TOTAL COST OF OWNERSHIP
The most common and biggest mistake owner operators make, is NOT constructing a budget or cash flow projections for their trucking business. It’s surprising just how many truck owners consider this a low priority in their business. It’s a given those operators will find themselves out of business eventually.
1.Understand the Difference in Costs
First, realize there are two types of costs. They are “fixed” and “variable” and all your expenses should be dived up into these two categories when you budget. Fixed costs are those expenses that stay constant month after month. These items include necessary truck insurance premiums, truck/trailer payments, health insurance, license plates, and permits. Variable costs are expenses exactly that – they vary depending on how much you and how far you drive and what kind of work you’re doing. Things like fuel costs, tolls, food expenses, phone, repairs, maintenance and even uncollected invoices are all examples
Determining these different classifications will help you learn what can be done to decrease costs and increase income. For example, you may be able to spend less on food, but you can’t change the price of permits. This is why it is so important that you write everything down on a spreadsheet and put together a comprehensive budget.
2.Get to Know Your Expenses
Having a clear knowledge of the items that will be encountered in driving a big rig tractor-trailer are essential to being successful. There is a multitude of costs, and each one is important.
Truck costs – are often one of the highest budget items. It includes payments for the truck (fixed cost) plus maintenance expenses (variable costs). Experienced drivers suggest estimating maintenance at 10% of total costs, but there are always surprises. Drivers will want to have a cash reserve for any emergency repairs that suddenly appear.
One of the most useful budget expenses is regular and preventive maintenance. By getting the oil changed, tires checked and performing other standard maintenance on a regular basis, you’ll save money in the long-run. Put this cost as a line item in your budget so you have no reason to skip a regular tune-up.
Fuel costs – Determining the amount you’ll be spending on fuel for each job is relatively simple. It is just a matter of figuring out your truck’s average cost per mile (fuel cost per gallon divided by average MPG) and then multiplying it by the number of miles you expect to be running.
Insurance is a tricky fixed expense to navigate and you will definitely want to consult an expert in the field. Prices vary considerably and are influenced by:
- how much the trucks weigh
- where the trucks travel
- what the trucks carry (hazardous materials require higher insurance fees)
All carrier companies operating commercial motor vehicles must meet the federal minimum insurance requirements set by the U.S. Department of Transportation (DOT) which for auto liability insurance coverage for freight motor carriers is $750,000. For help, you can contact the Federal Motor Carrier Safety Administration (FCMSA) Insurance Information line at (866) 637-0635.
4. On the Road
The Federal Motor Carrier Safety administration (FMCSA) registration process requires that companies define the type of Motor Carrier, Broker, Intermodal Equipment Provider (IEP), Cargo Tank Facility, Shipper and/or Freight Forwarder business operation they plan to establish.
But the prerequisites for licenses, permits, emissions, tolls, rules, and regulations often differ across state lines. Each state has a portal dedicated to commercial transportation. Before you start budgeting for your trucking business, be sure to visit your state’s transportation portal to help understand the required regulations and assistance your state provides. Some of these costs will be fixed and not change year to year. Others, such as tolls, will be variable and differ on each run. Regardless of how they are classified, each cost should be entered as a budget item on your spreadsheet.
Many new truck owners do not have a background in finance, but to be successful, a “business owner” mentality is required. If you are able to take a basic business course at your local community college, you’ll be ahead of the game. If not, there are dozens of sites on the web that can help give you a crash course.
Be sure to account for slow months. There will be times when your trucking business will slow down, whether based on weather or the economy. You need to be able to make it through these slow times so you’ll be ready for the good times once again.