How to Start a Roadside Assistance Business
Roadside assistance provides valuable help when people need it the most. For example, there’s nothing more frustrating than a flat tire or a dead battery when you have somewhere to be. Not to mention, car issues can leave people in less-than-ideal situations—such as being stranded on the side of a busy highway. Roadside assistance businesses are crucial for these customers and help to get them back on their way.
A roadside assistance service provides quick repairs or tows for inoperable vehicles. For example, roadside assistance businesses offer
- Flat-tire replacements
- Fuel delivery or oil tank fill-ups
- Dead battery jumps
In addition, roadside assistance businesses provide safety while repairing vehicles with the use of flares and lights to secure busy or risky areas.
Roadside assistance companies offer services as individual, one-time aid (such as towing), or as memberships with a handful of covered services included within a membership period. A membership plan is usually charged monthly or annually per vehicle as a flat fee.
Roadside assistance memberships are a common way people use roadside assistance and can often be purchased through automobile insurance for a low price.
Memberships include a handful of services like:
- Towing up to a specified mile radius
- Lockout services up to a specified amount
- Flat tire changes
- Complementary dead battery jumps
- Complementary tire air refills
The U.S. has over 43,000 automobile towing businesses, an increase of 1.6% from 2021 – 2022. This total is a record high for the last ten years.
Although the number of businesses has grown, the revenue statistics for 2022 look dire. In 2022, towing businesses are expected to generate nearly $10 billion, a figure lower than the previous year by 1.3%.
But, despite the lower revenue, automobile towing and roadside assistance businesses will likely see growth in the coming years. Additionally, automobile towing has seen revenue growth by an average of 2.6% over the last five years.
The pandemic may have contributed to the decline. Many individuals worked from home, and stay-at-home orders reduced driving. However, as things slowly change again, more people are back on the road. In addition, new vehicle registrations and mileage have increased, meaning the demand for roadside assistance will grow.
As the statistics show, automobile towing and roadside assistance businesses have encountered challenges and opportunities in the past few years. Some of these trends will continue moving forward.
Challenge. Increased competition is an ongoing challenge for roadside assistance businesses. The number of roadside assistance businesses has increased, meaning there are fewer customers to reach, given the number of businesses available.
Opportunity. Roadside assistance businesses have an opportunity for growth as more vehicles are being purchased and there is an increasing number of vehicles on the road. In addition, with greater vehicle mileage, there will be more accidents and breakdowns requiring roadside assistance businesses for help.
Personal vehicles. Drivers of personal autos utilize roadside assistance businesses for inconveniences like flat tires and dead batteries. Commonly, customers purchase roadside assistance through a membership. Although, there are times that customers need help but don’t have a plan—i.e., an unexpected tow.
Business contracts. Businesses with commercial vehicles may contract with a roadside assistance business to be on call for their commercial cars. Arrangements with businesses can be lucrative as the agreement leads to consistent work. Business contracts also likely cover a fleet of vehicles, which guarantees income each month for every vehicle in the fleet.
Roadside assistance businesses may also charge more to be open and available for calls from drivers of the business contracts. For instance, businesses (i.e., trucking businesses or first responder vehicles) depend on operational vehicles. Therefore, they need prompt roadside assistance to ensure that their vehicles are not out of commission for long.
Insurance company contracts. Many insurance companies offer roadside assistance through an automobile insurance policy. So, networking with insurance companies and signing contracts can build a broad client base.
Checklist for Starting a Roadside Assistance Service
Starting your own roadside assistance business can be an exciting venture, but it’s important to be prepared before jumping in. Here is a list of common steps to consider before starting your business.
Step 1: Write a Business Plan
When starting a business, one important step is to create a business plan. This document lays out all the details of your business, from its mission and goals to its marketing strategy and financial forecast.
Not only will a bank require you to have one, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Related: How to write a business plan
Step 2: Select a Business Name
When choosing a name for your roadside assistance business, be sure to choose something that accurately represents your services and is easy for customers to remember.
Some other things to think about when brainstorming names for your roadside assistance business:
1) What services do you offer?
2) What keywords describe your services?
3) Is the domain name available?
4) How will potential customers remember your name?
5) Is the name easy to spell and pronounce?
6) Does the name have negative connotations?
Related: Tips on naming a business
Step 3: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.
When deciding on which business entity is best for a roadside assistance business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is that the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 4: Apply for Business Licenses and Permits
There are a few licenses that a roadside assistance business needs in order to operate. Depending on the state, there may be different requirements, but some of the most common licenses include a business license, sales tax permit, and Employer Identification Number. Also, if providing towing services, a tow truck operator license and Class B license will be required for all drivers.
It’s important to research what is required in your state so you can ensure your business is compliant. Operating without the necessary licenses can result in fines and even closure.
Step 5: Find Financing
Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a roadside assistance business is another. Fortunately, the cost to start a new roadside assistance business is relatively low; however, funding to start a business can be difficult. Banks are typically going to want the borrower to have good credit and be able to invest 15-25% of their money towards the total start-up costs.
Step 6: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 7: Get your Marketing Plan in Place
Marketing expenses for roadside assistance businesses can vary depending on the method and whether the marketing is kept in-house or hire a professional marketer. A quality website with before and after photos of a business’ work can be a powerful marketing tool and doesn’t require too much money to establish. Word-of-mouth marketing is key to getting new clients but it takes a while to show the quality of your work to customers. Other marketing methods include using social media platforms like Facebook or Instagram, or online sites like Yelp and Google Reviews, targeted direct mail, and print advertising.
