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Are You Better Off Running Your Own Trucking Company?

By 04.20.22June 3rd, 2022No Comments
Transport truck parked

From an opportunity perspective, the freight industry is experiencing one of the best periods in its history. The American Trucking Association’s U.S. Freight Transportation Forecast 2021 to 2032 shows a strong rebound and continued growth for freight demand this year and for the next decade. Freight tonnage is projected to spike 24% in 2022, producing a 66% increase in revenue for the industry. A 70% share of freight transport is conducted by trucks. This is the optimum time for trucking companies to profit and grow. Whether it is best to be employed as a truck driver for an established fleet or become a truck company owner and reap the benefits of your own hard work is just dependent on your entrepreneurial spirit.

To be successful as a truck company owner, you need to have a passion for building your own company, be experienced in trucking and have the discipline to manage business affairs effectively. Most importantly, you need to have the resilience to work hard, work long hours and be confident in your own ability to create income. You will no longer enjoy a regular paycheck or have company benefits to depend on. Instead, you will need to find customers, deliver reliable services, bill customers, wait for them to pay, then pay company expenses before you pocket earnings. It’s a much longer path to an income, full of risks – but the potential rewards are massive compared to working as a salaried OTR driver.

What are the risks and rewards of owning a trucking company?

The two main rewards for being a truck company owner are independence and unlimited earning potential. The freedom of being your own boss is a highly attractive lure that compels many professional drivers to quit their jobs and start their own trucking company. But freedom has a price. Yes, you have the independence to make your own decisions, but you must also accept the consequences of those decisions. If you take a load that loses money, you suffer the loss out of your own pocket. However, the reverse is also true. If you take on a load that earns large profits, that too goes into your pocket, no one else’s. On average, an owner-operator will earn over three times more revenue than a company driver earns in salary. But that’s only half the equation. Company expenses must be paid before the owner-operator can pocket revenue as earnings. Maximizing revenue and controlling costs is a large part of being a successful truck company owner.

According to Indeed.com, company drivers earn between 40-64 cents per mile. On average, an owner-operator will earn 47% more. However, an independent company owner can earn much, much more. With the right resources in place, you can grow your company into a fleet of revenue-generating units, each contributing to the company’s overall profitability. Finding loads and charging historically high rates should be relatively easy in current market conditions. The real challenge is to control expenses to ensure profitability. Constant attention to detail is needed to make certain that at the end of each month, the cost-per-mile to operate your company is less than the revenue-per-mile.

What are the barriers and challenges of owning a trucking company?

The distinct advantages of being a truck company owner are offset by the barriers that must be overcome and the challenges that must be met.

Barriers to becoming a truck company owner:

TRUCKING AUTHORITIES:

Getting your authority is not rocket science, but it does take time and effort. Expect the entire process to take upward of two months to accomplish. Follow the FMCSA guidelines and instructions to request authority to operate. If you meet all the requirements, and fill everything out concisely, things should go smoothly. However, if you’re having trouble following the process, you might consider having a registered FMCSA Filer do the work for you.

OTR EXPERIENCE:

If you don’t have experience hauling freight, you are best to drop the idea of owning a trucking company for now. Instead, start by getting a job as a company driver. Put in the time and miles to learn the industry, then make plans to start your own company.

FINANCING FOR WORKING EQUIPMENT

Without a truck, you have no company. This is one of the most difficult barriers to overcome for startup companies without adequate financial resources. A commercial loan is not usually an option as banks are reluctant to lend to new companies without a credit history. Instead, look for leasing options or equipment financing from alternative lenders.

STARTUP FUNDS

The startup costs for your trucking company will be at least $6,000 or more to cover authorities, insurances, plates, taxes, and incidentals. These costs are above and beyond the expense of equipment, so make sure you have enough put aside to meet these needs.

Challenges to running a trucking company:

There are three main challenges to cope with when running your own trucking company. Controlling costs, maximizing equipment utilization and if you have more than one truck, putting drivers in the seats. How well you manage these challenges can help determine your level of success as a profitable trucking company.

COSTS

As previously stated, controlling costs is a vital part of owning a profitable business. Some expenses you can plan for, while others can come out of the blue. As an owner, you must be prepared for both planned and unexpected expenses. These costs include:

– Operational Costs

– Insurances

– Driver wages and benefits

– Other unforeseen business expenses

It is vital to record all costs related to your business starting from day one. This will be needed for tax purposes at year-end and for tracking the profitability of your business. eCapital’s will help you identify the fixed and variable costs normally associated with most trucking companies. Use the calculator on a regular basis, at least once per month, to input expenses, revenues, and miles to ensure your business is running profitably.

