A tow truck business can be a profitable and evergreen venture that is free from recessionary impacts. But getting started requires planning. Like any business, there are several legal, regulatory, operational, and marketing factors to consider.
To help you get started, here is an overview of the steps you should take to start a tow truck business.
Choose which type of towing business
Tow truck companies have two models: consensual towing (such as roadside assistance and relocation services) and non-consensual towing.
Non-consensual towing occurs when a tow truck company works with law enforcement and property owners to remove vehicles that are parked illegally or without permission. This kind of work can produce a steady stream of business, but it also involves considerable friction. Working with uncooperative vehicle owners is not easy. In addition, owners of non-consensual tow truck companies must adhere to local regulations that stipulate where and for how long vehicles can be impounded. They must also be prepared to attend vehicle seizure cases in court.
It’s important to consider these factors, as well as your location, before starting your business. You may even choose to provide both towing services.
Have a business plan
To ensure your tow truck business is a success, you need a business plan. A well-thought-out plan can guide your strategy, identify risks, and help you secure funding to expand and grow your enterprise.
To help you get started, here’s a suggested outline for your tow truck business plan:
- Executive summary: A brief overview of your business and why it will be successful
- Company description: Provides detailed information about your business and explains your competitive advantages. Include the type of towing services you will offer, such as post-accident, breakdown, and illegal parking tows.
- Organization and management: How your company will be structured and who will run it. Who will be responsible for day-to-day management?
- Market analysis: What is the industry outlook? Who are your target customers? What competition are you up against? Market research is an important way of understanding the market and should be prioritized in the early stages of your business planning.
- Financial plan: A description of your funding requirements, your detailed financial statements, and a financial statement analysis.
- Marketing strategy: provides a plan of action designed to help promote and sell your product or service.
Understand the startup costs involved for a tow truck business
The tow truck business startup costs are higher than other business types, anywhere from $150,000 to over $1 million. This is mostly due to the initial investment in towing equipment. Here are some of the startup costs you can anticipate.
- Licenses and permits
- Tow trucks or towing equipment
- Business insurance
- Auto insurance
- Overhead costs (mortgage, utility, and other miscellaneous costs)
- Accounting fees
- Drivers’ uniforms
Assess the ongoing expenses to run a tow truck business
Recurring costs that you must budget for include vehicle maintenance, fuel, employee wages, marketing, and advertising costs.
Your primary customers will be people who are stuck in emergency vehicle situations, or businesses seeking to tow illegally parked vehicles. A strong marketing program — via advertising and word of mouth — will help potential customers remember your business when in a jam.
Determine how you will charge customers
Typically, tow truck companies charge a minimum base fee of $50 for local towing of five or 10 miles, or a $75 hook-up fee and $2 to $4 per mile for long-distance towing.
Be sure to factor the following into your towing rates:
- How far you must tow the vehicle
- How large the vehicles is that you must tow
- How difficult it is to get the vehicle onto the tow truck
- Do you need to use a flatbed truck
- The time of day
Calculate how much profit your tow truck business can make
To determine how much a tow truck company can make, you must consider several factors — each of which can vary from one business to another. For instance, the number of employees you hire, the scope of your services (will you operate 24x7?), and whether your income comes from relationships with service shops or if you operate independently will all impact profitability.
Your profits may also be impacted by economic conditions, such as high fuel prices or fewer vehicles on the road due to a recession or lockdown. Even a strong economy can reduce your volume of work as consumers purchase newer vehicles that are less likely to break down.
To boost profits, consider diversifying your work to tow repossessed vehicles on behalf of leasing companies and banks.
Determine the business structure for your tow truck company
Your choice of business structure — whether it’s a limited liability company (LLC), corporation, or partnership — will impact your daily operations, taxes, and the amount of risk you’re willing to take with your personal assets. Choose a structure that balances legal protections and benefits.
The four most common are:
- Sole proprietorship: This means that the business is owned and run by one person with no legal distinction between the owner and the business.
- General partnership: A general partnership is the simplest variety of partnerships and is created automatically when two or more persons engage in a business enterprise for profit. No state filing is required.
- Limited liability company (LLC): This is one of the most popular forms of business entity for small businesses. An LLC offers limited liability protection (shielding your personal assets by protecting them from debts and liabilities associated with the company) and pass-through taxation.
- Corporation: A corporation is a separate legal entity owned by its shareholders, thereby protecting owners from personal liability for corporate debts and obligations.
For more information on business entity structures, read Comparing company types.
Register your towing business
Based on your location and business structure, you may need to register your new tow truck business with your state and/or local government.
To do this, LLCs, corporations, and general partnerships must register (online or through the mail) with the secretary of state or business agency where they conduct business.
Importantly, if you choose to operate your business under a name other than your personal name (even if you are a sole proprietor), you will need to register that business name with state and/or local governments a process known as filing a “doing business as” (DBA) name.
File a beneficial ownership information report
Many small businesses are now required to submit information about the company and the individuals who own or control the company (known as beneficial owners). If your towing business was created by filing a document with the state (such as with an LLC or corporation), it must submit a beneficial ownership information report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). While some LLCs and corporations may qualify for an exemption from the filing requirement, most will end up having to submit a report. If your towing company has already made a filing with FinCEN and any of the reported information on the company or beneficial owners changes, an updated filing must be made.
