How to Start a Parking Lot Business
Looking to capitalize on a prime, vacant lot? A parking lot in the right location can be lucrative with relatively low ongoing expenses. With the growing demand for parking spaces in urban and suburban areas, this industry offers opportunities for both growth and profitability. However, getting started involves more than just paving a piece of land. In this guide, we will walk you through the business overview, industry landscape, steps to get started, and answers to common questions.
Parking Lot Business Overview
A parking lot provides spaces to park in a convenient location for a fee. Parking lots can be exterior lots or parking garages. Vehicle owners can rent space for their vehicle by the hour or day or can be leased on a monthly or long-term basis. This can range from surface-level parking lots to multi-level parking garages. As an owner, you’ll be responsible for managing the property, ensuring the safety of the vehicles, maintaining the infrastructure, and determining the pricing strategy.
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The parking lot and garage industry, comprises establishments that provide parking space for motor vehicles, usually on an hourly, daily, or monthly basis, which in the U.S. generated $8.2 billion in 2022. It has experienced slow, but steady growth over the past decade, driven by increasing urbanization and a growing number of vehicles on the road.
Several trends are shaping the parking lot industry. First off, increased development and urban density is creating parking scarcity, and that brings a need for parking spaces. Technology is also playing a significant role, with automated payment systems and mobile apps revolutionizing how customers pay for parking. Sustainability is also a key trend, with a growing emphasis on green parking practices, such as installing electric vehicle charging stations.
By capitalizing on these trends with smart positioning and offerings, new parking companies can claim their spot in the market.
The target market for a parking lot business can be quite varied and encompasses different segments of the population, depending on the location, type of parking facility, and specific services offered. Here are some of the key target market segments:
- Local commuters: Individuals who commute to work, especially in urban areas, often need a place to park their vehicles during business hours.
- Local residents: In densely populated urban areas, residents may need overnight parking solutions if their living accommodations don’t include parking.
- Businesses: Some parking lots focus on offering monthly or long-term parking solutions to nearby businesses for their employees and clients.
- Event attendees: Parking lots near stadiums, concert venues, and theaters serve those attending events, shows, and games.
- Shoppers: Parking lots located near shopping centers, malls, and retail districts cater to shoppers needing short-term parking.
- Tourists: In tourist destinations, visitors often require parking for rental cars or their personal vehicles.
- Airport travelers: Frequent business and personal airline travelers needing parking for the duration of trips. Highlight airport proximity.
Checklist To Start A Parking Lot Business
If you’re thinking about starting your own parking lot business, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.
Step 1: Identify a Target Location
Performing thorough market research is the first and most critical step to take before investing in a new parking lot business. Validating demand first prevents wasting money leasing or purchasing land for a lot that may struggle to generate revenue. Parking is often perceived as easy money, but lots can fail without sufficient customer volume.
Research should begin by identifying areas with obvious parking congestion. Look for locations in areas with high vehicle traffic. This could be near business districts, shopping malls, tourist attractions, or transportation hubs. High traffic areas are likely to have a higher demand for parking. Driving around to observe crowded on-street parking and full garage signs indicates demand.
Next, survey existing parking rates and occupancy. Count parked cars throughout the day/week and note prices at nearby lots. Consistently full competitors with premium pricing suggest room for another option, and this research can give you an idea of the competition level and help you strategize your own services and pricing.
If your location would target residents or local businesses, interview people in the target area if they would use a new, reasonably priced lot. Ask business patrons and residents about their parking pain points to gauge interest.
In many areas, you can check city parking permit waitlists and parking-related complaints on community boards. Long waitlists and resident frustrations reveals potential unmet demand.
Leveraging these low-cost demand assessment techniques before investing in a lot provides the insights needed to size up the business opportunity and avoid bad locations.
Step 2: Secure Funding
Starting a parking lot business requires a considerable investment in land acquisition, construction, technology, and various other initial expenses. Thus, securing adequate funding is a vital step in launching the business. Here’s an in-depth look at what to expect when seeking funding for a parking lot business.
Personal savings: Personal savings should be the first source of funding. The most significant benefit of this option is that there are no loan payments to budget for, offering financial flexibility. However, the costs associated with starting a parking lot business tend to be on the higher side. Thus, personal savings may only cover a portion of the expenses.
