You need a minimum of $743,580 to start a standard tow truck business in any city in the United States of America.
A tow truck which is also known as a wrecker, a breakdown truck, a recovery vehicle, or a breakdown lorry is a truck that is used to move broken down, improperly parked, impounded, or otherwise indisposed motor vehicles away from the road so as to avoid obstruction of free flow of traffic.
Companies in the Automobile Towing industry are responsible for towing light or heavy motor vehicles over short and long distances. As a way of earning additional income and improving revenue, players in this industry may also provide incidental services such as storage and emergency road repair services et al.
Starting and operating a towing truck business can be financially tasking and challenging, but the truth is that it can be rewarding at the same time. One good thing about the industry is that it is open for both big-time investors who have the capacity to start the business with a fleet of tow trucks and aspiring entrepreneurs who may want to start with just one tow truck.
Estimated Cost Breakdown to Start a Tow Truck Business
When it comes to starting a standard tow truck business, one is expected to spend the bulk of the startup capital on the purchase of standard tow trucks. Please note that most towing equipment are customized to suit the needs and convenience of the end user, and the choices that you make will influence the tow truck cost.
Depending on the options you choose, the cost of a typical tow truck can be anywhere between $58,000 and $850,000. Aside from that, you are not expected to spend much except for maintenance and fueling and of course, paying your employees and utility bills. These are the key areas where you are expected to spend your startup capital on;
- The total fee for registering a business in the united states of America – $150
- Legal expenses for obtaining licenses and permits as well as the accounting services (software, P.O.S machines, and other software) – $3,300.
- Marketing promotion expenses for the grand launching of the tow truck in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of – $3,580.
- The cost for hiring a Business Consultant (it includes writing business plans) – $2,500.
- Insurance (general liability, workers’ compensation, and auto insurance) coverage at a total premium – $15,000.
- The cost for payment of rent for 12 months at $1.76 per square foot in the total amount of – $105,600.
- The cost for parking yard/facility remodeling – $25,000.
- Other start-up expenses including stationery ($500) and phone and utility deposits ($2,500) – $3,000
- Operational cost for the first 3 months (salaries of employees, fueling and maintenance of the truck, and payments of bills et al) – $120,000
- The cost for office / store equipment (cash register, security, ventilation, signage) – $750
- The cost of purchase of two 50 tons tow trucks (fairly used) – $450,000
- The cost of launching a website – $600
- Miscellaneous – $10,000
From the rough estimate as listed above, you would need a minimum of seven hundred and forty – three thousand five hundred and eighty USD ($743,580) to start a medium–scale but standard tow truck business in any city in the United States of America.
Please note that this amount includes the salaries of all the staff for the first three months of operation and excluding having an in-house servicing and maintenance team under your payroll. You can always contract this aspect of the business to a third-party service provider.
Please note that this is a rough estimate and we usually advise our readers who are interested in starting a tow truck business to go to the market or directly contact tow truck, major dealers, in their city in order to get the real time prices of the types of tow trucks they want to buy, the required insurance and perhaps payment modalities et al.
The truth is that if you are a good bargainer, you can get a better deal that will help you beat down the estimated price as listed above.
Factors That Influence the Cost of Opening a Tow Truck Business
Your Choice of Location
Your choice of location is one of the major factors that can influence the overall cost of starting a tow truck business. The truth is that, in the United States of America, every state operates as an independent part of a federation hence they have their own rules and regulations.
Some of the rules and regulations that are unique to each state influence the startup cost of the business. For example, there are some locations that attract high rental or leasing fees, while some are very affordable.
The Type of Towing Services
Another factor that can influence the cost of starting a tow truck business is the type of towing services that the tow truck business wants to offer.
Interestingly, an entrepreneur who wants to start a tow truck business can either start a light-duty towing service, a heavy-duty towing service, a roadside assistance business, or a specialized towing (e.g., exotic cars) business. Trust me, the cost of starting any of these tow truck niche ideas varies.
