Do you want to start a tow truck business? If so, find here a detailed business plan guide covering towing companies with requirements, legalities, and startup costs to start a profitable toying company.
Starting a tow truck business is ideal for people having experience in the transportation sector and are passionate about working with automobiles like cars, trucks, etc. Vehicle towing service demand is driven by the average age of the motor vehicle fleet, the rate of automobile accidents, and parking enforcement by private landowners and municipalities. As this report suggests, the number of businesses has grown by 6.9% and the number of employees has grown by 4.5%.
The profitability of a towing company largely depends on effective marketing and efficient operations. This business is also considered a recession-proof business. Small companies can effectively compete with larger ones because there are few economies of scale in operations.
Tow Truck Business Plan Guide for Beginners
1. Understand the Market
It is extremely important to know the demand and trends of tow trucks in the local market. Conduct market research and collect information regarding the needs of existing customers and local competitors. Based on the feedback, explore the scopes and gaps, and plan your business accordingly.
Most towing companies provide multiple services such as:
- Emergency Towing: Removing vehicles which are broken down by the side of the road
- Accident Recovery: Taking wrecked vehicles off the scene
- Impound Towing: Moving vehicles parked by the side of the road with no authority.
- Long-Distance Towing: Moving cars from one long-distance location to another, say to a car dealer or a car repair shop.
- Heavy-Duty Towing: Moving bigger-sized vehicles such as trucks or buses.
Running a tow truck business in the U.S. requires not only vehicle knowledge and operational skills but also the ability to manage a business effectively, especially since you’ll often be dealing with stressful situations and emergencies.
2. Write a Business Plan
A well-thought-out business plan is important for any new business. It acts as a roadmap for your business and can help you secure financing from banks or investors. Here are the key sections to include in your business plan:
Executive Summary
This section discusses your towing business, what kind of services you will offer and what will separate your company. Outline your goal and vision.
Market Research
Research the level of demand for towing services within your area of operation. Establish the number of competitors and type of services available. Identify prospective customers, such as local businesses and car dealers who may require these services regularly, such as auto repair shops.
Services Offered
Provide the following list of towing services that you will be offering. These can include but not be limited to:
- Emergency roadside assistance
- Heavy-duty towing for big trucks
- Private property towing
- Flatbed towing for expensive and vintage cars
Operational Plan
Describe how your business will be run daily. This may involve your tow trucks, employees, and other dispatching tools or systems to help manage calls and vehicles.
Financial Plan
Calculate how much it would take to establish the business; calculate costs on such purchases of trucks, insurance permits, and operating cost-fuel truck’s maintenance and paying workers’ salaries. Lastly include expected revenues together with the break-even analysis.
A business plan that has all these details can not only facilitate proper decisions on running your firm but also be extremely necessary in seeking loans or inviting investors to assist in establishing a firm.
3. Name and Register Your Trucking Business
A catchy and relatable name for your trucking business goes a long way in building a brand personality. Check this guide to learn more about the steps associated with naming a business.
Register your towing business with the appropriate authorities in your state. To start a vehicle towing service, you need to register your business. To protect the personal assets of business owners, forming a limited liability company or a corporation is better than a proprietorship for a tow truck business. Some states provide special permission and licenses for towing vehicles. Check all required licenses and permits with a local attorney.
4. Research Local Laws and Regulations
The towing industry is heavily regulated in the U.S., and every state has its own set of rules governing how tow trucks must operate. Before you start, ensure that you understand the following:
Licensing Requirements
Most states and cities require towing companies and their drivers to have specific licenses. In most cases, you will need a Commercial Driver’s License (CDL) if your trucks weigh over a certain amount. You’ll also need special permits for operating a tow truck, depending on your state.
For instance, in California, operators are mandated to have a Tow Truck Operator Certificate, whereas Texas requires that a towing license is acquired when running a towing business.
Insurance
Insurance must be taken in towing businesses. You will need a variety of insurances which include;
- Commercial Vehicle Insurance: These will cover your trucks in cases of accidents and damages
- Liability Insurance: This one covers you up when property damages and injuries come through while serving as a tow service.
- Cargo Insurance: This will cover the vehicles you are towing in case they get damaged during transport.
- Workers’ Compensation Insurance: In case you have employees, workers’ compensation insurance will protect your staff from injuries on the job.
The cost of insurance differs with the kind of coverage and location. Make sure you get quotes from different providers to get the best rates.
Permits and Local Regulations
Besides state and federal laws, there are some cities or counties that have regulations regarding towing operations. Some of these might include where you can store impounded vehicles, how you must handle accidents, or how you must advertise your business. Check with your local city or county government to see if there are any additional requirements for your area.
