners.
As you can see, your business plan must be convincing and error-free.
How to write a business plan for a rental management company?
Nowadays, the modern and most efficient way to write a rental management company business plan is to use startup business plan software like the one we offer at The Business Plan Shop.
Using The Business Plan Shop to create a business plan for arental management company has several advantages :
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You are guided through the writing process by detailed instructions and examples for each part of the plan
- You can access a library of dozens of complete startup business plan samples and templates for inspiration
- You get a professional business plan, formatted and ready to be sent to your bank or investors
- You can create scenarios to stress test your forecast's main assumptions
- You can easily track your actual financial performance against your financial forecast by importing accounting data
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
If you're interested in using this type of solution, you can try The Business Plan Shop for free by signing up here.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast and write a business plan to help convince investors that your business idea can be profitable.
How to raise finance for my rental management company?
Once your business plan has been drafted, you’ll need to think about how you might secure the financing necessary to open your rental management company.
The amount of initial financing required will obviously depend on the size of your rental management company and the country in which you wish to set up.
Businesses have access to two main categories of financing: equity and debt. Let's take a closer look at how they work and what sources are available.
Equity funding
At a high level, the equity of your rental management company will consist of the money that founders and potential investors will invest to launch the company.
Equity is indispensable as it provides the company with a source of long-term (often permanent) financing and demonstrates the founders' conviction in the company's chances of success, since their investments would be lost in the event of bankruptcy.
Equity investors can generate a return on their investment through dividends (which can only be paid out if the company is profitable) or capital gains on the resale of their shares (if the company is attractive enough to attract a buyer).
As you can see, the equity investors' position is extremely risky, since their capital is at risk and can be lost in the event of bankruptcy, and the company must be profitable or resellable before they can hope to generate a return on their investment.
On the other hand, the return on investment that equity investors can expect to generate by investing in a rental management company can be very substantial if the company is successful.
This is why equity investors look for start-up ideas with very high growth or profitability potential, in order to offset their risk with a high potential return on investment.
In technical terms, equity includes:
- Share capital and premiums: which represent the amount invested by the shareholders. This capital is considered permanent as it is non-refundable. In return for their investment, shareholders receive shares that entitle them to information, decision-making power (voting in general assembly), and the potential to receive a portion of any dividends distributed by the company.
- Director loans: these are examples of non-permanent capital advanced to the company by the shareholders. This is a more flexible way of injecting some liquidity into your company than doing so as you can repay director loans at any time.
- Reserves: these represent the share of profits set aside to strengthen the company's equity. Allocating a percentage of your profits to the reserves can be mandatory in certain cases (legal or statutory requirement depending on the legal form of your company). Once allocated in reserves, these profits can no longer be distributed as dividends.
- Investment grants: these represent any non-refundable amounts received by the company to help it invest in long-term assets.
- Other equity: which includes the equity items which don't fit in the other categories. Mostly convertible or derivative instruments. For a small business, it is likely that you won't have any other equity items.
The main sources of equity are as follows:
- Money put into the business from the founders' personal savings.
- Money invested by private individuals, which can include business angels, friends, and family members.
- Funds raised through crowdfunding, which can take the form of either equity or donations (often in exchange for a reward).
- Government support to start-ups, for example, loans on favourable terms to help founders build up their start-up capital.
Debt funding
The other way to finance your rental management company is to borrow. From a financial point of view, the risk/return profile of debt is the opposite of that of equity: lenders' return on investment is guaranteed, but limited.
When it borrows, your company makes a contractual commitment to pay the lenders by interest, and to repay the capital borrowed according to a pre-agreed schedule.
As you can see, the lenders' return on investment is independent of whether or not the company is profitable. In fact, the only risk taken by lenders is the risk of the company going bankrupt.
To avoid this risk, lenders are very cautious, only agreeing to finance when they are convinced that the borrowing company will be able to repay them without problems.
