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How to Start a Towing Business
We like to be on the move, zipping here and there, but the sad truth is that cars do sometimes break down. That’s why vehicle towing in the US is an $11 billion industry. It’s also a growth market, so if you enjoy driving and helping people out of tight spots, you could start a towing business, be your own boss and grab a slice of this massive market.
Starting any kind of business, however, takes a lot of work. The key is to obtain the right knowledge and avoid all the usual mistakes. Thankfully, you’ve come to the right place, as this step-by-step guide lays out all you need to know to launch a successful towing business.
Time to build
Step 1: Decide if the Business Is Right for You
Starting a towing business requires time and effort. Before you jump in, you need to fully understand what is involved before you decide if it’s right for you.
Pros and Cons
- Fast and easy to start; no expertise required
- Flexibility — can start from home
- Cars break down, so demand is constant
- Trucks are expensive, which may hinder growth
- Need to be available around the clock
The US towing industry is worth $11 billion in 2022https://www.ibisworld.com/united-states/market-research-reports/automobile-towing-industry/, up from $7.1 in 2019,https://www.marketresearch.com/Kentley-Insights-v4035/Motor-Vehicle-Towing-Research-12458072/ which is more than 50% growth in just a few years.
As the pandemic recedes, people are sure to be moving about more, which means more vehicle breakdowns and greater demand for towing. All of this means there is a great deal of opportunity for the entrepreneur.
How much does it cost to start a towing business?
Starting a towing business costs between $18,000 and $66,000, averaging about $42,000.
The largest is of course the tow truck itself. A new tow truck will run you about $100,000, which means the down payment could be $20,000. But you might be able to find a used truck for $25,000, and pay half that amount upfront to take the keys. You might want to pay a visit to the Truck Paper.
While it may not be absolutely necessary, getting your commercial driver’s license (CDL) is a good idea when starting a towing business, as you might at some point cross the weight threshold (26,000 pounds). Check with your state for details. You will also need to gain Light Duty certification from the Towing and Recovery Association of America, which requires at least 90 days of tow truck experience.
|Start-up Costs||Ballpark Range||Average|
|Licenses and permits||$300-$1,000||$650|
|Marketing and advertising||$750-$1,500||$1,125|
How much can you earn from a towing business?
The average cost per tow service is about $95, and after your expenses, of fuel, insurance, and marketing, you should have a profit margin of 70%.
In your first your or two working as a solopreneur, you might respond to two service calls per day. This would give you about $57,000 in annual revenue and a profit of nearly $40,000.
As your business gains recognition, you can expect to get three service calls per day, giving you annual revenue of $85,500 and a profit of nearly $60,000. At that point, you could save up, add another truck or two to your fleet and start making serious money.
What barriers to entry are there?
The biggest barrier to entry is financing, particularly the buying of a truck, along with maintenance. You will also pay a high insurance premium every year to protect your assets from accidental damage and theft.
Another barrier to entry is the stringent regulations, as you may need a permit from the state as well as your CDL and towing certification. This will require significant training and experience.
The competition is also fierce in the towing industry as all businesses offer the same services and most will have more experience than your startup.
Step 2: Hone Your Idea
Now that you know what’s involved in starting a towing business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Why? Identify an opportunity
Research towing businesses in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a towing service that offers a mobile app.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as partnering with taxi and limousine services. This could jumpstart your word-of-mouth marketing and attract clients right away.
What? Determine your products or services
Vehicles break down at unexpected times. It may happen during your road trip or commute to work as well as in the parking lot or in your garage. You may also get involved in a road accident. You can’t do anything except call a towing company to come to your aid.
Towing companies use different types of trucks depending upon what and how they need to tow. The following are four common types of trucks and their common uses:
- Flatbed Tow Trucks: These trucks are very common in the tow industry. They carry a long, flat, empty, and hydraulic bed on their back. A ramp is used to move up the vehicle on the bed.
- Boom Trucks: Unlike conventional but unsafe hook and chain tows, boom trucks use slings or belt lifts to tow a car which is much safer. They have a telescopic crane fixed on a commercial truck chassis which is called a “boom”. Boom trucks use outriggers to stabilize the body while the crane lifts the vehicle.
- Integrated Tow Truck: These trucks are designed for heavy-duty towing as they are self-loaders that are capable and stable. These are often used to tow buses. They are also used for repossessions.
- Wheel-Lift Tow Truck: These trucks are equipped with a metal yoke which is used to hoist the rear or front wheels of the towed car. They also use a hydraulic system to ensure safe carriage of towed vehicles on a bumpy surface.
While the main service of a tow company is to move a vehicle from point A to point B, some businesses offer roadside assistance to maximize their revenue. These emergency roadside services include:
- Flat tires
- Dead batteries
- Empty gas tanks
- Other quick repairs
How much should you charge for towing services?
Tow truck service charges range between $2 and $4 per mile, depending upon your location. The average cost per tow is about $100, but can vary widely.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Who? Identify your target market
You will mainly get calls from people who get into road emergencies and need to tow their vehicle to the nearest auto repair shop. You should also expect to get calls from the local police department, car clubs, service stations, auto auctions and property owners to tow and move a vehicle. You could reach out to all these organizations and let them know of your services, and you could also contact hotels and other tourist accommodations, and look for related businesses on LinkedIn and Google Maps.
Where? Choose your business premises
In the early stage of business development, you may want to operate your business from home to help you keep your overhead expenses in check. But as your business grows and operations intensify, you will hire workers for various job roles and may need to rent out a shop or office.
