How to Buy a Towing Business

Starting a car towing business is a rewarding, yet challenging endeavor. In particular, as the owner of a car towing business, you must adhere to state regulations, ensure that your drivers hold current, clean licenses; maintain a secure, fenced location; procure expensive towing vehicles, insurance and equipment; maintain detailed customer records; handle repossessions; and deal with day-to-day accounting. Buying an existing towing business is a lucrative option and will eliminate much of the groundwork involved in getting the business afoot. Plus, you will have a built-in client base. However, you will need a strong portfolio and plenty of capital in order to procure a business.

Conduct Research

Conduct research to help you find the most lucrative region or location in which to operate your towing company. Contact utility companies, local licensing departments and county zoning authorities to learn the utility costs, wages, county regulations, licensing requirements and taxes in your region, which may vary significantly from county to county.

Find Companies

Look for available towing companies in newspapers and online at sites such as Globalbx.com and Businessnation.com. Consider the reasons why each owner is selling his business to ensure that you aren't considering a doomed business. Contact your banker, attorney and accountant to help you begin building your portfolio and to review potential businesses and verify the business' financial information. As you narrow your search, consider whether any local competition will encroach on your ability to expand.

Submit A Letter of Intent

Once you've settled on a company, submit a letter of intent to gain access to the businesses' financial and logistical information. Ask business owners for balance sheets, income statement, cash flow statements and tax returns from the last three years. Verify that there have been no bankruptcies or that there aren't any outstanding leases. Learn the towing company's revenue stream, such as from automotive repair, roadside assistance, impounds and abandoned car sales. Verify viable ways in which you can expand the business and increase profits.

Ask the owner how long he intends to remain on board to facilitate the transition. This may be anywhere from one to six months. Negotiate as necessary, depending on how comfortable you are going solo.

Learn what, if any, contracts the towing company has with local mechanics, police departments, dealers, auction houses, car repair shops, motor clubs, insurance companies, junkyards, shopping centers and apartment complexes.

Determine what to Purchase

Determine your inventory needs. Some businesses elect to sell the inventory separate from the business. Inspect the wreckers, tow trucks, heavy duty wreckers, flatbeds, security cameras, video surveillance and auto repair bays and equipment. Verify that all heavy duty automotive equipment has current DOT stickers and permits. Learn the liability insurance requirements for equipment. For example, heavy duty trucks require more coverage then light or medium weight trucks. Additionally, learn the tax liability for the inventory and what equipment can be depreciated.

Create a Purchase Agreement

Develop a purchase agreement with the help of your attorney. Procure financing, which is generally 25 percent of the sale price. The seller typically finances the rest. Present your offer.