How To Start A Tow Truck Business

How do you start a tow truck business?

If it is your dream to start a company that is dedicated to patrolling the roads, helping motorists in distress, and dealing with vehicles, then you may wish to start a tow truck business.

Now is the ideal time to start a tow truck business, as the tow truck market size is an astounding $9.3 billion in 2022. This huge number goes to show that it is both feasible and profitable to start a tow truck business, even in 2023. If this sounds like the business for you, continue reading to learn how to start a tow truck business.

Step 1: Create a plan for the business

A business plan serves as a guide when you start a tow truck business. It is also a crucial part of getting a loan for the business if you should require it. If you’re going to pitch to investors to start your tow truck business, you’re going to need a business plan. You can use our business plan template.

The following are some factors to focus on when creating a plan for your tow truck business.

Think about clientele

When most people think about tow trucks, they probably imagine breaking down on the side of the road and getting someone to take their car to a service station. That said, there are plenty of services that you can provide when you start a tow truck business. Your clients can extend across a number of industries as well. Take a look at just a few of the industries and services you might consider:

• Towing impounded vehicles
• Roadside help for the general public
• Auto repair shops
• City towing services
• Auction houses
• Law enforcement

Financial planning

When you start a tow truck business, getting a firm grasp on your finances from the outset is crucial for ensuring future success. Your business’s lifeline is capital, and without it, the prospect of failure looms. To set the stage for financial success, consider the following steps:

1. Craft a Comprehensive Business Budget

When you start a tow truck business, a meticulously planned budget is vital to cover overhead costs and facilitate business growth. Regularly review your budget, especially if your company is experiencing losses, to identify areas for cost reduction. If you start a towing business, include these startup costs and recurring expenses in your budget:

• Permits and licenses
• Tow truck(s) purchase
• Tow truck insurance
• Business insurance
• Employee salaries
• Vehicle maintenance
• Marketing expenses
• Gas

2. Select the Right Equipment

Choosing the appropriate tow truck is a significant but necessary investment. While new tow trucks can be expensive, consider saving costs by opting for a used tow truck without compromising performance. Common tow truck types include:

• Flatbed trucks: Ideal for ease of towing and securing vehicles on a flat top bed.
• Integrated tow trucks: Heavy-duty options meant for towing large vehicles.
• Hook and chain tow trucks: Suitable for towing wrecked cars.

The choice of equipment depends on your specific towing business, but flatbed tow trucks are versatile and widely used in the industry.

3. Keep Business and Personal Expenses Separate

When you start a tow truck business, maintaining a clear separation between business and personal assets is imperative. Open a business checking account to serve as a financial barrier with dual benefits:

• Simplifies tax reviews: A distinct line between business and personal assets eases the process of identifying tax write-offs.
• Enhances personal liability protection: Separating business and personal assets is essential for enjoying liability protections, especially if you form an LLC or corporation.

Also, if you start a tow truck business, you might consider opening a business credit card dedicated to covering all business-associated expenses as another practical step in distinguishing personal and business finances.

Determine Pricing

Your revenue in the towing business hinges on effectively pricing your services for vehicle towing. This pricing structure typically comprises a mileage fee, a flat fee for the tow, and occasionally a storage fee.

Many tow truck companies establish their service prices within the range of $75 to $125 as a starting point. In addition to this base cost, you have the flexibility to apply a mileage charge, ranging between $2 and $4 per mile traveled during the towing process. Should the vehicle remain under your care for a longer period, a storage fee can also be imposed for every night it is held in your care.

Step 2: Business Registration

Before you can officially start a tow truck business, completing essential paperwork is crucial. Registering your company with local and state agencies involves a series of steps:

1. Select a Business Entity

Your selection of a business entity significantly influences your tax filing process and risk exposure. The following are three very common options, each with its characteristics:

• Sole Proprietorship: This is the simplest structure, requiring minimal paperwork, as business and personal taxes are filed jointly. That said, simplicity comes with a trade-off — total liability. In this structure, both business and personal assets are put at risk, making it less suitable for industries with high levels of risk exposure.
• Limited Liability Company (LLC): Suitable for individual entrepreneurs or businesses with multiple partners, LLCs offer personal liability protection. This protection shields individuals during legal disputes, providing a balance between simplicity and risk mitigation, making it an attractive choice for tow truck businesses.
• Corporation: Ideal for those aiming for substantial business growth, such as becoming a recognizable brand across the country. Corporations provide extensive tax advantages and liability protections similar to LLCs, but with additional complexities. This includes tasks forming a board of directors and like drafting bylaws, making it a more paperwork-intensive option.

Carefully considering the nature of your business and growth goals will guide you in selecting the most fitting business structure types for starting a tow truck business.

• Choose a Distinctive Business Name: With over thirty million registered businesses in the U.S. alone, having a distinct business name is essential to avoid confusion with others in the market. Once you have chosen a name that satisfies your requirements, ensure its availability by checking with your state’s secretary of state and the U.S. Patent and Trademark Office.

And do not overlook the importance of securing an available domain name for your online presence, crucial for effective marketing. Confirm the availability of the domain name using platforms like GoDaddy.com or Name.com.

• Apply for an Employer Identification Number (EIN): Once you start a tow truck business and consider hiring more drivers, it is important to apply online for an Employer Identification Number (EIN) through the Internal Revenue Service. This unique identifier is essential for various purposes, including applying for funding, filing business taxes, and more.

