October 6, 2012

How to Start a Taxi Business

Author: John Edwards

Firstly, it is important to analyse and understand which 'market' segment you may wish to enter – standard city taxi operation, airport transfers, business/executive work or top end chauffeur work. All have similarities but are each are very separate markets in their own right and each have their pros and cons:

1. City/town minicab/taxi operation:
Pros: often easy to set up and start to make money, relatively low start up costs, vehicle standards will vary but in the main will once again be affordable, with the use of special offers it is is easy to 'penetrate' the local market, mainly cash market – good for cashflow!

Cons: too much competition leads to falling prices, easy to copy and so you might also find other new entrants into the market place, transient workforce [drivers come and go a lot in the trade], a trade that does sometimes suffer a 'shady' image, long hours manning the phones and a need to operate 24/7, drivers abusing managed cars, health and safety for staff during night shift and managing late night revelers.

2. Airport Transfers
Pros: Once again easy to set up using a website, often better quality work that offers drivers a chance to take more money with fewer jobs during any one day, more glamourous side of the business, if managed correctly a good operator will be able to get a job to and possibly from the same airport too, no drunks! See example with Stansted Taxis.

Cons: Super competitive market place, lots of operators, keen prices, drivers often sat at airports for long hours waiting for customers, flight delays, and parking charges that all must be taken into account.

3. Business Accounts/Executive Work
Pros: Quality long distance work in most cases, work with better quality vehicles, more stable if working with right clients, the chance to build up a real rapport with clients, more profit!

Cons: Difficult to penetrate market place that is dominated by 'relationship management' [not what you know, it\'s who you know],   the requirement to provide credit [90 days in most cases] which brings with it risks in terms of cash flow, higher start up costs, power to the customer – they are always right and will, if given the chance, seek to depress prices all of the time whilst demanding an ever increasing standard of service!

The key to success in the market place is to pick your segment carefully in terms of your knowledge, financial backing and contacts within the business. For example, it is no good rushing out to buy a luxury Mercedes S Class unless you have a portfolio of contacts who will be willing to pay the premium necessary for you to make your enterprise viable. The secret to most firms successes in the business is start off modestly at first and slowly build up your business – it is the only way if you want to avoid quickly racking up debts and having to literally buy work which is always the start of the end for most private hire and taxi companies.

The number one prioirty for both individuals and firms currently is price; everyone is looking for the cheapest option these days and with the advent of the internet this makes it even easier for customers to shop around. So what else to consider when deciding how to start your new taxi ro private hire company:
 
1. Work from home or office base?
A business of this type should always be started small scale if you have no experience. Costly office facilities and garages will cost thousands and will quickly eat into your bottom line if you haven\'t generated sufficient revenues into your new business. Some of the best taxi and pricate hrie businesses were started at home! Once you have a few drivers you may then feel that the business is generating sufficient revenues that the ' next step' is to open up a local office [shop] or work from a base which will enable you to operate the business more professionally. Example, see Clapham Minicabs.

2. Maintenance / insurance costs of your chosen vehicle[s]
Your choice of car is a significant and costly decision in this business. Dependent upon which market segment you are trying to enter will undoubtedly determine which type or style of vehicle[s] you will opt for. Cash rich minicab firms [where allowed] often make a good living from working with low value cars that are cheap to buy and do not suffer any depreciation. This is fine until you realise that your business image is one of 'cheap' 'minicab' which might not be what you want to be involved. In contrast the exceutive end of the market sounds great but the overall outlay is fraught with a difficult type of risk – a financial one and the need for you to keep up with your monthly payments however quiet things might get! Just becuase you think your car will make you money – don\'t assume the general public wish to use your services. When it comes to vehciles the key is to keep costs down and maximise your earning potential – this is why the trade always like the ubtiqueous MPV – diesel fuel and 5/6 seats which makes its earning potential one of the best in the business. Maintenance and insuirance costs will also be reasonable.

3. Your would be local competition – is there a 'gap' you can seek to exploit – have they not got a vehicle which mean you could supply this to the market [remember, just doing what everyone else offers won't be enough - the old saying is that you won\'t necessarily bring any new business to the business, you will simply take existing business away from others!]

4. Licence implications – do you need a knowledge test?
Taxi tests and regulations imposed by a Local Authority Taxi Licensing Departmentvary greatly and will influence your decision as to whether or not wokring in a particular area is financially viable for a driver. To be hackney carrioage driver in London for example – you need to pass 'the knowledge' which is an arduous 3/4 years learning curve before you have taken anything! Once secured though it is a licence to operate freely in one fo the worlds busiest cities. Most large provincial cities and towns will have a basic knowledge test [nothing like the London test] that you will need to astudy for an complete before doing anything. Do your homework – you have been warned!

5. Your own work/life balance
Taxi work is arguably one of the most flexible ways of being able to make a living if you are self employed. Work when you like. This is great when you are single and with no other commitments – chuck in a wife, kids, bills to pay and a mortgage and then the pressure to 'earn well' when you are on the road increases dramatically which will add to your stress levels! You therefore need a robust plan, a strategy to ensure that you have steady stream of work and opportunities at any one time.

6. Account work vs cash
For many newcomers into the trade the lure of 'account work' always appears more glam or more professional. It is in fact fraught with risk for the naive operator. Any new operator should concern themselves with getting as much cash work as they can – cash is king – you can have loads of account work but if you run out of cash to fill your car up with fuel then your business is dead. The real trick is to get a healthy balance between the two – good account work that pays and a steady stream of cash work [or immediate payment work]. Some companies really push cab and chauffeur firms hard these days to drive down prices – this a slippery slope and one that all new operators should be weary of. Stick to your prices, maintain your standards and you will ok. The moment you 'buy work' then the more difficult your negotiation position becomes. In terms of accounts, small is beautiful – lots of small accounts then allow you spread your risks. Having a large account with one business is rather like placing all of your eggs in one basket – if you owed 3 months and they go out of business you can guess the next bit! It is recommended that whilst you do account work, try to build up a strong relationship with that client, encourage payments on time by offering slight discounts for early settlement of the monthly account or incentives to the clients. Cash on the other hand is an essential part of any usccessful cab operation – as with all aspects tough it needs to be managed!

7. Internet?
This is like the new yellow pages – most people nowadays source their taxi numbers from the internet and so if you have a really great business name and easy to remember telephone number – this is not going to be enough in the 21st Century. You must get online with a website that is well optimised in the search engines and can clearly market you as the local choice for taxis, airports, business work, etc. For great taxi websites check out taxi bookings online.

This is just a whistle stop guide to what to look out for if you are considering a career as a taxi or private hire operator. The porblem you will find is that like most businesses the cab trade make this business look easy. It isn't easy, and is in fact a risky business. You can however take comfort in the fact that as there are so many cabn companies operating, this means that the demand for private hire / taxis is growing as more and more people make use of them. Like any business start up it will always be better if you plan carefully, think about your competition and ensure that always think about your 'cash' position when starting out. Rome was not built in a day!

Article Source: http://www.articlesbase.com/business-opportunities-articles/how-to-start-a-taxi-business-5268878.html

About the Author
Travel writer, airport guide writer, taxi critic and entrepreneur from the UK.