5 Financial Risks Every Independent Trucker Should Avoid

August 28, 2018 by Cyndia Zwahlen

It’s tough to run a small trucking business. Whether you are a single truck owner-operator or have half a dozen trucks on the road, financial failure can be just a blown engine away. That is, unless you’ve planned for it.

Yet for many small business owners, financial planning isn’t a priority. There always seem to be more important things to worry about.

Common sense, though, tells you the old adage is true: If you fail to plan, you plan to fail.

“The reasons we see drivers fail in their business comes down to not having a plan and not having enough back-up money,” said Todd Amen, chief executive of American Truck Business Services, a tax, consulting and bookkeeping firm in Lakewood, Colo.

And unless you’ve done the financial planning, you won’t know how much back-up money you’ll need.

Here are five financial planning steps you can take that will show you how to figure out that number and avoid the financial fails that plague so many small trucking companies.

Figure out a profit plan

Truckers track revenue, but a lot of them never take the critical next step: to create a profit plan that includes revenue and expenses and shows net income.

“Take some time and document your true expenses,” said Vickie Roberts, senior vice president of operations at Truckers Solution, a fuel discount card and services provider based in Clermont, Fla.

Roberts recommends that you break down expenses on a monthly basis, covering each month of the year. That will show you what it costs to run your business, including fixed costs like lease payments and variable costs, like fuel. It also will capture the once-a-year expenses that can wreak havoc with your budget.

Once you have your expenses mapped out, you can figure out your break-even point. That’s the key point where your revenue just covers your costs. To earn a profit, you have to make more money. To put aside enough back-up money to cover unexpected expenses, you may  have to earn even more money.

This information can reveal how many loads you need to take and at what rate.

“Doing a budget, we call it a profit plan, is a big deal,” Amen said. “A lot of truck drivers never sit down and think about their business strategy — how much revenue do I want to generate and what is my business doing.”

Pay attention to your numbers and manage it like a business and the effort will pay off, he said.  He estimated that doing so can increase annual revenue for an independent trucker by 40 percent, based on government income figures for truck drivers.

Know your cost per mile

Once you have a clear picture of every single expense you pay over a year, you can figure out your cost per mile. That’s a key number for truckers to know.

“A lot of guys don’t know that, so they just take loads to get to this area or to get to that area or to get home, and they don’t care if it paid $1 a mile when their costs were $1.80 per mile, as an example,” Roberts said.

Truck driver groups such as the Owner-Operator Independent Drivers Association often have helpful information on figuring costs per mile on their websites.

Fuel costs are a big part of that calculation. But many truck drivers don’t know their true fuel cost, Roberts said. Too often they shop by the price advertised on gas station signs. But the tax per gallon is the key consideration, she said. Truckers prepay fuel tax to each state based on the mileage they drove in that state the previous year, Roberts said. Keep track of what gas costs, minus taxes, in different locations.

“Even three cents to a trucker is quite a lot when you are buying hundreds of gallons” at a time,  she said.

Save for maintenance

Experts agree: Maintenance costs are the No. 1 reason small truck companies fail. Too many truckers don’t know how much they need to save to cover regular truck upkeep let alone  unplanned repairs.

It’s not just the cost of the repairs. A truck driver also loses revenue while the truck is out of service. That can be a fatal one-two financial punch.

“This market segment — less than 10 trucks — are typically one major breakdown away from going out of business, and it’s really sad,” Roberts said. “If you don’t have $25,000 or more in an account specifically tagged for maintenance, you are in trouble.”

Amen recommends that independent owner-operators with one truck set aside about 10 cents for every mile they run to cover regular maintenance costs. 

Update your insurance

Insurance is a big cost for truck drivers, especially those in their first year of business. They often pay more because they are considered to be at a higher risk for accidents.

New or not, independent truck drivers have to carry cargo insurance, which covers the contents of their trucks. They have liability insurance, which covers the other vehicle in an accident. And they have to pay for workers’ compensation insurance. Most shippers won’t let truckers on their property if the truck drivers can’t prove they have it. It covers the drivers if they are hurt in an accident on a shipper’s lot.

One of the biggest mistakes truck drivers make is to never update their insurance or to fail to shop around. Those are the best ways to manage insurance costs.

“Most guys sign up for it and they just let it renew every year and never do anything, and that’s a problem,” Roberts said.

Update your insurance so it reflects your current business situation, she said. For example, a new driver will eventually qualify for lower rates. Just because your insurer had the best rates for your needs doesn’t mean they still do.

The same applies to health insurance. Even if you don’t carry it, set aside enough money to cover potential healthcare costs and update that amount regularly as your needs change.

Check your taxes

Tax reform — the Tax Cuts and Jobs Act of 2017 — will affect trucker owner-operators starting this year and at least through 2025, when some rules are to expire.

Changes include a new 20 percent deduction for certain taxpayers with qualified business income. Those taxpayers include sole proprietors, which is what the IRS considers one-member limited liability companies.

There are also changes to how to depreciate capital assets for income tax purposes. In a free guide to the new tax law that Amen’s company offers for download, he explains in more detail. For example, the cost of tractors was depreciated over three years and trailers over five years. Under the new law, businesses can now deduct 100 percent of the cost in the year the tractor or trailer was put into service.

“There is a ton more flexibility,” Amen said. “But it’s gotten a lot more complicated.”

His advice: Consult a professional tax person with expertise in small truck companies.

“Trucking is a tough business,” Amen said. “So every penny counts.”

Financial planning, free if you do it yourself, will pay off. It can mean the difference between success or failure.

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