Vehicles break down daily or are left stranded on the roadside or are parked illegally every other day. A towing business transports these vehicles to either the repair shops or to other locations as directed. A towing business can also offer emergency roadside assistance services.
If you are planning to start a tow truck business, it is not very different from other types of businesses, and in fact, the process can be quite similar to the startup process of any other business. It requires you to have the right business registrations and licenses, and a permit for starting your own towing company. You may also need financing or look for potential investors if you plan to start it at a bigger scale.
What to consider before starting a towing business?
Who is the business for?
This business is well suited for anyone who is mechanically inclined. It is quite straightforward, although in some situations it can be quite challenging, for example when you have to tow a damaged car from a tight place, in extreme weather conditions or the middle of the night and so on.
What is the typical day like in the tow truck business?
The basic work requires the business owner or the tow truck driver to transport broken, stranded for illegally parked cars to another location by hooking and unhooking them to their tow trucks.
What is the target market?
The target market is usually the police department, other individuals, municipal departments, repair shops, motor clubs, property owners and auto auction companies and whoever requires the services of a tow truck to transport a vehicle to another destination.
How do they make money?
The business makes money by charging the customers for towing their vehicles. A standard charge includes flat fees required for the towing service, a mileage fees, and the storage fees.
What is the growth potential for towing business?
Often, the towing business is simply local and serves one geographical location. In the larger metropolitan areas, however, towing companies may serve just one city while in the less populated areas, they might be covering more area but still be limited to a single region.
Starting a towing business
The first step towards starting your own towing business is to know what paperwork is required for the registrations and the permits for the state where your business is located. You must also have a business plan in place to guide you whether or not your business will be economically viable.
Business Registration and Structure
All businesses, no matter which industry they belong to, must register with the state before commencing their operations. There are three options which you may choose to start off your towing business as: a sole proprietor, a corporation or a limited liability company.
If you are unsure which structure would be the best fit for you, then you must discuss it with your attorney or a tax advisor who can guide you. However, registering yourself as a limited liability company can be the right choice as through this structure you can protect your personal assets in a better way. You must also get an understanding and an idea of the costs and the revenues estimates of this business.
Licensing and Paperwork
Apart from the work permit, you must also get liability insurance when you are starting your towing business. The insurance should cover yourself, your tow trucks and your clients. The insurance broker will guide you regarding the minimum level of insurance that is needed. You must also find out which driving license you would be required to have for yourself and whomever that you employ in your business to drive the tow trucks. Many states and cities require the drivers to hold a CDL license.
The size of your business would determine whether or not you need financing. It also depends upon how many funds you have in hand that you can invest in your business. If you are planning to start small, with a one truck operation, then most probably financing would not be much of a problem as a regular bank loan would probably be able to meet your requirements to cover the cost of your equipment and one tow truck.
If however, you are planning to invest in a fleet of trucks for towing and flatbeds, then you have to figure out the best possible financing options for your business. Even though their many options for financing, you must consider one where the lender knows the towing business.
Some form of collateral might be required for the loan if you are new in the business or do not have much experience. What kind of vehicle you intend to purchase can also be a factor in determining your possibilities of financing.
Obtaining the Tow Trucks
Used tow trucks cost much less than the new ones. The new tow trucks can cost as much as $200,000 while you can get a used truck for as little as $50,000.
You must also decide which type of tow trucks you require. There are many different types available in the market which includes the flatbed tow truck types, the high patrol tow trucks, wrecker tow trucks as well as the service trucks and carriers. Many tow truck businesses choose to use flatbeds since they can be used for carrying even the most damaged vehicles, while the hooked wreckers require that the vehicle’s rear axle be undamaged.
If you plan to have multiple tow trucks or the five car carriers, then you must also have a central office for dispatching them. If you are operating with a single tow truck, then you can manage the calls with a single phone, but for more units, you would be required to manage with a dispatcher.
A Secure Yard
Many times you might have to hold vehicles in a safe place when they are impounded since the property owners wanted a car removed because it was parked illegally. Other times a car can be impounded because the owner may not have been able to pay for the car to be removed from the scene of an accident. In any such cases, the wrecker company would be required to have a secure parking lot to hold the vehicles there for days or sometimes even for weeks at a time as such you would require a secure yard where you have to hold such vehicles for the time being.
Another challenge is how to find the customers who require your assistance, and you must also understand how the local market works. How you build your customer base with your towing business depends on how dependable your services are and if the customers are satisfied with your services only then they would recommend your name to others. Factors such as, whether you were on time if you were helpful and friendly, are the factors which make an impact.
A good place to start is by forming relationships with good repair facilities in your vicinity. Often, the garages maintain relationships with towing companies and those companies then provide discounts to repeat customers.
Another place to start with is the local police department, where you can have your business listed for the accident responders.
You can also get in touch with auto clubs in your area and even though their fees may be much lower than the conventional rate, it is still a good way of starting your business. The Auto clubs provide roadside assistance to drivers in case their car breaks down or they require help with the repairs or towing away their vehicles.
Lastly, do not forget the power of advertising. You can start with the yellow pages, get your business card made, have your logo on your truck as you pass by on the streets and also set up a web presence where people can contact you by searching the internet.
Another important aspect of starting a tow truck business is to hire the right type of employees, as hiring, supervising and even firing the employees is not an easy task for most people.
It would not be very difficult to find employees with the right type of mechanical skills and experience. You should, however, not restrict your search for the right employee by simply looking for such skills. The employee should also be able to represent you and the business well when they interact with the customers. A prerequisite for such employees would obviously be a driving license and having some prior experience in this field would also help. You must hire such employees and figure out from the interview process whether they will be able to do the job right.
AAA and other Vehicle Clubs, Auctions and City Police and Highway patrol have minimum truck requirements to get a contract, and you must have access to all type of tow trucks for when you’re called you have access to right equipment to be able to tow any vehicle you might encounter. Also, they also require you to have a certain age of your vehicles to make sure you comply with their requirements.
There are various other factors which you must be aware of before starting the towing business. You must have a business bank account that will help you to keep your finances in one place and an organized manner, as well as to communicate a more professional image to customers and this also ensures you do not share your business account dealings with your personal account.
You must also set up proper business accounting systems by making sure you record all of your expenses and your sources of income, which is very important to understand the financial performance of how your business is doing. It also helps in the annual tax filing as well as applying for business loans. You must also register for different types of federal and state taxes which are applicable before starting the business.
There are many other factors which may be relevant to consider when you are starting your own towing business. It is important that you must do your research right, and do your homework regarding your business financing skills as well as your knowledge of the trucks you’re operating and will be buying to see whether you are making the right decision. Having the above information can surely guide you whether you are on the right track and once you have made up your mind regarding this new business venture – this guide will help you to get started as well! Running a towing business is capital intensive business as most of your heavy equipment aren’t cheap and not only upfront capital to start will cost significant capital outlay, it will also have big significant operating cost to maintain these vehicles in addition to operating expenses such as paying for gas, driver and other maintenance.
“We built our business one business at a time!”