From the point of view of the company and its stakeholders (workforce, customers, suppliers, etc.), debt increases the risk of the venture, since the company is committed to repaying the capital whether or not it is profitable. So there's a certain distrust towards heavily indebted companies.
Companies borrow in two ways:
- Against their assets: this is the most common way of borrowing. The bank finances a percentage of the price of an asset (a vehicle or a building, for example) and takes the asset as collateral. If the company cannot repay, the bank seizes the asset and sells it to limit its losses.
- Against their future cash flows: the bank reviews the company's financial forecast to estimate how much the company can comfortably borrow and repay, and what terms (amount, interest rate, term, etc.) the bank is prepared to offer given the credit risk posed by the company.
When creating a rental management company, the first option is often the only one available, as lenders are often reluctant to lend on the basis of future cash flows to a structure that has no track record.
The type of assets that can be financed using the first method is also limited. Lenders will want to be sure that they can dispose of foreclosed assets if needed, so they need to be assets that have an established second-hand market.
That being said, terms and conditions also depend on the lender: some banks are prepared to finance riskier projects, and not all have the same view of your company's credit risk. It also depends on the collateral you can offer to reduce risk, and on your relationship with the bank.
In terms of possible sources of borrowing, the main sources here are banks and credit institutions.
In some countries, it's also possible to borrow from private investors (directly or via crowdlending platforms) or other companies, but not everywhere.
Takeaways on how to finance a rental management company
Multiple options are available to help you raise the initial financing you need to launch your rental management company.
There are two types of financing available to companies. To open a rental management company, an equity investment will be required and may be supplemented by bank financing.
Launching your rental management company and monitoring progress against your forecast
Once you’ve secured financing, you will finally be ready to launch your rental management company. Congratulations!
Celebrate the launch of your business and acknowledge the hard work that brought you here, but remember, this is where the real work begins.
As you know, 50% of business start-ups do not pass the five-year mark. Your priority will be to do everything to secure your business's future.
To do this, it is key to keep an eye on your business plan to ensure that you are on track to achieve your goals.
No one can predict the future with certainty, so it’s likely that your rental management company's financial performance will differ from what you predicted in your forecast.
This is why it is recommended to make several forecasts:
- A base case (most likely)
- An optimistic scenario
- And a pessimistic scenario to test the robustness of your financial model
If you follow this approach, your numbers will hopefully be better than your optimistic case and you can consider accelerating your expansion plans. That’s what we wish you anyway!
If, unfortunately, your figures are below your base case (or worse than your pessimistic case), you will need to quickly put in place corrective actions, or consider stopping the activity.
The key, in terms of decision-making, is to regularly compare your real accounting data to your rental management company's forecast to:
- Measure the discrepancies and promptly identify where the variances with your base case come from
- Adjust your financial forecast as the year progresses to maintain visibility on future cash flow and cash position
There is nothing worse than waiting for your accountant to prepare your year-end accounts, which can take several months after the end of your financial year (up to nine months in the UK for example), to realise that the performance over the past year was well below the your base case and that your rental management company will not have enough cash to keep running over the next twelve months.
This is why using a financial forecasting solution that integrates with accounting software and offers actuals vs. forecast tracking out of the box, like the financial dashboards we offer at The Business Plan Shop, greatly facilitates the task and significantly reduces the risk associated with starting a business.
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Key takeaways
- This guide outlines the 15 key steps to open a rental management company.
- The financial forecast is the tool that will enable you to validate the financial viability of your business idea.
- The business plan is the document that will enable you to approach your financial and commercial partners to convince them of the strengths of your project and secure the financing you need to launch your business.
- The real work begins once you've launched your business, and the only way to maintain visibility of your company's future cash flow is to keep your forecast up to date.
- Using a financial planning and analysis platform that combines forecasting, business planning and actual vs. forecast tracking and monitoring, such as The Business Plan Shop, makes the process easier and reduces the risks involved in starting a business.
We hope this guide has helped you understand how to start a rental management company. Please don't hesitate to contact us if you have any questions.
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Founder & CEO at The Business Plan Shop Ltd