The Cost of Licensing and Permits
The amount you will spend in acquiring all the needed licenses, and permits is yet another factor that will influence the cost of starting a tow truck business.
Basically, you should make plans to obtain a business license, commercial driver’s license (CDL), towing operator license, vehicle towing permit, vehicle storage license, hazardous materials permit (if towing hazardous materials), fire department permit, and police department permit.
In case you are not sure of the licensing permits required to start a tow truck business in your city, then you should check with your local government or regulatory agencies. Please note that costs for these licenses and permits can vary.
The Cost of Insurance Policy Cover
Another cost that can influence the overall cost of starting a tow truck business is the amount you are expected to spend in acquiring the needed insurance policy cover for the business.
As expected, tow truck businesses typically require commercial auto liability insurance, physical damage insurance, on-hook towing insurance, garage-keepers insurance, general liability insurance, and workers’ compensation insurance to protect against potential risks and liabilities that the business is subjected to by virtue of the nature of the business.
Please note that the cost of insurance policy coverage will depend on factors such as the size of your business and the coverage limits you choose.
The Cost of Equipment
The cost of equipment is yet another major cost that can influence the overall cost of starting a tow truck business. As expected, you should make provision for winches and winch accessories, tow dollies, wheel lifts, flatbeds, straps and chains, safety lights and beacons, jump start equipment, lockout tools, and safety cones and signage.
The amount you are to spend on equipment will depend on the size of your business and the tow truck projects you are handling per time. But the bottom line is that it is a significant cost that will influence the overall cost of starting a tow truck business.
The Cost of Purchasing Tow Truck
Another major cost that will determine the overall cost of starting a tow truck business is the cost of purchasing your tow trucks.
Depending on the size and location of your tow truck business, you may need different sizes and types of tow trucks. Interestingly, tow trucks come in various sizes and capabilities, such as flatbed, wheel-lift, and integrated units, and they all come with different price tags.
It is important to note that the cost of a suitable tow truck will depend on your preferences and also your decision to settle for outright purchase or lease.
The Cost of Marketing and Advertising the Tow Truck Business
If you have plans to start a tow truck business, then you should do all it takes to secure tow truck contracts. In essence, promoting your tow truck business through marketing and advertising efforts is essential to attract clients.
Even though there are no specific costs attached to marketing and advertising a business, the bottom line is that if you want to launch a tow truck business that will win a fair share of the available market share in your location, then you must be ready to invest a significant amount to promote the tow truck business.
Another major factor that can influence your tow truck business is your budget for hiring employees. Even if you can operate the tow truck business alone, you cannot operate a standard tow truck business without hiring employees.
In essence, you are expected to hire qualified tow truck drivers, marketing and sales officers, accounting officers, customer services officers, administrative staff, et al. Come to think of it, the budget for hiring and paying wages will form a significant portion of your budget.
The Cost of Fuel and Maintenance
The cost of fuel and maintenance of your tow truck business is yet another major cost that can influence the cost of starting a tow truck business.
The fact that you will need fuel to move your tow trucks from one location to another means that it is an item you should not ignore if you are planning to start a tow truck business. Apart from the cost of fueling your tow trucks, you should also have a budget for maintenance.
This is necessary because if you want your tow trucks to always be on the road and to avoid unnecessary downtime, the trucks must be regularly maintained.
Parking and Storage Facilities
Lastly, another major factor that can influence the cost of starting a tow truck business is the amount it will cost you to lease or rent a parking and storage facility for your tow trucks. Trust me, the cost of renting or leasing a standard parking and storage facility that is centrally located does not come cheap.
There is indeed no fixed startup capital when it comes to starting a tow truck business; the startup capital can be high, moderate, or low.
For example, in the bid to wanting to cut costs, an entrepreneur who wants to start a tow truck business may decide to settle for used tow trucks, and also start with very few employees or even operate an owner-operated tow truck business.