The Foundation of Your Trucking Business: No Room for Error - Commercial Fleet Financing
21 Sep

The Foundation of Your Trucking Business: No Room for Error


In the 10 Tips Book Tip #1; Knowlege is Power Is very important to the success of your business. In this blog, we are going to give you a head start on understanding the industry you are approaching or already in.

In many ways, the trucking industry serves as the backbone of America, bridging the gap between customer and seller, and solving the problem of transporting goods in masse. The trucking industry plays such a critical role in the economy that a 2015 report by the American Trucking Associations (ATA) shows that trucking companies generated over $700 billion in revenue in 2014. The industry also employs 8.9 million people across different trucking-related jobs.

As markets grow, so too will the need to transport commercial goods between states and cities, which in turn, fuels demand for new transportation and logistics companies. Although the industry can be brutally competitive, it’s not impossible to start your own successful trucking company. Below are a few steps to help you get started.

  1. Create a business plan, do your research, and check tax obligations

A trucking company is a business, and like any other venture, you’ll need a solid business plan to serve as a map through the startup process.

  • In your business plan, write down your company objectives and form the outlines of your strategy.
  • Think of the accounts you intend on servicing and business projections for expected earnings
  • Check your state’s tax rules for companies—rules can change between cities and states.

In other words, do your homework on the basics of trucking companies, and research the necessary steps to register as a business in your industry.

  1. Procure the necessary equipment

The kind of equipment you’ll need will depend on your business goals and services. For example, if you want a private fleet, you’ll need commercial trucks. If you intend on servicing clients in the food industry, you may need refrigerated trucks.

In any case, there are generally two options for procuring equipment:

  • Buying –You pay the down payment and secure a loan to finance the remaining amount, paying off your purchase until the trucks are finally yours.
  • Leasing –Leases work like paying the rent—you pay a fixed monthly amount to use the trucks. You can also opt for leasing agreements that let you own the trucks after the final payment.  Companies such as CFF can help you with that.  www.cfffnationwide.com

Your startup capital and projections should tell be your guide on the number of vehicles to get. Just remember that you can always grow your fleet as you get more business.

  1. Buy an Insurance and Liability Policy

CNBC report using data from the Federal Motor Carrier Safety Administration and the National Highway Traffic Safety Administration shows that in 2012, truck crashes were a factor behind more than 3900 deaths and more than 104,000 vehicular injuries.

These statistics highlight the importance of buying an insurance policy for your business to protect your property, as well as a liability insurance policy to cover any damages and claims for untoward incidents that happen on the road.

  1. Build your client base

Most new trucking companies depend on a load board to find clients. But competition on load boards is usually high, so you’ll need to bid at low prices to win contracts, which often results in razor-thin profit margins. Use load boards only if you need to. The better option is securing trucking services contracts with local establishments such as grocery stores, department stores, and other business, which tend to be more profitable.

Of course, these 4 steps only scratch the surface of the entire process behind starting a trucking company. Just remember to take time to do your research and, if possible, network with industry insiders for valuable insights before you take the plunge.

1. Support the right market niche

The most important step to be a successful owner-operator is to support the right market niche. I have done this in my own company and have been extremely successful. This affects small fleet owners as well. The market you choose determines the equipment you buy, the rates you charge, and the freight lanes you can service.

As a rule of thumb, owner-operators should focus on markets that the large carriers avoid. In other words, consider hauling specialized loads.

Making decent revenues with a dry van is very difficult as an owner-operator. There is too much competition from large carriers and other owner-operators trying to pull the “easier” loads.

There are many markets that you can focus on. However, hauling fresh produce and meat in reefers has many of advantages. They include less competition, year-round work, and it’s resistant to recessions. The last one is very important.

2. Charge the right rate (per mile)

As an owner operator, you need to determine what rate to charge your clients to haul a load. Your rates need to be high enough to give you a nice profit and pay all your operating costs.

You need to know your rates before you start calling shippers and making sales. Remember, when you call shippers, you want to be competitive with what brokers charge them.

There is a simple way to do this:

  • Select your freight lane
  • Go to a load board
  • Find 10 loads going in one direction
  • Call the brokers and find out how much they pay
  • Get the average
  • Add 10% – 15%
  • That is the price brokers charge shippers
  • Repeat the process for the opposing direction

Now, you know how much the lane pays for a round trip

3. Determine your operating costs

Knowing your operation costs in detail is important. Otherwise, you have no idea whether you will make a profit.

Determine your fixed costs. These are costs that stay the same regardless of how many miles you drive. Examples are truck payments, insurance, permits, and so on.

Now, determine your variable costs. These costs depend on the number of miles you drive. For example, fuel is a variable cost. The more you drive, the more you fuel you use.

Use your fixed and variable costs to determine your ‘all in cost per mile’ This figure is very important. If you subtract your ‘all in cost per mile’ from your rates (calculated in step #2), you get your profit. Profit, the amount of money you keep.

4. Use the right fuel buying strategy

Fuel is the largest expense for owner-operators. However, new and experienced owner-operators often buy their fuel incorrectly. They think that the cheapest pump price provides them with the cheapest fuel. This is wrong. You could lose hundreds (or thousands) of dollars by doing this.

This issue is taxes. Regular drivers pay fuel taxes in the state that they purchased the fuel. Truck drivers, on the other hand, must deal with IFTA. Truckers pay taxes based on fuel used as they drive through states, regardless of where they bought the fuel originally.

Because of this, you should buy fuel at the cheapest base price regardless of the pump price. Base price = fuel price – tax.

5. Work directly with shippers

Load boards and brokers have their place in your business. They can be very useful when you have an empty truck. However, they are also very expensive. Brokers keep about 10% – 20% of the load price. That’s fair, they must make a living and they provide the shipper (and you) with a service.

6. Run an efficient back office

Having an efficient back office is key if you want to stay profitable and grow. The importance of the back office becomes more important as you start adding leased drivers to your operation. You have a couple options.

One option is to do it yourself. You can run your business of the cab of your truck. All you need is a laptop, the Internet, and a printer. You will need accounting software to run your business. There are several options on the market. One well-known solution is Truckbytes, which offers a free entry-level package.

Alternatively, you can outsource your back office to a dispatcher. However, they can be expensive. If you choose this route, interview them thoroughly. The wrong dispatcher can kill your business.

7. Avoid cash flow problems

Trucking is a cash flow intensive business. You are always buying fuel, making insurance payments, truck payments, and so on. Unless you get quick pays, shippers and brokers can pay invoices in 15 to 30 days. Sometimes they take 45 days. This can create a cash flow problem for you, especially in the early days of the business.

Get all 10 tips by downloading the “10 Tips Everyone in Transportation Needs to Know Now” Booklet by going to www.10tipbook.com or clicking the image below.

ABOUT COMMERCIAL FLEET FINANCING, INC.  Commercial Fleet Financing, Inc. (CFF) located in Dallas, TX. CFF is celebrating its 23rd  year in business and provides financing for commercial fleet vehicles such as box trucks, cargo vans, big rigs, tow trucks, dump trucks and construction equipment. CFF is a 4-time winner of the 2014, 2015, 2016, 2017. Inc. Magazine Top 500/5000 Fastest Growing Private Companies in America.

 

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