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 very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.

After registering a domain name, consider setting up a professional email account (@yourcompany.com).

Google’s G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free

STEP 2: Form a legal entity

Establishing a legal business entity such as an LLC prevents you from being personally liable if your towing company is sued. There are many business structures to choose from including: Corporations, LLC’s, and DBA’s.

Read our Guide to Form Your Own LLC

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Have a Professional Service Form your LLC for You

Two such reliable services:

• ZenBusiness ($39 + State Fees)
• LegalZoom ($79 + State Fees)

Check out the

Top Business Formation Services from our friends at StartupSavant.

You should also consider using a registered agent service to help protect your privacy and stay compliant.

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?.

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.

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: You can get $300 when you open a Chase Total Business Checking® account with qualifying activities. Learn More.

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.

Recommended: Read our guide to find the best small business credit cards.

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.

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.

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.

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.

STEP 9: Establish your Web Presence

A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.

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