EQUIPMENT UTILIZATION

Trucking companies are paid by loaded miles. Idle equipment drains financial resources — loaded miles equals revenue in your coffers. The proven formula for success is to maximize equipment utilization, ensuring that cost-per-mile is less than revenue-per-mile. As a company owner, it is now your responsibility to do whatever is necessary to keep your trucks moving with paid freight and minimize deadhead miles. Efficient route planning and covering the backhaul are essential to reducing empty miles. Use a free and mobile-friendly load board with industry leading features such as credit checks on brokers and shippers to search for loads by origin, destination, rate, and equipment type.

Another significant challenge to maximizing equipment utilization is maintaining an experienced driver pool. If your trucking company runs more than one truck, you need to employ additional drivers. This extends your responsibilities from simply being a company owner to being an employer — a status change with significant human resource issues to manage. Providing a regular paycheck and convenient services on the road are two main requirements for recruiting and retaining drivers. Use freight factoring to ensure the cash flow needed to support wages, and a robust fuel card program to provide discounts and services at major truck stops along the lanes you run.

FINANCIAL MANAGEMENT

Most new truck company owners have road experience and understand the profession well enough to take over and learn much of the managerial skills needed to operate a successful business. The area of responsibility that commonly challenges new and growing companies the most is financial management – specifically cash flow.

The number one reason small businesses fail is due to poor cash flow. Statics show that over 50% of new businesses fail within five years, and 82% of these failures are due to cash flow problems. This sobering statistic has an easy, highly beneficial, and cost-effective remedy. Freight factoring is the transportation industry’s mainstream solution to solving the cash flow dilemma.

The freight industry is rich with opportunity, but because there are often gaps between when loads are shipped, costs are incurred and invoices are paid, poor cash flow challenges are a common complaint. Without a viable cash flow solution, these conditions create a slippery slow that is extremely difficult to navigate and survive.

Generally speaking, large established fleets have the credit history and financial performance to satisfy banks enough to qualify for lines of credit and other forms of bank financing. With no credit history, startups cannot qualify for commercial loans. However, alternative lenders specializing in  have freight factoring, plus other streamlined products and services designed specifically for trucking companies in all stages of development.

Freight factoring creates immediate access to working capital. When your trucking company delivers loads and issues invoices, the factoring company purchases the invoices for a small fee and transfers funds directly into your account within 24 hours. This easy to manage process provides the required funds to pay bills, support operations, and build cash reserves. Selecting the right factoring company to partner with is the most crucial decision to make when deciding to integrate freight factoring as part of your company’s financial structure. Choose a factoring company with extensive transportation financing experience and a solid reputation for superior customer service. These are the lenders that will provide reliable funding and support you through the good times and the bad.

Conclusion

Being a company OTR driver is a predictable career path of long, hard days away from family. The expected salary ranges from $35,000-$70,000 per year. Experienced drivers earn upward of $90,000 per year. Company benefits are included, and over-the-road expenses are covered. The truck you drive is assigned to you, as are the loads you deliver. Your job is to deliver freight safely and on time.

As a trucking company owner, your working career is not nearly as predictable. Every day brings new challenges to overcome. Your job is to manage freight, drivers, customers, economic conditions, expenses, accounts receivables, fuel management, financial obligations, and so much more! It takes hard work, strong managerial skills, attention to detail, good problem-solving tactics, and a thick skin. Not every good driver is a good business owner. But, owning a trucking company offers tremendous benefits if you have the industry knowledge to manage the logistical challenges and the business aptitude to maintain profitability. Grow your company well, and your earning potential is limitless. Life on the road can be replaced by working from home or office. For many, the greatest reward is freedom from the Man. Become your own boss and make the decisions that impact your life.

Are you better off running your own trucking company? That depends on your business strengths and what you want out of life.

About eCapital

eCapital’s roots are deeply grounded in the trucking industry. With over 25 years’ experience in transportation financing, our organization is structured on a foundation of industry knowledge. Building relationships based on integrity and trust, eCapital delivers cash flow you can count on every day, every month and every year that we remain partners in your success. Our mission is to empower our trucking clients to keep on top of their businesses by accelerating their access to cash flow.


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