How To Start A Towing Company: A Comprehensive Guide
October 31, 2022
Do you have a knack for mechanical repairs and love helping people out of tricky situations? Learning how to start a towing company might be just what you’re looking for.
We know starting a business in any industry is hard work. But, with the proper guidance and tools, you can learn how to run a successful towing business. And we’re breaking it all down in this guide.
6 Steps for Getting Started
#1. Create A Business Plan
Writing out a comprehensive business plan increases your chances of starting and running a successful towing company. Banks will often ask to see your business plan when you seek business loans or other forms of financing. Your business plan should include a mission statement, a business overview, a SWOT analysis (strengths, weaknesses, opportunities, and threats), a market analysis, and financials.
#2. Register The Business
Next, you’ll need to fill out and submit some important paperwork. Registering your business with your state and local agencies will require you to:
- Choose a business entity – the most common are:
- a sole proprietorship
- a limited liability company (LLC)
- a corporation
You can learn more about the differences between these types of business entities here.
- Select and secure your business name – Turns out, there’s a lot in a name! A unique name will represent your business. It will develop a brand identity. And it will help customers distinguish your business from other local towing companies. You’ll need to verify the availability of the name you select with your secretary of state’s office and the U.S. Patent and Trademark Office. In addition, you should check if the domain name is available for use with your website.
And last but not least…
- Register for an employer identification number (EIN) – Say your goal is to grow your business and eventually hire other drivers and/or employees. This will be necessary for filing your taxes, applying for funding, and more. You can register for your EIN online with the IRS.
#3. Secure Capital
Starting a towing business is often a very costly endeavor. Securing business startup funding is a necessary step if you want to realize your towing business dream. There are several ways to find funding for your tow truck business: credit cards, personal loans, or small business funding like an SBA loan.
As you’re getting started with your company, you may need some extra cash, so having multiple funding sources available will be helpful.
Here are a few ways you can go about securing the funds you’ll need to start a tow truck business:
- Self-finance your towing business – If you already have the financial means to start your business, you may decide to bootstrap it yourself. One important thing to remember is that self-financing requires increased financial discipline. This means betting your own money on yourself and your business’ potential for future success. While this strategy obviously involves added risk, it also comes with the benefit of retaining full ownership of your business.
- Apply for a business loan – It’s a good idea to talk to your bank about your need for a business loan to see what they can offer. However, some banks can see new businesses with no history of profits as too risky. Thankfully, there are alternatives to getting financing through the bank. You can also work with online lenders or apply for Small Business Administration (SBA) microloans. These are meant specifically for new entrepreneurs and business owners.
- Tap Into Your Network – With the right relationships, you may also have the opportunity to ask friends and family for their support. These types of requests, though based on close personal relationships, should still be treated as formal business arrangements. This means explicitly discussing repayment terms, both parties being in agreement, and having everything in writing. Another network-based financing option is crowdfunding your new business.
#4: Comply With Your State’s Department Of Transportation
To operate your towing business legally, you’ll be required to register for certain licenses and permits. Your state’s Department of Transportation can direct you to the necessary steps. The most commonly required licenses and permits are:
- Indictment management permit – allows you to tow vehicles without consent at the request of law enforcement
- Private property permit – allows you to tow vehicles without consent at the request of a parking facility owner
- Consent to tow permit – allows you to tow vehicles with the consent of the vehicle owner
- Oversized vehicle permit – allows you to operate a tow truck that exceeds a certain weight load
- Class B driver’s license – authorizes drivers to operate a vehicle that weighs over 26,000 pounds or to tow another vehicle weighing 10,000 pounds or fewer
You’ll also need tow truck insurance
Insurance is extremely important for towing companies because it protects them from financial losses if they are sued over accidents or damages. It will also help save you money in repairs to damage resulting from accidents that aren’t your fault. Some types of insurance to consider are:
- Auto-liability insurance – this insurance covers you if you’re involved in an accident, found to be at fault, and must cover the other driver’s property and medical expenses.
- Uninsured motorist insurance – this insurance covers you if you’re involved in an accident caused by a driver who does not have insurance.
- On-hook coverage – This insurance covers you should a vehicle get damaged while hooked up to your tow truck.
- Comprehensive coverage – This insurance kicks in when an event other than a collision (fire, theft, falling objects, etc.) damages your vehicle.
- Physical damage insurance – this insurance covers you for any necessary repairs to your tow truck that are the result of an accident.
#5: Market Your Business
Properly marketing your business will be an essential factor in your future success. You’ll want to work diligently to expand your network of clients while getting jobs and experience under your belt so that. Eventually, you can compete for business on rotation with local police agencies and auto repair shops.
Additionally, there are many strategies you can employ for marketing your towing business, several of which begin with developing your online presence. One of the very first things you need to do is set up your Google My Business page. This helps potential customers can find you when searching online for the services you offer.