5. Evaluate the Cost of Running a Tow Truck Business
Running a tow truck business requires a good amount of investment. The following are the costs associated with operating a tow truck business:
- Cost of Buying Tow Trucks
- Overhead costs
- Fuel Cost
- Garage Rent
- Salaries and Wages
- Cost of Repairing Tow Trucks
- Accounting Expenses
- Compliance Expenses
- Insurance Coverage Cost
If you have budget constraints, buying a new truck would be much more expensive. It is better to buy a second-hand truck. It will cost you around $15,000 to $60,000 depending on the condition of the vehicle. Licensing is another avenue where a startup needs to invest in starting a towing business.
6. Secure Funding
Opening a tow truck business is very capital-intensive. The cost will involve purchasing tow trucks, insurance, permits, and several pieces of equipment and initial operating costs. Here are some ways to secure funding:
- Personal Savings: If you have personal savings, this can be a great way to fund your business without having to borrow money.
- Bank Loans: This includes a loan from a bank to your small business. For this, you would require a sound business plan that you will present to the bank.
- Investors: You could also consider getting investors or business partners for the business, which would enable you to obtain significant funding for your business.
- Small Business Administration (SBA) Loans: SBA provides loans to get a small business off the ground. The SBA website can be referred to determine whether you are eligible and the application process.
There is a need to have a clear plan financially and know what the costs are before seeing financing. Tow truck businesses have pretty high overheads, and cash flow will be the real key to long-term success.
7. Buy the Appropriate Tow Truck Equipment
Tow trucks are the backbones of your business, so getting the right equipment is a no-brainer. There are many types of tow trucks, all suited to various needs. The most common types of tow trucks in the U.S. include the following:
Flatbed Tow Trucks
These are equipped with a flat platform that permits vehicles to be driven or winched onto the bed. This is best used for towing luxury cars, sports cars, and vehicles with very severe damage.
Hook and Chain Tow Trucks
These are the traditional tow trucks, which operate using a hook and chain system to tow a vehicle. This is less used today because there is a potential risk of damaging the vehicle being towed.
Wheel-Lift Tow Trucks
These truck lifters use hydraulic power to lift either the rear or front wheels of a vehicle. They are primarily applied for small vehicles and tend to cause less damage than hook-and-chain trucks.
Integrated Tow Trucks
These are mainly used for heavy-duty towing, such as towing big trucks or buses. These have added features like inbuilt boom and wheel-lift systems.
The cost of tow trucks can range from about $30,000 for a used truck to more than $100,000 for a brand-new one. Maintenance and repair of the trucks will also be needed.
Read: Best Trucking Companies for Leasing Trucks
8. Pricing For Vehicle Towing Service
Fixing proper pricing is the most crucial and difficult decision to make after equipment and insurance in the tow truck business. According to the vehicle and distance, you may fix the pricing.
You may consider calling around local towing companies and taking information to see what the competitors are charging. Then make some estimates on what you think your volume will be across all sources of work (most have unique prices) to get your projected annual revenue. Smooth service with competitive charges is the most critical factor in achieving success in this business.
9. Hire Employees (If Needed)
If you are planning to expand, you will need to hire drivers and staff. Seek people who:
- Have a clean driving record and all the licenses or certifications needed.
- Can remain calm and professional in emergencies.
- Have good customer service skills.
Train your employees on the procedures of your company, safety, and customer service expectations.
Also Read: How to Start a Dump Truck Business
10. Promote Your Tow Truck Business
In a tow truck service business, one just doesn’t build a business only, you build a brand. You must create a website with information about your services, pricing, and contact details Word of mouth campaign is one of the best tools. Now social media is considered as a technically upgraded format of the word-of-mouth campaign.
Establishing different business tie-ups with other automobile service providers like the workshop, dealer point, etc. will help you in getting clients. It is highly recommended to use Google My Business to ensure your business shows up in local search results. You can also contact the local police department and the municipal department to get orders from them. Register your service with the local popular directory. These will help you in generating leads online in the vehicle towing service business.
Do remember, your reputation is everything in the towing business. Always aim to provide fast, reliable, and friendly service. Respond promptly to emergency calls, communicate well with customers, and always take care of the vehicles. A satisfied customer will come back again in the future and recommend your services to others.
Conclusion: Starting a tow truck business is not an easy task, but with the right planning and persistence, it can be one of the most rewarding businesses ever. With this knowledge of the local regulations, the right equipment, and providing the best service to customers, you will find yourself on your way to creating a successful towing business. The more you keep your focus on value for the customer, the more it will grow.
Editorial Team at 99BusinessIdeas is a team of experts led by Rupak Chakrabarty with over 25 years of experience in starting and running small businesses. Started in 2010, 99BusinessIdeas is now one of the largest free small business resources in the industry.