The most challenging step in starting a trucking company is often the first step – getting started. However, this step can be difficult for many first-time trucking entrepreneurs. Everyone knows that the best business plan is useless unless you put it into action and implement it. This article helps you take on the five most difficult steps of implementing your business plan:
- Determining the type of loads you will pull
- Estimating your revenues and costs
- Financing your trucking equipment
- Finding shippers and loads
- Financing your operations
Step #1: What type of loads will you pull?
The first thing your trucking business plan has to determine is the type of loads you will pull. This is one of the most important decisions you will make as a new owner-operator or fleet owner. The kind of load you plan to pull determines your equipment, revenues, and costs.
It’s a good idea to ask yourself what industry you plan to support and work from there. For example, you will probably haul liquids if you plan to support the oil and gas industry. This industry requires a specific type of equipment, has its own revenues and costs, and so on.
Most new truckers make the mistake of just going into dry van because it is the easiest and most flexible type of work. Unfortunately, it’s also the most competitive and pays the least. You will usually make more money pulling specialized loads and working for a niche industry.
Step #2: How much money will your trucking company make?
Your next step is to estimate your revenues and fuel costs. This calculation gives you a general idea of how much money you will make. Do not buy any equipment until you have estimated your revenues and are comfortable with your expected profits.
a) Rate per mile
Determining your expected rate per mile is not difficult, but it takes some work. Start by deciding which lanes you will drive regularly. Then, use a load board to see how much loads pay in your chosen lanes. Consider the revenues of pulling loads in both directions – away from and towards your home base.
Keep in mind that the loads you find through a load board pay the least. These loads give you an idea of the lowest amount you will be paid per mile. Working directly with shippers pays much better.
b) Cost per mile
Determining your expected costs per mile takes more effort, but it’s relatively simple. Start by figuring out your monthly fixed expenses. These include equipment financing, insurance, license plates, and so on. Next, estimate your variable costs. These costs depend on the number of miles you plan to drive and the number of days you will work. Variable costs include fuel, lodging, satellite TV, tires, maintenance, financing, and so on.
Keep in mind that your biggest variable expense will be fuel. Learn how IFTA works so you can develop a strategy to buy the cheapest diesel. Unfortunately, it is not as easy as just paying the cheapest pump price.
c) Does your plan make financial sense?
Now that you have determined your revenues and costs, ask yourself if your trucking company makes financial sense. If the business won’t be sufficiently profitable to meet your needs, make changes to your strategy until the numbers work for you.
Step #3: Finance your truck/equipment
Getting your first truck is the largest startup expense for a trucking business. It is also one of the hardest and most important choices you must make. Owner-operators usually have two financing options: buy the truck through a loan, or lease one.
Loans are pretty straightforward – you make a down payment and then pay monthly installments. Once you have paid all the installments, the truck is yours. On the other hand, leases (or lease-purchases) can be structured in different ways. A purchase option is often bundled at the end of the lease, which allows you to own the truck for a payment.
This complex choice can have longstanding financial and tax consequences. Unless you have a background in finance, don’t make this choice by yourself. Ask an accountant to help you make the right decision. The visit is money well spent, especially if you plan to build a fleet. Loans and leases have advantages and disadvantages, and no best option applies to everyone.
Note: Commercial Capital LLC does not finance trucks or equipment.
Step #4: Find loads and profitable trucking contracts
One of the most challenging parts of starting a trucking company is finding loads to haul. Most truckers, especially owner-operators, start by using one of the many free load boards available on the internet. While load boards are convenient and have advantages, they do not help you find high-paying loads. Most loads posted on boards pay very little because of the high competition.
The best way to find trucking contracts is through old-fashioned selling and relationship-building. You must find direct shippers in your area and establish relationships. Looking for direct shippers and establishing relationships is hard work, which is why few truckers do it. This work gives you an advantage over competitors, who are probably looking for loads on the internet.
One simple but effective way of building relationships involves using a promotional item, such as a pen with your logo and contact information. Just follow these steps:
- Make a list of local shippers. Good sources are local members of industry associations.
- Call them and ask to speak to the shipping department.
- Schedule a visit.
- During your presentation, give each participant a promotional pen (keeps your number handy).
- Follow up by email/phone once a month.
It will be hard at first, but eventually, you will build a list of reliable shippers who will start using your services. Before long, you will have a successful trucking company.
Step #5: Finance operations
Unless you have enough startup capital, you need financing to operate and grow your trucking company. Few truckers and owner-operators consider this matter when they start. However, cash flow becomes an issue as you grow your company and implement your business plan.
Most shippers and freight brokers pay their bills in one of two ways. They pay in standard commercial terms of 30 to 60 days, or they pay using quick-pays. Unfortunately, most pay in 30 to 60 days. Consequently, your trucking company must be able to pay for fuel and other expenses while waiting up to eight weeks to get paid.
Most truckers don’t account for slow payments when they start their companies. They soon run out of money and are forced to stop driving until some freight bills get paid. Many go out of business simply because they can’t pull enough loads to make it worth their while. Fortunately, it doesn’t have to be this way.
One simple way to improve the cash flow of your trucking company is to use a freight factoring financing plan. This type of financing provides you with an advance for your slow-paying freight bills. Instead of waiting up to 60 days to get paid, you get paid by the factoring company in a day or two. This advance provides you with money to pay for your fuel and other expenses.
Factoring is available to owner-operators, small fleet owners, and larger companies. It allows you to take on new clients without worrying about slow payments. When used correctly, factoring can help you grow your company and add shippers with confidence. To learn more, read “What is Freight Factoring and How Does it Work?”
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Note: Factoring is only available to owner-operators that operate under their own authority.