Another important thing to consider when starting a tow truck business is the value of “word-of-mouth” recommendations and building a good reputation. In the long term, having a solid reputation will be more beneficial than any one customer or project. It’s easy for customers to complain about bad experiences online, but it’s much harder to find positive reviews of your services. This means that you’ll have to work hard to ensure that everyone who has used your service feels like they were treated well and had a great experience with you and your team.
#6: Be A Responsible Employer
As a startup in the early stages of building your towing business, you will likely wear multiple hats. But as you find success and begin to grow, you may want to start hiring employees to help you run the business. It’s important to know what you are responsible for as an employer. Hence, the OSHA Employer Responsibilities website is an excellent place to begin your research. Some of the main call-outs are:
- Make sure your employees understand and have access to their employment rights and responsibilities
- Provide safety training to all employees
- Verify your driver’s credentials and training (The required Class B Driver’s licenses, and potentially background checks for criminal history)
- Record all work-related injuries and illnesses
How to Run a Successful Towing Business
So you know what to do to get started—now what? In order for your new business to survive and thrive, here are a few things to consider.
Purchasing a Tow Truck
Identify what kind of tow truck you need for the work you want to do and that you can afford as your first truck. Check out The Tow Truck Equipment Checklist Every Tower Needs to learn more about the types of trucks available, as well as the equipment you will need to get started offering roadside assistance services.
The initial financial requirements of starting a tow truck business are significant. Your startup costs will include equipment, insurance, permits, and fuel for the trucks you use. You’ll also need to pay for employee salaries and benefits. The exact amount will vary depending on the size of your business, but it’s safe to assume that you’ll need enough money in the bank to cover at least a year’s worth of operating expenses if things go well (See the FAQs section below for an in-depth cost breakdown).
You can calculate some estimates by looking at other businesses like yours in your area (if any exist) and asking around about how much they charge per job or service. Whatever seems reasonable based on what similar services cost elsewhere would be a good place to start calculating how much revenue you could bring in during each month of operation.
Tools of the Trade (i.e., towing software)
At this early stage of your towing business, you will absolutely benefit from having quality, lightweight towing software at your fingertips for accepting Motor Club jobs, managing cash calls, and processing payments. Check out our FREE towing software, TraxeroGO, and check out our blog to learn more about free towing software.
In addition, reviewing the Best Mobile Dispatching Apps for Tow Truck Businesses would also prepare you for what’s to come down the road as your fleet begins to grow and accept significantly more job requests.
FAQs About How to Start a Tow Truck Business
How much does it cost to start a towing business?
The cost of starting a towing business often varies based on your location, the type of towing vehicle you purchase, and the type of towing business you decide to operate. It can range anywhere from $150,000-$2,000,000. Here are the costs you should anticipate:
1. The cost of acquiring a truck (or trucks) – A new truck often costs somewhere between $80k-$100k but can become even more costly in the heavy-duty towing range.
2. The cost of fuel – You’ll need to consider your average range/miles traveled and the current fuel prices. You should designate about 30% of your overall budget for fuel.
3. Cost of licensing – This cost will vary depending on where you choose to operate your business, but the process of purchasing a towing license is usually simple.
4. Insurance costs – You’ll need different types of insurance for your business. The factors that affect your cost to insure your business are your location, rate of accidents, tow radius, and loss history.
5. Overhead costs – This will include your mortgage, power bill, and other miscellaneous costs and can range between $5,000-$15,000+.
6. Garage/Storage Yard costs – You can choose to rent or purchase this type of space for your business. The cost will vary by location, space size, and whether you choose to lease or purchase a storage yard.
7. Accounting/Business Management cost – You will want to invest in a business accountant to efficiently track your expenses and manage your finances.
8. Hiring & Paying Salaries & Wages – This is part of your running costs.
9. Maintenance & Repair Costs – This ongoing cost varies monthly and should be regularly budgeted for like wages.
10. Marketing & Advertising – Create awareness about your new towing business to keep the customers coming and your business growing.
Is owning a towing company profitable?
It certainly can be! Like any business, it’s a matter of providing valuable services to a wide enough customer base to generate more revenue than your operating costs. It will probably take some time to recoup your initial investment and to build up your client base/incoming job calls to start turning a profit, but once you reach this stage, operating a towing business can be incredibly lucrative.
How do tow truck companies make money?
Most towing companies charge for services rendered. They may charge for towing by the mile with an additional base hookup fee. You can also earn by charging for other types of roadside assistance, such as jump starts and flat tire changes. The average cost for towing and roadside assistance services varies by location and the type of service, as well as the type of towing company. For instance, more established towers may charge higher rates.
How TRAXERO Can Help
Starting a new business isn’t easy, but having the right partner can definitely help. With TRAXERO’S suite of proven integrated towing management solutions, we can help you grow and manage your towing business efficiently and effectively.
From enterprise-level towing dispatch software to fleet management, to digital payment processing, auction management, overall towing business management solutions, and more—TRAXERO has got you covered with the best software for the road ahead.
Ready to explore custom solutions ideal for growing and streamlining your business? Contact us today for a software consultation or with any questions you might have for the TRAXERO team.