Towing Business Overview

If you want to understand how to start a towing business, you need to learn a few facts about this industry.

Drivers who have become stranded depend on tow truck drivers, making this a type of business where you can help other people. 

Like most businesses, you will need business registrations, licenses, and permits to start your tow truck company. You may need to apply for a business loan or look for interested investors to start your towing business, depending on its size. To properly outlay capital, you'll need to know how much money will be required to start your tow truck business.

While the initial outlay of capital can be very expensive, you can receive an impressive return on investment if your towing business is successful. Even when the economy is struggling, tow truck businesses tend to do well, as their services are essential.

Customer satisfaction can swing wildly with a tow truck business. At one minute, you may be praised for helping a driver whose car has broken down, and the next minute you can be hated for towing a car that's parked illegally.

Who Is the Towing Business Right For?

If you are mechanically inclined, then starting a tow truck business may be the right choice for you. Generally, towing a car is a simple process. However, if the car is damaged, hooking to your tow truck can be difficult. In tough towing situations, an understanding of mechanics can be a big help.

Starting a Towing Business

The initial step to start a towing business is filing the right paperwork with the state where your business is located. All businesses, including tow truck companies, are required to register with their state before they can begin operations.

There are three business structures you can choose for your tow truck company:

  1. A sole proprietorship.
  2. A corporation.
  3. A limited liability company.

If you're not sure which structure is right for your business, you should seek advice from a tax adviser or qualified attorney.

For most businesses, structuring as a limited liability company (LLC) is the right choice. An LLC protects the personal assets of the business owner more fully than does a sole proprietorship.

When you're ready to register a DBA name, you will need to fill out and submit a fictitious name registration at the county clerk's office. Registering other business structures can be accomplished at your state's Secretary of State website. After your entity formation has been approved, you can visit the IRS website to request a federal tax identification number.

You should check to see if your state requires state licensure for a tow truck business. You will also need to find out if your county or city requires tow truck companies to obtain special permits. If you wish to open an impound lot for your towing business, you may need to acquire a zoning permit.

There is a certain amount of risk involved when towing vehicles, which is why your company's operators should have a liability insurance policy.

Prior to starting your towing company, it's a good idea to learn about the typical revenues and costs in this industry, which can help you decide where to locate your business. In 2015, a report estimated that typical towing company revenues were between $100,000 and $200,000, and that companies that towed at least 120 cars per month could expect their costs to be about $200 per vehicle.

After you've correctly registered your business, you will need to build your fleet. A towing company cannot operate without tow trucks, and there are several types available, including flatbed trucks. Flatbed trucks are a popular choice for towing companies because they can more easily transport vehicles that have suffered severe damage. Hooked wreckers are only capable of towing cars with tires that have air and undamaged rear axles. When your towing company grows, you'll likely need to purchase more tow trucks.

Once your company starts to expand, it can also be a good idea to establish a central dispatch office. Companies with multiple trucks will operate more smoothly with a central dispatcher. Single truck companies can usually rely on the driver's cell phone.

The cost of your tow trucks will depend on whether you buy new or used. New tow trucks can cost as much as $200,000, while you may be able to purchase a used tow truck for around $50,000.

If you need guidance to help you start a towing business, you can post your legal needs on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.