Towing the Recession Away

September 2009 | Issue Six

The estimates and data contained herein are made using publicly available information and data and rules of thumb for different industries. BizEquity does
not represent or endorse the accuracy or reliability of any advice, opinion, statement or any other information displayed or distributed through this report or
its website.
 

Towing the Recession Away

We all know what a tow truck looks like. And whether or not we want to see a tow truck depends
on our specific situation. If your car's engine suddenly seized up on the highway, then seeing a tow truck
coming to save the day is a welcomed site.

However, if you're walking out of a storefront on Main Street and spy your vehicle being hooked up by a
towing company because you decided to take the chance of parking in an unauthorized zone on
speculation that you'd be in and out, then you're not so happy.

Thus, the bipolar relationship between the public and the towing industry.

TOWING COMPANIES AND ECONOMIC CONTRACTIONS

How does a towing company fare when times are rough? There's evidence that they fare very well. The
reason behind this observation is that owners of automobiles are tending to have a rough time keeping their
cars because they can't keep up with payment obligations.

Considering the absolutely awful credit crunch driving the current

recession -- one quite unique in its severity -- it would be fair to say that
an increased number of vehicles have been repossessed by lenders.
As the credit crunch filtered its way through the economy, it triggered a
massive loss of jobs. Without salaries, a lot of consumers were forced
to give up their rides. Bad for them, certainly – but good for towing
entities.

Another thing to consider is that even if they’re being strapped for cash, towing companies can still make
out from another angle. People aren't necessarily encouraged to acquire new vehicles during a recession.
Instead, they'd often rather run their current ones for as long as possible. This can easily translate to "run it
into the ground."

WHAT ABOUT DURING THE GOOD TIMES?

 
Towing represents a useful business model even when the country is in a cycle of expansion. It's a
necessary service that’s utilized by individuals, businesses, and government agencies on a daily basis. An
individual will find themselves needing a tow at least a few times in their life. It's a given. Whether it's
because of an accident or an engine malfunction, consumers will be obligated to summon the service.

Also, businesses often use towing as a way of removing unwanted vehicles from their private property. This
is especially true for small parking lots where spaces are important to the business. If all spaces aren't
available at all times, it can impede the flow of traffic to a store or office complex.

 
 
 
 
A DATA BREAKDOWN
Want to know which cities have the most (highest frequency) towing companies? Check out this table
generated from research at Bizequity.com:

By City with Highest Frequency

City Frequency Average Valuation

New York,NY 124 $54,467
Los Angeles,CA 103 $99,867
Chicago,IL 89 $71,440
Detroit,MI 72 $71,217
Columbus,OH 68 $73,871
Miami,FL 65 $67,595
Brooklyn,NY 63 $79,043
Memphis,TN 60 $86,207
San Diego,CA 60 $68,597
Cleveland,OH 59 $104,847

Not surprisingly, New York City is at the top of the heap. The Big Apple has a lot of public transportation --
but it also has a fair number of private automobiles plugging along the crisscrossing streets and avenues.

Oh, and let's not forget taxicabs. There's a legion of them, too. It's a perfect environment for towing. As is
NYC's counterpart, Los Angeles. Both LA and NYC are ground-zero cities for all kinds of economic
transactions. Considering the population and industry density intrinsic to both LA and NYC, one can
understand why they occupy the top two slots, with over one hundred towing businesses in each city.

Now, we want to filter the towing universe with an eye toward finding the cities that have the most valuable
towing services:

By City with Highest Average Valuation

City Frequency Average Valuation

San Francisco,CA 31 $166,929
Baltimore,MD 47 $150,481
Jackson,MS 42 $140,869
Portland,OR 42 $108,440
Sacramento,CA 46 $106,474
Cleveland,OH 59 $104,847
Indianapolis,IN 35 $102,829
Saint Louis,MO 54 $102,711
Greenville,SC 43 $101,028
Los Angeles,CA 103 $99,867

San Francisco has the highest valuation when it comes to towing. The average valuation of the 31
businesses in the City by the Bay is $166,929. LA has the lowest valuation at just under $100,000 for its
103 tow companies. In a very general sense, as the frequency of towing companies increases, the
valuation decreases. Seems logical; the more tow services in one area, the less the valuation will be.

 
 
 
 

Simple supply-and-demand effect on what is essentially a commodity business.

WHAT SHOULD AN ENTREPRENEUR KNOW ABOUT THE TOWING BUSINESS?

No business model is free from risk. If you're interested in the towing business,
there are a couple things you should know.

First, realize that an owner of a towing service will be involved in a fair amount
of incidents involving vehicle owners who are having their assets taken away
against their will. This is a pretty good gig for tow companies, since they will
also be able to bill for storage. However, some states are concerned about so-
called predatory towing, and there are laws on the books that prohibit
aggressive pursuit of vehicles.

Second, it's been reported by First Research that tow companies are extremely
competitive. It's a similar situation to the taxicab industry: these kinds of
businesses tend to strongly work their territories and are always in the mood to
expand. In addition, you must invest in technology to stay ahead of the curve.

First Research also mentions that the towing industry isn't concentrated in only
a few corporate hands. There's a lot of opportunity in many markets for new
companies. However, access to a strong capital line is essential, considering
that you'll be buying many trucks. If possible, it might be more ideal to acquire
an existing towing service at a substantial discount to market value.

CONCLUSION
The key advantage to operating a towing business is the objective need by the public for the business
model. In both good times and bad, tow trucks will be busy. Just remember the laws, and the fact that you
do need to buy a few trucks and maintain a sizeable piece of real estate for impounded autos.

MORE ABOUT BIZEQUITY

 
Business valuation can definitely be a scary thing, involving complex equations, analysis and expensive
data sources. But at BizEquity, we try to make the process as easy and affordable as possible. Keep in
mind that a professional business valuation can easily cost $10,000 or more. And, while there are various
online business valuation calculators, they are often too simplistic.

Drawing from our database of more than 17 million businesses and intelligent algorithms, BizEquity offers
tools that not only give you an estimated valuation of your business, but also offer helpful insight into
industry trends, as well as recommendations and insight into your business’ operational strengths and

 
 
 
 
weaknesses. Please note that any valuation you obtain on BizEquity should only be used internally and not
be used to obtain credit or for any other commercial purposes.

CONTACT BIZEQUITY
 
Track businesses at www.BizEquity.com, or contact us directly at info@bizequity.com or 1.800.451.3178.

The estimates and data contained herein are made using publicly available information and data and rules of thumb for different industries.
BizEquity does not represent or endorse the accuracy or reliability of any advice, opinion, statement or any other information displayed or
distributed through this report or its website.