- Central location accessible via public transport
- Ventilated and spacious, with good natural light
- Flexible lease that can be extended as your business grows
- Ready-to-use space with no major renovations or repairs needed
Step 3: Brainstorm a Business Name
Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
Here are some ideas for brainstorming your business name:
- Short, unique, and catchy names tend to stand out
- Names that are easy to say and spell tend to do better
- Name should be relevant to your product or service offerings
- Ask around — family, friends, colleagues, social media — for suggestions
- Including keywords, such as “towing” or “car towing”, boosts SEO
- Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
- Avoid location-based names that might hinder future expansion
- Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Step 4: Create a Business Plan
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
- Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
- Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
- Product and Services: Describe your offerings in detail.
- Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
- Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
- Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
- Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
- Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
- Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
- Appendix: Include any additional financial or business-related documents.
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.
Step 5: Register your Business
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Choose where to register your company
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to towing.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Choose your business structure
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your towing business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
- Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
- General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
- Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
- C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
- S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Step 6: Register for Taxes
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.
Step 7: Fund Your Business
Securing financing is your next step and there are plenty of ways to raise capital:
- Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
- SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
- Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
- Venture capital: Venture capital investors take an ownership stake in exchange for funds, so keep in mind that you’d be sacrificing some control over your business. This is generally only available for businesses with high growth potential.
- Angel investors: Reach out to your entire network in search of people interested in investing in early-stage startups in exchange for a stake. Established angel investors are always looking for good opportunities.
- Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
- Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
- Personal: Self-fund your business via your savings or the sale of property or other assets.
Bank and SBA loans are probably the best option, other than friends and family, for funding a towing business. You might also try crowdfunding if you have an innovative concept.
Step 8: Apply for Licenses/Permits
To run a tow truck business, you need to comply with a number of local, state and federal regulations. Below are some of the licenses and permits that you’ll need to operate your towing business:
- You may need to get a permit from the local municipality, state and even from the highway department. Check with the relevant authorities to find out what permits you need to run a towing business.
- The truck driver will most likely need to obtain a Class B driving license, giving legal permission to drive a vehicle weighing 26,000 pounds or heavier or tow another vehicle that weighs 10,000 pounds or less.
- Private property permit will be needed if you are towing an illegally parked vehicle without the owner’s consent.
- Indictment management permit will be needed to tow a vehicle without its owner’s consent at the request of law enforcement authorities.
- Consent to tow permit will be needed to tow a vehicle with the consent of its owner.
- Oversized vehicle permit will be needed if you occasionally tow a vehicle exceeding the permitted weight.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Step 9: Open a Business Bank Account
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your towing business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Step 10: Get Business Insurance
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
- General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
- Business Property: Provides coverage for your equipment and supplies.
- Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
- Worker’s compensation: Provides compensation to employees injured on the job.
- Property: Covers your physical space, whether it is a cart, storefront, or office.
- Commercial auto: Protection for your company-owned vehicle.
- Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
- Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.
Step 11: Prepare to Launch
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Develop your website
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
Essential software and tools
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
- Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
- Instagram: Same benefits as Facebook but with different target audiences.
- Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.
- Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your towing service meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your towing business could be:
- Fast towing, 24/7
- We offer towing and much more!
- Full-service towing for your luxury car
Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
- Signage – Put up eye-catching signage at your store and website
- Flyering – Distribute flyers in your neighborhood and at industry events
- Post a video – Post a video about your towing service. Use humor and maybe it will go viral!
- Seek out referrals – Offer incentives to generate customer referrals to new clients.
- Press releases – Do press releases about new products, sales, etc.
- Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
- Testimonials – Share customer testimonials about how your towing helped them
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a towing business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in towing for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in towing. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
- Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
- If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.
Step 12: Build Your Team
You may not need to hire any employees if you are starting out small from a home-based office. But as your business grows, you will likely need to recruit full-time employees for various job roles, such as:
- Marketing Lead
- General Manager
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Step 13: Start Making Money!
You’ve done all your business homework, so now it’s time to hit the road to entrepreneurship and start your towing business! But you might want to bookmark this page, just in case.
Towing Business FAQs
It depends upon your location and operating conditions. For instance, if you are based in a populated city and run a relatively new towing business, you may expect to make around $57,000 in gross revenue each year. If you are running an established towing business, your revenue potential may elevate to $85,500 per annum. If you are a tow truck driver working for a towing business, you may expect to make around $30,000 to $40,000 as your gross annual salary, depending upon your experience and time commitment.
The tow truck business is indeed profitable. You can expect to make around $40,000 in annual net profit as a solopreneur. However, starting a towing business will require a sizable investment since buying a tow truck could be extremely expensive. Given this, the return on investment may be low as compared to alternate business options that you may consider before pursuing this business venture.
Buying a tow truck is regarded as a safe investment because it has great resale value. If your towing business is underperforming and you have decided to shut your operations, your business will undergo liquidation. The tow trucks will be sold in the second-hand truck market and a major chunk of investment will be easily recovered if the trucks are in good condition.
The insurance premium may range between 2% to 3%, but it will vary greatly depending upon your truck value, condition, location and insurance company. You may expect to incur $100 to $500 per month on tow truck insurance.
Based on job listings on Indeed, the top five states where truck drivers get paid the most are given below:
- Philadelphia, PA
- Chicago, IL
- Las Vegas, NV
- Fort Worth, TX
- San Diego, CA
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