Towing is a service that will continue to be in demand in the future. As reliable as cars are these days, accidents and breakdowns are inevitable and the need to tow a vehicle will always be present. While the job requires long hours of work in potentially remote areas, the stable demand for towing services makes towing companies attractive to entrepreneurs who are looking to generate consistent and reliable income.
But what exactly are the steps involved in starting a towing business? And what are the key factors that should be taken into consideration when planning your own towing company? This article will answer these questions in detail and demystify the process of setting up a tow truck business.
Start Planning Your Towing Company
After deciding that you want to start your own towing company, you need to draft a plan that outlines every aspect of the business. Here are the main points to focus on when planning a towing business.
Identify the Type of Towing Business You Want to Establish
The first thing you should do is identify the type of towing company you want to start. There is a wide range of options to choose from - and while these businesses have similar core tasks, they differ in many key areas. Identifying the type of towing you want to do will allow you to plan properly for the launch of your company and get the right equipment for the job.
Here are some of the most common types of tow truck companies:
- Post-accident towing: These companies help with accident cleanup by towing wrecked cars from collision sites.
- Contractor for a roadside assistance company: Roadside assistance companies will often work with local contractors to handle towing jobs in a given area.
- Oversized load-hauling: Some tow truck drivers offer towing services for large items, such as manufactured homes and heavy equipment.
- Vehicle transport: This type of towing involves transporting vehicles across long distances.
Figure Out Your Target Market
After identifying the type of towing business you want to start, you need to niche further down and specify your target market. When it comes to the towing industry, you can choose whether you want to work with other businesses or provide your services directly to customers. Each choice has different implications for your business.
If you decide to work with businesses, you need to narrow your options down to those that fit your towing services. For instance, if you intend to haul heavy equipment, you might want to look into working with construction companies and developers. If you are offering roadside assistance services, you might choose to work with insurance companies, AAA, local garages, and auto repair shops in your area.
When working directly with customers, they will mainly consist of vehicle owners whose car broke down along the road or got stuck in rough terrain. Unlike the previous option, acquiring customers this way requires doing a lot of marketing legwork.
Set the Scope of Your Business
The size of your towing company will depend on the amount of capital you're willing to invest. While most new business owners prefer to start small and slowly scale as the company grows, it's possible to start with a larger operation if your financial resources allow it.
Regardless of the size of the investment, you should determine the scope of your business during the planning stages of the project - this will enable you to better anticipate expenses, make accurate revenue projections, and avoid overstretching your resources. Here are some of the key points you should cover:
- The number of tow trucks you're starting with
- How many tow truck drivers you plan on hiring
- The geographic areas where you intend to provide your service
Determine the Costs of Starting and Operating a Towing Company
As part of your business plan, make sure to outline all the costs associated with setting up a towing business. Estimating the startup costs will help you deploy your resources in a more efficient and targeted way.
The most significant expense you should account for is the cost of the tow truck. A new tow truck can cost well over $100,000, whereas some used tow trucks can be purchased for closer to $50,000. Keep in mind that you also need to purchase several additional accessories that are required for towing. This might include a flatbed, amber strobe lights, flares, traffic cones, jacks, extra fuel tanks, battery boosters, and winter equipment.
As for ongoing expenses, they are generally divided into two types: fixed costs and variable costs. The most common fixed costs associated with operating a towing business are licensing fees and insurance premiums. Variable costs, on the other hand, are incurred while providing the service and are, therefore, dependent on several variables. For the majority of towing businesses, variable costs consist of salaries paid to employees, fuel expenses, and depreciation of the equipment.
Moving From Planning to Execution
Once the planning phase is complete, the next step is to take action and initiate the process of starting your own towing company. The following sections outline how you should approach this project.
Decide on a Legal Entity and Open a Business Bank Account
The first item on your checklist is coming up with a name for your business. There is no need to dwell too long on this step as the name of your towing company will have little bearing on the quality of the service it provides.
Next, you'll want to choose a legal structure for your business. Your options are sole proprietorship, limited liability company (LLC), partnership, and corporation. While each legal entity comes with benefits and drawbacks, LLCs boast several qualities and features that make them the ideal option for new and small businesses. Some of the pros of forming an LLC include limited personal liability, simple creation procedures, and pass-through taxes.
As part of the setup process, you should also separate your business and personal finances by opening a business bank account. This adds another layer of liability protection and makes it easier to maintain clear and accurate bookkeeping.
Obtain the Necessary Permits to Operate a Towing Business
To legally provide towing services, you need to get several permits. The requirements will vary depending on where your business is located. The following permits and licenses are required in most states:
- Indictment management permit: This permit allows a towing company to tow a vehicle without owner consent at the behest of law enforcement.
- Private property permit: This permit allows a towing company to tow vehicles from private properties without owner consent when requested by property owners.
- Consent tow permit: This permit allows a towing company to tow a vehicle with the owner's consent.
- Oversized vehicle permit: This permit is needed when the weight of the tow truck exceeds a certain threshold.
- Class B commercial driver's license: Tow truck drivers are required to have this license to operate vehicles with a GVWR greater than 26,000 pounds or to tow any vehicle that doesn't weigh more than 10,000 pounds.
Get Business Insurance
Due to the nature of the service that towing companies provide, getting business insurance coverage is paramount. There are various types of insurance policies that cover you in the event of damage caused to or by your tow trucks. Here are some of the tow truck insurance policies you should get for your business:
- On-hook towing insurance: This insurance policy covers you in case a vehicle is damaged while getting hooked up to your tow truck.
- Auto liability insurance: This insurance policy pays the driver's medical and property expenses if you're found at fault for an accident.
- General liability insurance: This is a comprehensive policy that provides coverage for a wide range of hazards and risks. This includes bodily injury to the customer, property damage caused by your equipment, and legal claims made against your business.
- Uninsured motorist insurance: This insurance policy protects you in the event of an accident with someone who doesn't have insurance.
Market Your Towing Company
Like we mentioned earlier, your marketing strategy will depend on your target market. If you plan on working with other businesses, the most effective approach is to simply reach out to them and propose a partnership.
Marketing to customers is more challenging and requires a different approach. The goal here is to boost your company's visibility and put your services in front of the right audience. To achieve this, use paid social media ads to advertise your services and leverage Facebook groups to promote your company at a local level.
Ranking for local keywords is another great way to draw in potential customers in your area. Targeting keywords like "Tow truck in San Diego" or "Tow services Florida" will help position your business in front of a buying audience without incurring the high costs of paid advertising.
Enhance Your Workflow as Your Towing Business Grows
Once you've laid the foundations for a profitable business, you can start thinking of ways to improve workflow efficiency. One of the areas where there is room for improvement is the way financial documentation is handled. Instead of relying on overly complex invoicing tools, you can use Skynova's simple invoice template to create customized, professional-looking invoices in a matter of minutes.
Another software solution that can help you streamline your workflow processes is Skynova's accounting software. As an all-in-one accounting module, our software tackles everything from basic bookkeeping to financial reporting.
Grow Your Towing Company With the Help of Skynova
Operating a towing company is a time-consuming endeavor. The last thing you need when running your business is to get sidetracked by administrative tasks that have no direct connection to your core activity. Skynova helps you avoid this by providing you with convenient business templates and comprehensive software solutions that can handle most of these tasks for you.