Traditional lenders: Banks and other traditional lenders often play a significant role in funding parking lot businesses. Generally, lenders may require a borrower to invest at least 15% of their personal funds, have a credit score above 650, and provide sufficient collateral. If a bank feels the loan is too risky, they might apply for a Small Business Administration (SBA) loan guarantee, which can offer added security to the lender.
Friends and family: Another common source of funding is seeking assistance from friends and family. This option can provide more favorable terms, but it’s vital to put agreements in writing. Clearly defined terms and conditions can prevent misunderstandings and preserve personal relationships.
Investors: For those looking at investment options, local angel investors or real estate investors might be a potential source of funding.
Step 3: Register the Business
Starting a parking lot business involves several legal steps, including forming a business structure, registering the business name, and obtaining necessary licenses and permits. It’s crucial to note that each state has different regulations, so it’s essential to research your state’s specific requirements.
Select a business structure: There are four primary business structures to consider for a parking lot business:
- Sole proprietorship: Offers ease of startup and lower cost. However, it doesn’t provide personal liability protection.
- Partnership: Similar to the sole proprietorship, but with two or more individuals owning the business. Partnerships provide no personal liability protection.
- Limited Liability Company (LLC): Popular for many businesses, including parking lots, as it provides liability protection advantages like a corporation but with more flexibility.
- Corporation: Provides the highest level of liability protection but comes with more complexity and cost.
The choice between these structures depends on the specific needs and circumstances of the owners, such as the level of liability protection required and tax considerations. Many parking lot businesses opt for an LLC or corporation, primarily due to liability protection.
Related: Comparison of business structures
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Obtain business licenses and permits: Depending on your location, you may also need special parking lot permits from the city, In addition, there will likely be a variety of general licenses or permits needed before opening. This could include a business license, seller’s permit, and Employer Identification Number (EIN).
Zoning & building permits: Parking lots must comply with local zoning laws, so before purchasing or leasing a property, consult with local authorities to ensure that the chosen location is zoned for parking. Also, if construction or significant alterations are required, obtain the necessary building permits before starting construction. Stormwater management plans and lighting regulations may impact your location as well.
Comply with accessibility regulations: Ensure that the parking lot complies with Americans with Disabilities Act (ADA) standards, such as providing accessible parking spaces and pathways.
Step 4: Acquire & Set Up the Location
With funding and the various registration steps out of the way, it’s time to acquire the property and set it up for customers.
Once you’ve identified a suitable location, the next step is to either purchase or lease the property. This may involve negotiating with property owners or real estate agents. Ensure that you understand all the terms and conditions before signing any agreements.
Next, plan a layout that maximizes the number of parking spaces while ensuring easy navigation and safety for users. You might need to hire a professional to design the layout, but this isn’t a requirement. Paint parking spot markings, directional arrows, handicap symbols, and install signage, to keep traffic flowing in the correct direction. Also, clear and visible signage is essential. It should direct drivers to the entrance and exit, display pricing information, and guide them to available parking spaces. Before purchasing signage, be sure to check with city requirements for what is allowable.
You’ll also need to set up payment systems, such as automated ticket machines, mobile payment options, or manned payment booths.
Last install parking lot lighting and security measures such as CCTV cameras and perimeter fencing to deter theft and vandalism and make customers feel secure. Ensure the property has sufficient electrical capacity or budget for the cost to have access.
Step 5: Hire Staff
Depending on how your lot is set up and the amount of work you will do as an owner, employees may be necessary. Common parking lot employees include parking attendants to monitor the lot, collect payment, and direct traffic. Full or part-time managers may be needed for oversight.
Before hiring employees, it is essential for the parking lot business owner to understand and comply with the federal and state labor laws. This includes obtaining an Employer Identification Number (EIN) from the IRS, which is necessary for tax reporting purposes. Business owners must also ensure that they have proper workers’ compensation insurance in place as required by state law. All employees must be legally eligible to work in the United States, and employers must verify this eligibility using Form I-9. Additionally, employers must comply with federal and state minimum wage laws, overtime rules, and other labor regulations such as safety standards.
Step 6: Prepare to Open!