To help determine your business’s Beneficial Ownership Information filing status, take our quiz.
For more information, visit: Beneficial Ownership Information Report
Obtain federal and state tax IDs
Before you can pay business taxes, you may need to register your business with the IRS and obtain an employee identification number (EIN). An EIN is the equivalent of a social security number for your business and is required on your state and federal tax filings. (Note: If you’re a sole proprietor without employees, then you don’t need an EIN. Instead, you will file your taxes using your social security number.)
An EIN is also needed to open a business bank account and ensure the separation of your business and personal finances.
You may also require a state tax ID. Typically, you’ll need to get an EIN before you apply for your state tax ID. Check with your state or a business lawyer, as the process will vary by state.
Open a business bank account and credit card
A business bank account and credit card keep your personal and business transactions separate and afford certain legal protections. For example, if you operate an LLC or corporation, maintaining a business bank account helps you maintain liability protection and the security of your personal assets in the event your business is sued or found liable.
A bank account and credit card also help build business credit — something that suppliers and vendors will verify before transacting business with you. For this reason, consider opening your business accounts as soon as you start incurring business expenses or accepting money.
Get licenses and permits
Most small businesses need some form of business license or permit to operate. These vary by business type, location, and regulations.
State governments typically regulate automobile towing businesses. But you may also require the following:
- Basic business operation license: This is a license from the city in which your business will operate, or from the local county (if the business will be operated outside of the city's legal boundaries).
- Zoning and land use permits: Local government zoning laws may prohibit certain business activity in designated areas.
- Building permit: If you plan on remodeling or building a commercial space, you'll need to get a building permit.
Visit your state and local websites to determine which licenses and permits you need. And be sure to manage your licenses over time, keeping track of when you’ll need to renew them.
Specialized licenses and permits for the tow truck industry
Running a tow truck business means you’ll also need to obtain several additional licenses and permits. Check with your state’s department of transportation for a definitive list, but the following licenses and permits may be required:
- Class B commercial driver’s license: This authorizes you to drive a vehicle weighing 26,001 pounds or more without a trailer or tow a trailer that weighs less than 10,000 pounds.
- Oversize/overweight vehicle permit: Needed if you operate a large tow truck that exceeds the standard load limit.
- Towing company licenses: Certain states require a special license for tow truck companies.
- Consent tow permit: Required if you plan to operate a consensual tow truck company.
- Non-consensual towing permit: This allows you to remove and tow a vehicle without the vehicle owner or driver being present.
- Incident management permit: Grants you permission to tow a disabled vehicle on or near a public road if the operation doesn’t impact normal traffic flow.
- Private property permit: Required to perform a non-consensual tow on a private facility, such as a hospital, business, or apartment parking lot.
Insurance for towing companies
Operating a tow truck company can be risky and obtaining the right insurance can protect you in the event of an accident. Consider the following policies:
- Auto liability insurance: This protects you in the event you are at fault during an accident and covers the other driver’s property and medical expenses.
- Physical damage insurance: Covers any repairs to your tow truck following an accident.
- Comprehensive coverage: Covers non-accident-related incidents such as fire, animal collisions, theft, and falling objects.
- On-hook coverage: If a vehicle you are towing gets damaged, this policy will cover you.
- Uninsured motorist insurance: Covers injury to your person or a passenger caused by an uninsured driver.
- Workers’ compensation insurance: Required by law in most states if you have employees.
Be a responsible employer
If you plan to hire employees, there are several occupational health and safety (OSHA) requirements that you must comply with. For instance, you must provide safety training, prominently post your employee’s rights in your place of business, and ensure your drivers are trained and have a Class B driver’s license. Finally, you must keep a record of any work-related injuries or illnesses.
Promote your towing business
Think about how you will get the word out about your business. Here are some tips for marketing your tow truck company:
- Launch a website: Create a website that lists your services, experience, relevant licenses and permits, and includes an online request a quote or a booking form. Make sure your website is optimized for search engines, this will ensure your site ranks high when someone searches for two truck services. Use key search words and phrases in your body copy, headers, and metadata. Finally, be sure your website is designed with desktop and mobile users in mind. For more information, read Top 3 tips for building a company website.
- Create social media and review profiles: Set up business pages and accounts on Facebook, Yelp, Google my Business, and Twitter so that you can share updates, news, images, and reviews.
- Get positive reviews: Online reviews and make or break a business. Always ask your clients for reviews and testimonials and post them on your website (with their permission). Monitor reviews on social media and diplomatically respond to any unfair negative reviews.
- Network: Introduce your business to local businesses such as auto repair shops and dealerships as well as businesses that have private parking. Join your local chamber of commerce and other small business groups.
- Advertise: Use your marketing budget to buy ads in local newspapers, on online forums, radio, and highway billboards. Print flyers and business cards and distribute them at local businesses.
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BizFilings is dedicated to making starting a business easier so you can focus on doing what you love. For more information, check out our state guides for LLCs and corporations.