Thinking about taking the leap to become an owner-operator? Or maybe you’re already rolling but looking to improve profitability? Recently, we had Colton Lawrence, The Trucker CFO, on the Success In Trucking Podcast, and he shared tips on navigating the financial side of trucking entrepreneurship. Here are some of his insights.
Trucking Success Starts With Mindset
First and foremost, it’s crucial to understand that you’re no longer just driving a truck; you’re running a business. This means your business continues to operate even when you’re not physically behind the wheel.
Planning for downtime, vacations, and unexpected events like breakdowns is essential. You’re now responsible for every aspect of your operation, from securing loads to managing finances.
This shift in mindset is the foundation for successful owner-operation.
5 Tips To Reduce Operating Costs
Failing to grasp the financial demands of your business before starting can lead to costly mistakes. Many new owner-operators underestimate the expenses involved in running a trucking business. Without a clear roadmap, you may struggle to track progress and achieve your goals. Here are five tips to help you on your journey.
Build Your 5-Year Business Plan
You can’t improve what you can’t measure. Develop a five-year business plan to outline your goals, track your progress, and make informed decisions. This plan should include your financial projections and operational plans.
Maybe you want to add a second truck? Perhaps a third? By having a long-term vision, you can make informed decisions and stay on track. Don't be afraid to revisit and revise your plan as circumstances change.
Remember: Cash Is King
Maintain 30-90 days of operating cash on hand to cover expenses. This buffer will help you weather unexpected storms, such as dips in the freight market, delayed payments, or equipment breakdowns.
Working with a carrier that handles invoicing, like those found in the Expediter Services (ES) program, can provide a more efficient cash flow.
Understand Fixed vs. Variable Costs
Understanding your costs is fundamental to effective financial management. Fixed costs remain consistent regardless of mileage. Examples include truck payments/leases, insurance, permits, and technology. These are costs you’ll incur regardless of how much you drive.
Variable costs fluctuate based on mileage and operational factors. Examples include fuel, maintenance, tires, and repairs. These costs increase as you drive more miles. Knowing the difference between these costs is crucial for accurate budgeting and financial planning.
Calculate Your Break-Even Point
Break-even is simply the number of miles you need to drive to cover your fixed costs. Calculate this based on your rate per mile. Once you know your break-even point, you can set profit targets and work towards achieving them.
This calculation helps you understand how much revenue you need to generate to cover your expenses and start making a profit. By setting realistic profit goals, you can track your progress and make adjustments as needed.
Tax Liability
As an owner-operator, you’re paid last. Business expenses and tax obligations take priority. Unlike W-2 employees, you’re responsible for managing your own taxes. Develop a comprehensive tax plan to minimize your liability as part of your five-year plan.
This should include the following:
Estimating your quarterly tax payments and setting aside funds to cover them.
Establish a business entity, such as a Limited Liability Company (LLC).
Consult with a tax professional to determine the best structure for your business.
Keep accurate records of all expenses to maximize your deductions and minimize your tax liability.
Reduce Operational Costs With ES
Owning your own trucking business is a rewarding endeavor, but it requires careful planning and financial discipline. By understanding your costs,