Starting a parking lot business requires completing several steps, and as the opening day approaches, several vital steps must be taken to ensure that everything is in place. While the needs of every business will differ, these are some common and essential steps that new business owners should consider in their preparation.
- Business insurance: Securing the necessary business insurance will protect against potential liabilities and risks, such as property damage or injuries occurring on the premises. We recommend getting at least three insurance quotes, including local insurance agents and online providers like Coverwallet or Hiscox to get the best coverage and price.
- Bookkeeping: Implementing a robust bookkeeping system is essential for tracking income, expenses, and overall financial health. Professional accounting software like Wave Accounting (FREE) or Quickbooks or hiring an accountant might be considered.
- Bank account: Establishing a separate business bank account helps in managing finances and maintaining a clear distinction between personal and business funds.
- Purchasing management software: Investing in industry-specific management software such as ParkingBoxx and Parkable to handle online reservations, payments, and analytics can streamline operations by handling reservations, payments, and space management efficiently.
- Marketing: While there isn’t a lot to do to market a parking lot, there are some ways to attract customers such as:
- Claiming your lot on business directories like Google My Business, Yelp, and Parkopedia so customers can easily find parking options when searching online.
- Partner with nearby businesses, hotels, and event venues to be included on their websites and promoted as the recommended parking option for visitors.
- Set pricing: Determining competitive and profitable pricing structures for various parking options, considering factors like location, time, and demand.
- Accepting credit cards: Offering multiple payment options, including credit card payments, can attract more customers. You’ll need to choose a reliable credit card processing company to handle these transactions.
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Common Questions When Starting A Parking Lot Business
How much does it cost to start a parking lot business?
Starting a parking lot business can vary widely in cost, depending on factors such as location, size, technology, and amenities offered. On average, the total costs to start a parking lot business can range from $50,000 to $500,000 or more.
Initial costs breakdown:
Land acquisition: The cost of purchasing or leasing land is likely to be the most significant expense. This can range from less than $10,000 in smaller cities for a leased lot, up to $500,000 or more for purchasing property in a major city.
Construction and renovation: If constructing a new parking facility or renovating an existing one, costs can range from $5,000 to $50,000. This includes paving, striping, seal coating, lighting, signage, pay stations, and other structural elements.
Technology and equipment: Investing in ticketing machines, payment kiosks, parking meters, barriers, and other related technology might require an initial outlay of $10,000 to $30,000.
Legal and permitting fees: Obtaining the necessary licenses, permits, and compliance with zoning regulations could cost between $1,000 to $5,000.
Insurance: The initial cost for liability and property insurance may fall in the range of $2,000 to $5,000.
Other miscellaneous costs: Additional costs for furnishings, office supplies, or other startup necessities might add up to a few thousand dollars.
Starting a parking lot business requires a significant financial investment, with various costs ranging from land acquisition to marketing. While the above figures are general estimates, the specific costs will depend on the particular business model, location, and size of the parking lot.
How profitable is a parking lot business?
The profit potential for a parking lot business can vary significantly based on factors such as location, size, pricing, and overhead costs.
Generally, the revenue is calculated by multiplying the number of available spots by the average rate charged and the occupancy rate. For example, if a parking lot has 100 spaces and charges an average of $10 per day with an 80% occupancy rate, the daily revenue would be 100 spaces x $10 x 80% = $800. Monthly, this amounts to $24,000.
Expenses must then be deducted from this revenue to calculate profit. Typical monthly expenses might include lease or mortgage payments, staff wages, utilities, maintenance, property taxes, insurance, and marketing. If the total monthly expenses amount to $15,000, the monthly profit would be $24,000 – $15,000 = $9,000. Annually, this translates to a profit of $108,000.
It’s essential to note that these numbers are hypothetical and can vary widely depending on the particular circumstances of the business. Location, competitive pricing, operational efficiency, and other factors can influence both revenue and expenses.
While the profit margin for a parking lot is high, be sure to watch cash flow and analyze the seasonality of people potentially using your lot. For example, if your lot is located close to a university, the summer will typically not generate a lot of income. You will want to make sure there is enough cash from the good months to cover the slower ones.
What is the NAICS code for a parking lot business?
The NAICS code for a parking lot business is 812930, which also includes parking garages and valet parking services.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.