Step 7: Get your Marketing Plan in Place
Starting a roadside assistance business can be a great way to offer valuable services to drivers in need. However, successfully marketing your new business can be a challenge.
One way to start is by creating a brand image and logo that visually represents the value and professionalism of your service. Next, focus on networking with local gas stations, auto repair garages, and car dealerships to establish partnerships and agreements for referrals. Another option is to join a national roadside assistance program, allowing customers to easily access your services through membership benefits. Finally, don’t forget about online marketing efforts, such as creating a website and using social media to connect with potential customers.
Step 8: Get Business Insurance
When it comes to running a roadside assistance business, it can be easy to overlook the importance of insurance. However, being properly insured protects both you and your clients in case of accidents or damage.
Some types of insurance to consider include general liability, which covers any injuries or property damage that may occur during a roadside assistance call. It’s also important to have vehicle insurance for any company vehicles used for tow trucks or service vehicles. And if your business offers services such as lockouts or jump starts, make sure to have coverage for any potential damage to customers’ vehicles.
In addition, having workers’ compensation insurance is essential for protecting employees who may be injured on the job. By taking the time to investigate and invest in the right insurance policies, you can ensure the smooth operation and protection of your roadside assistance business.
Step 9: Hire Employees
When it comes to hiring employees for a roadside assistance business, it’s important to look for individuals with specific skills and characteristics.
First and foremost, they should possess strong problem-solving abilities and quick thinking in order to handle emergencies on the side of the road. A good work ethic and physical stamina are also critical since roadside assistance often involves long hours and strenuous tasks such as changing tires or jumpstarting cars. Additionally, it’s advantageous for employees to have a solid knowledge of auto mechanics, as well as basic first aid training.
Last, good customer service skills are crucial in any job, but especially in a roadside assistance role where your employees may interact directly with distressed individuals in need of help.
Related: Hiring your first employee
Step 10: Set up an Accounting System
Setting up an accounting system for your roadside assistance business can seem like an overwhelming task, but it doesn’t have to be.
The first step is to determine which expenses need to be tracked and what type of income you will have (such as membership fees or on-call services). Next, decide which method of record-keeping you will use – whether it’s a physical ledger or an online software program. It’s important to regularly update your records and track all income and expenses in order to stay organized and avoid potential errors. Consider setting up separate accounts for different categories, such as vehicle maintenance or fuel costs. Finally, make sure to set aside time each month for reconciling your records and preparing any necessary financial reports for tax purposes.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost to start a roadside assistance business?
Starting a roadside assistance business has several costs, including business formation costs and supplies.
Business Formation Costs. When you open a new business, you will need to acquire permits and licenses from the state. Because each state’s fee is variable, it’s best to look at your state’s website to determine the cost. Generally, registration and permit fees are less than $1,000. Similarly, your business needs insurance. For the best rate, contact a few insurance companies and compare their quotes.
Supplies. Your basic supplies will cost around $600. Some supplies you may need include
– Jumper cables— $20 – $50
– Gas cans— $20 – $50
– Car jacks— $25 – $300
– Tire change tool kit— $100
– Road flares— $10 – $100
Tow Trucks. If you plan on offering towing services, you will need a tow truck or a vehicle that can tow. Tow trucks cost between $65,000 to well over $100,000.
Marketing. Marketing costs include elements such as a website and online web or social media ads. Websites cost around $2,000 to design, build, and fill with content. Social media ads range from less than $1 to around $5 per click.
How profitable is a roadside assistance business?
Roadside assistance businesses earn $18,000 annually per every 100 customers on a membership plan and approximately $60,000 annually for individual towing services. Let’s break that down.
Many roadside assistance businesses charge customers on a monthly or yearly basis. A monthly membership costs between $2 – $15 per month (or $24 – $180 per year). So, for every 100 customers with annual memberships, your business earns $18,000 (calculated at the $15 per month rate).
For individual services outside a membership plan, the costs are higher. For example, towing is a typical service used outside a membership plan. A short tow usually costs a minimum rate of around $50, according to HomeGuide. In addition, towing services typically charge a hook-up fee and then a per-mile fee.
So, for example, with 100 tows per month, you would earn about $5,000 monthly on towing services alone, or $60,000 per year.
Are there grants to start a roadside assistance business?
It’s extremely rare to find a grant to start a roadside assistance business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What skills are needed to run a roadside assistance business?
A roadside assistance business doesn’t require a specialized degree or certificate, but it does require some key skills to maintain success.
Car Repair Knowledge. While going out on calls to assist drivers, you will need to know how to correctly hook up a car to be towed, change a tire, fill a gas or oil tank, or be able to retrieve a key locked inside a car. As your business grows, you may hire employees who already know how to do these things, but it is also possible that you may need to train them.
Organization. You must be able to coordinate your calls and schedule to meet your client’s needs and optimize your schedule to reduce wasting gas and time. As your business expands to add employees, you will also need to manage your driver’s schedules. Being organized will also help you to effectively train and oversee your employees.
Marketing. Your business needs clients—marketing is an important tool to gain those clients. Without customers calling for assistance, your business is without revenue. So, successful marketing and ad campaigns are important to draw in customers.
What is the NAICS code for a roadside assistance business?
The NAICS code for a roadside assistance business is 488410, which is classified under Motor Vehicle Towing.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
Although revenue for towing businesses has been forecasted to decline slightly in 2022, there is a positive outlook for the future. Given that car registrations are up and people are starting to put more mileage on their cars again, the demand for roadside assistance will likely increase.
With a good marketing plan and connections with markets that will send you clients, your roadside assistance business can be successful and grow in the coming years.