Start a towing company by following these 10 steps:
- Plan your Towing Company
- Form your Towing Company into a Legal Entity
- Register your Towing Company for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Towing Company
- Get the Necessary Permits & Licenses for your Towing Company
- Get Towing Company Insurance
- Define your Towing Company Brand
- Create your Towing Company Website
- Set up your Business Phone System
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your towing company . These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a towing company ?
The startup costs associated with opening a tow truck business are substantial, mainly because business owners must purchase a tow truck. Truck Paper lists tow trucks that are for sale, and they often sell for between $10,000 and $50,000.
Licensing fees are another major startup expense. In addition to paying for a Class B license, business owners often also need to obtain a permit from their state, and they may need other permits from local municipalities or highway departments. Business owners should check with their state and local city or county clerk office to find out what specific permits they need and how much they cost. They frequently are at least a few hundred dollars, and they can be much more.
A business must also purchase insurance. The first month’s premium may be a few hundred dollars.
What are the ongoing expenses for a towing company ?
The fixed ongoing expenses for a tow truck business include any licensing fees that must be renewed and insurance premiums. Variable costs include employee salaries, truck depreciation and repairs, and fuel.
Who is the target market?
Tow truck businesses receive calls from multiple outlets. Police departments, other municipal departments, individuals, motor clubs, repair shops, auto auction companies and property owners may all call a tow truck to move vehicles.
How does a towing company make money?
A tow truck business makes money by charging customers for tows. A typical charge will include a flat fee for the tow, a mileage fee, and a storage fee.
How much can you charge customers?
Tow truck businesses charge an average of $120 per tow (including both a flat fee and mileage charge). It’s also standard practice to charge a daily storage fee for any vehicles that are stored on the company’s property. The average storage fee is $20 per day.
How much profit can a towing company make?
The average tow truck business owner makes between $30,000 and $40,000 annually. The exact amount varies depending on the region that a business is in.
How can you make your business more profitable?
A tow truck business can diversify and increase its revenue by offering emergency roadside assistance. This usually includes providing emergency fuel deliveries, changing flat tires, offering jumpstarts and similar services.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Towing Company Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your towing company is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
Make LLC accounting easy with our LLC Expenses Cheat Sheet.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Licensing is normally required to operate a towing service. Most states require tow trucks to have three types of permits
- indictment management, which is required for a tow truck to perform a non-consent tow initiated by a law enforcement officer.
- private property, which is required for a tow truck is used to perform a non-consent tow authorized by a parking facility owner.
- consent tows, which is required for a tow truck used to perform a consent tow authorized by the owner.
Certain local licensing or regulatory requirements may also apply. For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Oversize Vehicle Permits
Some states, including Michigan, require a towing businesses to obtain an oversize/overweight vehicle permit for its tow trucks, sometimes also referred to as “wreckers.” More information about state weight load permitting can be found here.
Class B Driver Licensing Requirements
In most states, licences are issued by classes, operating according to the weight of the vehicle being driven. Drivers of standard cars and trucks require a class A commercial driver’s license (CDL), while operators of heavier vehicles, including most tow trucks, require a Class B CDL to operate. More information can be found here.
Certificate of Occupancy
A tow truck business is always run out of a physical location. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to an tow truck business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for you business’ location to ensure your tow truck business will be in compliance and able to obtain a CO.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
How to promote & market a towing company
Every tow truck business should have an online presence so that individuals who need a tow can find the business. Tow truck companies shouldn’t completely ignore marketing channels like social media, but they’re usually wiser to direct most resources towards local search engine optimization (SEO). Individuals are more likely to use a search engine to find a nearby towing service when they need one than they are to engage with one on Facebook or Twitter.
Many tow truck businesses also seek out contracts with cities and towns, repair shops, apartment complexes and similar businesses. These contracts provide a more stable income stream than marketing towards individuals do.
Lots of companies also contract with automotive clubs, such as AAA. These clubs provide lots of business, but they often pay very little per tow. Businesses often start out relying on these contracts for calls, but successful businesses also look for other contracts that are more lucrative. WikiHow has a tutorial on how to become an AAA-contracted towing operator.
How to keep customers coming back
A tow truck can compete with other towing services by having fast response times. Individuals often want their vehicles towed quickly when they break down, and property owners want improperly parked cars removed from their property as quickly as possible. Providing speedy service keeps these customers happy.
When contracting with municipalities and police departments, speed of service can be the difference between getting a call and not. Many government agencies contract with multiple towing services -- and they’ll notify each company when a vehicle has to be moved. The company that gets to the vehicle first typically gets to tow it, and the others don’t receive any work from the call.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2022 to find the best phone service for your small business.
Recommended Business Phone Service: Nextiva
Nextiva is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
Start A Towing Company In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Anyone who is mechanically inclined may be well-suited to start up a tow truck business. Towing vehicles is usually straightforward. Sometimes, however, hooking a damaged car up to a tow truck or extricating a car from a tight place can be challenging. A mechanically inclined mind can help in these situations.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a towing company ?
A tow truck business owner spends most of his/her day driving to broken-down, stranded and improperly parked vehicles, hooking them up to the tow truck, transporting them to another location, and unhooking them from the tow truck. This work is almost entirely done outside, and the work must be done regardless of the weather.
What are some skills and experiences that will help you build a successful towing company ?
A tow truck business owner must know how to -- and be legally licensed to -- operate a tow truck. In most states, tow truck drivers need a Class B license. A Class B license usually allows drivers to operate a vehicle weigh more than 26,000 pounds or a vehicle that is towing another vehicle that weighs 10,000 pounds or less.
What is the growth potential for a towing company ?
Most tow truck businesses serve a single geographic region. In large metropolitan areas, they may only serve the city -- or even just part of the city. In less-populated areas, they may cover more territory, but they’re usually still limited to one region.
A few companies advertise nationwide towing services. These companies, however, usually accept calls for tows but contract with local towing companies to actually tow vehicles. They effectively provide a referral service, for a fee.
TRUiC's YouTube Channel
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
How and when to build a team
While it’s not absolutely necessary to have employees, most tow truck businesses have employees so that they can provide towing services around the clock. Without providing 24/7 towing, it’s difficult to get contracts with repair shops and government organizations. Additionally, the more hours a tow truck is used to tow vehicles, the faster the investment in the truck can be recouped.
For these reasons, many tow truck businesses hire at least additional drivers as soon as possible. Some owner-operators, however, elect to not hire employees despite the benefits that having additional drivers can provide.