Company Driver vs Owner Operator – What's the Difference?
With positive projections of healthy market conditions stretching out over the next two years and more, there is no better time to launch their own trucking company. As the massive disruptions of the coronavirus pandemic begins to ease, trucking is showing initial signs of full recovery. Tight capacity and improving economic conditions create the ideal environment for start-ups to enter the market, establish their base and grow. The real challenge for company drivers who break out to become independent owner operators is to start well, build momentum and get ahead of competition. This is a guide for new company owners to help establish the foundations of a successful trucking company.
It’s a Great Time to Start a New Trucking Company
2021 is a transitional year marking the end of declining freight volumes and the continuation of growing demand that began in late 2020. The FMCSA is currently experiencing a record number of applications for operating authorities. This signals an unprecedented rush of new trucking companies to hit the market. With market conditions being so optimum, it’s a great time to start a new business, but only if you are quick to stake your claim and secure new customers before competition thins out opportunities.
Assessing risk versus reward will reveal the obvious benefits of being an independent owner operator – being your own boss and taking in over three times the average salary of an OTR company driver ranks high as incentive to take the plunge. However, the risk of running at a loss, not keeping up with bills and chasing slow-paying customers are constant challenges. No matter how much experience you have as an OTR company driver, unless you get a handle on finances, back office management and operational efficiencies, you will be fighting an uphill battle. This is where third-party partners can be of greatest benefit. The best example of this is how specialized freight factoring companies support start-ups, established businesses and companies in transition to grow and prosper. Let’s take a look at how eCapital, North America’s fasted growing freight factoring company is helping trucking companies to be successful.
Improved Cash Flow
Cash flow management is critically important to the success of your trucking company. Cash flow is the entry of revenue coming into your business from customers plus any other sources of cash inflow, and the outgoing of cash being transferred out from your business. It is either negative or positive and measures the ability of a company to pay its bills. Get a handle on your cash flow right from the start! According to studies, 82 percent of business failures are due to poor cash flow management. We will discuss how to best create positive cash flow from day one a little further into this article.
Trucking is a slim margins business in a capital intense industry aggravated by slow-paying customers. What does all that mean and how do you manage each aspect to be successful? Below is a brief discussion on each topic followed by a useful resource link to help manage the task:
Slim margins: To be competitive, trucking companies need to keep their freight rates low or risk losing loads to the competition. It is imperative to know all your costs to ensure your rates are high enough to cover all expenses – it’s a difficult balance. Freight rates (income) is based on a “per mile” basis, so too should your costs. Calculate your cost-per-mile regularly, charge rates that will cover expenses and keep the margin slim enough not to outprice yourself and lose business.
A capital-intense industry: Every day that your truck(s) venture out to deliver loads, it costs money. Fuel expenses, repairs and maintenance costs, tolls, lumper fees, overhead, insurance, etc. – it all adds up. Saving costs is the fastest and most effective way of improving your bottom line profit. Fuel is by far the largest operating expense for any trucking company representing an average of 35% of your overall operating costs.
Most successful trucking companies manage a fuel cost-saving program to reduce this expense. eCapital provides fuel cards to trucking companies of all sizes from one-truck companies to fleets of hundreds, from start-ups to established and growing. Our fuel cards provide significant discounts on the cost of fuel with credit terms for easier payment. Use it at thousands of service stations nationwide; it’s the ideal cost-saving program for your new business. Sign up now for huge savings every month with eCapital’s industry leading fuel card program.
Slow-paying customers: It’s one of the most frustrating and financially destabilizing features of running a trucking company – customers who demand reliable, safe on-time service but take 30, 60, sometimes 90 days or more to pay their invoices. Worse are the customers who don’t pay at all! The trucking industry is well known for its slow-paying customers. So, how does a new trucking company manage this difficult obstacle? Try doing what other successful trucking companies do and investigate the cash flow benefits of freight factoring. Working with a freight factoring company allows you to:
- Convert invoice receivables into immediate cash
- Access risk mitigating tools and credit advise
- Benefit from cost free collection services
It is especially hard for new start-up companies to invest capital up front for equipment, start-up fees, over-the-road expenses, plus all the sundry expenses of a new business. Then, you have to wait long periods for customers to pay their invoices. Create positive cash flow from day one – use freight factoring to gain immediate access to working capital.
How does freight factoring work? It’s simple:
- Deliver a load, invoice the customer and send a copy of the invoice to your factoring company.
- The factoring company verifies the invoice and transfers advance payment up to 95% of the invoice face value directly to your account within 24 hours. A small fee is deducted and the remaining percentage is held as a reserve until your customer pays the invoice in full to the factoring company.
- When the invoice is paid, the reserve is lifted and transferred directly to your account.
All transactions are recorded in real time and available to view 24/7 through your online client portal for full transparency. The big payoff is – the more you deliver, the more you get paid. Freight factoring is the only funding option that grows as your trucking business grows. This feature allows you to take on new customers, expand lanes and grow your fleet knowing that your access to working capital increases as your business grows.
Learn more about the benefits of freight factoring
Company Driver vs. Owner Operator
Now that we’ve covered the fundamentals of cash flow, it’s time to discuss the basics of being an owner operator versus being a company driver. The biggest difference you will feel right off the bat is the absence of resources and financial support. As a company diver, loads were assigned, all expenses were covered and a regular paycheck was paid out – as an independent owner/operator that is no longer the case. You basically get to eat what you kill or starve trying. Improve your odds for success by aligning your company with industry experienced professional services to provide the resources needed to support your business. Freight brokers, insurance brokers, bookkeeping/accounting services and equipment maintenance shops are essential relationships you will need to establish. But the best friend you can have to take with you on the road is your freight factoring account manager.
The best factoring companies for trucking are specialists in the industry with vast resources, advice, tips and tools to assist your business. Additional to providing much-needed financial support, a reputable freight factoring company such as eCapital will assign you a dedicated account manager. With 24/7 access to your online account portal, a direct line of communication with your account manager and access to a robust website designed to support transportation business, your trucking company is never alone whether you’re on the road or behind a desk.
eCapital’s website features The Truckers’ Hub, an information resource center for owners of trucking companies. This center is populated with business success tips and tools such as:
- How to start a trucking company – a detailed checklist of important milestones and requirements, plus how to approach each necessary task.
- Your company’s KPIs – a guide for owners to track progression towards strategic company goals.
- How to get loads – tips for maximizing equipment utilization with full loads.
New truck company owners should visit The Truckers’ Hub often as new content is added on a regular basis. Stay informed and follow the tips, guides and tools to best ensure the success of your new trucking company.
Work Hard, Work Smart and be Profitable
Trucking is the backbone of the nation’s economy – through recession, crisis and boom periods, it is an essential service that will always be in demand. The next couple of years are promised to be good years ahead with ample opportunity for new trucking companies to grow and prosper. By leveraging the road experience you have accumulated as a company OTR driver plus adapting the work practices and disciplines of successful business operators, your company should be well positioned to be profitable. Work hard, work smart and enjoy the rewards of being your own boss.
For more information on freight factoring and how eCapital can support your trucking business, visit eCapital.com.
Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.
We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.