Step 3: Obtain Startup Funding

Acquiring startup capital serves as the catalyst to transform your business plan into a tangible reality, especially crucial for when you start a tow truck business where the acquisition of tow trucks can be a substantial expense. Explore the following avenues to get the necessary funding to start a tow truck business:

1. Try to Get a Business Loan

When you start a tow truck business, you should contact your bank to inquire about getting a business loan. However, new businesses lacking a profit history may face reluctance from traditional banks. Explore alternative options such as online lenders or Small Business Administration (SBA) microloans tailored for new entrepreneurs. Consider specialized financing, like commercial truck financing, which focuses specifically on funding for trucks. In this scenario, your tow trucks can function as collateral, potentially simplifying the qualification process, even if your financial background is not flawless.

2. Self-Finance the Company

When you start a tow truck business, you can always go down the self-funding route. Otherwise known as bootstrapping, self-financing is suitable for those with existing financial resources. Exercise financial discipline, especially since you will be risking personal cash savings. Comprehensive financial planning is crucial if you choose this route. The advantage, however, is owning the entirety of your business, albeit with additional risk.

3. Family and Friends

When you start a tow truck business, you might seek financial support from family and friends to kickstart your business. Despite its informal nature, formalize agreements with documented paperwork to ensure clarity on repayment terms. If your network’s resources are limited, crowdfunding can be an additional avenue to explore for your enterprise.

Step 4: Secure Permits, Licenses and Business Insurance

To start a tow truck business, you will need to adhere to specific permits and licenses, and it is essential to register appropriately. Ensure compliance with state requirements by checking with your state’s Department of Transportation. Typically, owners of tow truck companies need to obtain the following permits and licenses:

1. Indictment Management Permit: when law enforcement makes a request, you can tow cars without consent.

2. Private Property Permit: authorizes towing cars without consent upon request from the owner of the parking facility.

3. Consent to Tow Permit: necessary for towing cars with the car owner’s consent.

4. Oversized Vehicle Permit: required to drive a tow truck exceeding a specific weight load.

5. Class B Driver’s Licenses: essential for drivers operating a vehicle weighing over 26,000 pounds or towing an automobile weighing a maximum of 10,000 pounds.

When you start a tow truck business, it is also important to purchase comprehensive tow truck insurance due to the inherent risks of being on the road. Various insurance types provide coverage for different aspects of your business:

1. Auto-Liability Insurance: handles expenses when at fault in an accident, addressing the other driver’s property and medical costs.

2. Physical Damage Insurance: addresses required tow truck repairs in the event of an accident.

3. Comprehensive Coverage: useful for non-collision damages like theft, fire, falling objects, or collisions with animals.

4. On-Hook Coverage: protects against damages to vehicles while being towed.

5. Uninsured Motorist Insurance: covers injuries to you or your passengers caused by an uninsured driver or when a hit-and-run incident occurs.

Securing the appropriate licenses, permits, and insurance is crucial to operate your tow truck business legally and protect against potential risks and liabilities.

Step 5: Advertise Your Towing Business

Having laid the groundwork for your towing business, the next crucial step is promoting it to attract clients and ensure a steady stream of revenue. The following are some effective tips for promoting your new business:

1. Prioritize Local SEO

While social media has transformed marketing, investing in Search Engine Optimization (SEO) often yields better results for tow truck businesses. Drivers frequently turn to Google searches when in need of a tow, making local SEO crucial. Optimize your content to rank for location-specific terms such as “California tow truck” or “towing in Los Angeles.” Enhance visibility by completing online company profiles on platforms like Yelp and Google.

2. Become a Contractor for AAA

When you start a tow truck business, partnering with the American Auto Association (AAA) can significantly boost your business. Many AAA members rely on the association for roadside assistance, and local contractors often handle dispatched tow trucks. By aligning with AAA, you tap into a pool of potential customers who trust the AAA brand. Inquire about becoming a contractor at your nearest AAA office to leverage this partnership for increased business and credibility.

3. Expand Your Workforce

When you start a tow truck business and demand for your services grows, consider hiring more workers and acquiring additional tow trucks. Establishing a central dispatch office streamlines operations, allowing representatives to coordinate with drivers efficiently. Prioritize customer service training for your call representatives to enhance relations with clients. Exceptional customer service, prompt response times, and reliable service become valuable marketing tools that foster brand loyalty and contribute to business growth.

Learn more: How to Create Successful Marketing Strategies

Step 6: Understand Your Duties As An Employer

When you start a tow truck business, the early stages can be overwhelming. Before bringing on staff, you likely bear various responsibilities, including answering phones, attending client locations, managing marketing efforts, and handling financial matters.

When you decide to hire employees, it is crucial to familiarize yourself with the Occupational Safety and Health Administration (OSHA) Employer Responsibilities to ensure compliance with your duties as a business owner. Key considerations include:

1. Displaying Employee Responsibilities and Rights: Especially critical if you establish a central dispatch office, prominently post information about employee rights and responsibilities for clear communication.

2. Providing Safety Training: Conduct safety training using straightforward vocabulary and language to ensure all employees understand and adhere to safety protocols.

3. Ensuring Proper Training and Licenses: Confirm that all tow truck drivers are adequately trained and possess the necessary Class B Driver’s Licenses.

4. Maintaining Accurate Records: Keep meticulous records of work-related illnesses and injuries to comply with regulatory requirements.

Summary

In conclusion, while it requires determination to start a tow truck business, it is feasible with dedication. Devote extra time to crafting a comprehensive business plan, as it serves as a guiding force for success and aids in securing startup funding, particularly when acquiring tow trucks. By following these steps, obtaining the necessary funding, and maintaining a commitment to excellent customer service, you will improve the likelihood of success for your tow truck business.