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“It’s just sitting down and going through the numbers and really understanding what a business is going to look like. It’s understanding your insurance and truck payment, fuel costs, what to set aside for maintenance—a thousand questions that nobody really thinks about before they jump into this business." —Todd Amen, ATBS
So you’ve developed a plan and convinced yourself (and your spouse) that you should take the leap, but it’s still not time to get in the truck. Every business—whether trucking or making donuts—has to have some initial capital, as well as a structure for collecting revenue and paying bills. In other words, welcome to the real world of buying, selling, and bookkeeping.
And, fair or not, every business is going to be measured right off the bat by its credit score—or, in the case of someone just starting out, a personal credit score. This is the first thing a lender, a vendor, and even a commercial customer is going to check, so it’s critical that you understand your score. Basically, it’s based on the amount of debt you owe and whether payments have been made on time.
Yet all too often, would-be small business truckers don’t even make it to the first mile marker on their road map.
Tim Brady, who writes the “Business of Trucking” feature each month for American Trucker, is a long-time entrepreneur and consultant whose many professional hats include that of an insurance broker.
“As I’m writing insurance, it amazes me that the last three people I asked for financial statements thought I was asking them to give me their second-born child or something,” Brady says. “You’ve got to have a decent credit score. Going independent is not a solution if you’re not making money as a company driver or a lease operator.”
Brady insists you need money in the bank before you launch your business. “Realistically, you’ve got to have between $20,000 and $40,000 available, either a line of credit or cash. If you don’t have that, you’re soon going to find yourself behind the eight ball.”
Being late on your bills is no way to build that credit score, of course. So it’s all the more critical for truckers without reserve cash to understand how to get paid. Small carriers with their own authority need to be able to operate for up to 90 days without payment. Because self-brokered loads can have a lengthy time before they’re paid, truckers often turn to payment services providers. Factors will allow you to be paid early for loads, but using them just to speed cash flow comes at a much higher cost than sticking with standard terms.
Your new business can’t afford to give away those hard-earned percentage points. “That’s basically where your profit margin is,” Brady adds. But he also points out that factors, when used wisely, provide additional services such as screening a shipper’s credit history.
But as Brady has learned over the years, hopeful small fleet owners are too often determined to give the business a go, regardless. His latest book, Nicky Hammerlane’s Business Lessons from the Road, is a collection of case studies from Brady’s consulting work. Simply, failing businesses typically didn’t start with a realistic plan, or they didn’t stick to the good plan they started with. As the old saying goes, it’s hard to think about draining the swamp when you’re surrounded by alligators.
“[Business owners] read all this information, but when they go out and actually have to do it, suddenly it seems as if it was all written in French,” Brady says.
For Amen of ATBS, independents who’ve survived the pioneer phase become “hired guns.” They’ve been successful enough to get past that first lease-purchase truck and replace it with one that better fits their needs. “You’re going to live with that decision for the next four or five years, so you’ve got to get a good truck,” he says.
Hired guns are also free to select a carrier to lease on with. Once you’ve been in the market long enough—and listened to other owner-ops brag about what their loads are paying—you’ll want to get your own authority and find your own freight. But Amen warns against relying too heavily on brokers and load boards, sources that have freight when times are good, but not so much when the economy struggles; success is often a matter of timing. The solution? Develop your own customer base.
“The ultimate goal is to get freight directly from a shipper,” Amen says. “It’s going to be higher paying and consistent. Find that customer that can be your head haul and core freight.”
Among the key business items specific to starting a small trucking company, ATBS suggests:
◗ Know what to do when a truck goes down. When operating several trucks, it is a good idea to make sure that fixed costs (truck note, insurance, salaries, etc.) are covered if a truck is sidelined due to maintenance or staffing issues. If there are loan or insurance payments, you will have to cover all fixed costs until that truck is back on the road. This is part of the reason owner-ops want to grow beyond one or two trucks, according to ATBS. With five trucks, there is a good chance to maintain sufficient cash flow.
◗ Know how to find and pay drivers. You can’t drive more than one truck at a time, so how do you find another reliable driver—one who will take care of your investment? ATBS suggests it’s best to find a driver before finding a truck, and maybe even bring them on as a co-driver first. This gives them a good idea on how they drive and what working together will be like. It also gives owners the opportunity to teach and correct any issues before putting someone behind the wheel. You’ll also need to decide if drivers will be independent contractors or employees for tax purposes.