As an independent owner-operator or small fleet owner, you have to perform on a different level than when you were just a truck driver. You need to operate a business, not just a truck. You’ve worked hard to get your company off the ground and provide the best hauling service to your customers – now you must ensure your business is making money!
Having a bookkeeper, accountant, or CPA perform a formal month-end close for your trucking business is the recommended practice to monitor your company’s financial performance. However, many new owner-operators and small start-ups can’t afford to hire financial professionals full-time. Instead, new company owners often start by investing in accounting software and managing their financial and accounting tasks themselves. If this is you, you need to understand what data to enter and why – you can’t manage what you don’t know.
This article will discuss the importance of a month-end close to record accounting transactions and accurately assess your company’s profitability. Follow this checklist to ensure the recording of financial data is complete and to determine if your trucking company is making money.
Why Is a Trucking Company Month-End Review Important?
Month-end close is a formal accounting practice that ensures all your business financial transactions for the month just ending have been recorded, verified, and used to produce financial reports. Its purpose is to help keep accurate records throughout the year, prepare for tax filings, and provide a picture of your business’s financial status. Investing in accounting software to manage bookkeeping, reporting, and month-end close is a good option, but accounting knowledge is needed to interpret the data. Understanding your company’s accounting trends, spotting any gaps, and tracking your profitability can all be found in a month-end review if you know where to look. Keep accurate records and consult with a financial professional as needed.
Here’s a month-end review checklist to help you organize your accounting transactions and determine if your trucking company is making money.
Month-End Review Checklist
Step 1: Record income and expenses
Record all incoming cash during the month. Review your invoices to ensure you’ve billed for all loads delivered and ensure each invoice is accurate. Next, record all your costs, careful not to miss any expense items.
Tip: Keep a receipt or proof of payment for every business expense throughout the month. Most costs can be 100% deducted from your taxes. Particular food and drink expenses may have a tax deduction limitation of 50%.
Step 2: Update accounts receivable and accounts payable
Invoice customers as soon as you deliver a load and watch your bank account for payments. Create a list of outstanding invoices that are past due and follow up with clients to get your money. On the flip side, review your accounts payable to ensure you’re paying your bills on time. Create a list of bills that still need to be paid and make every effort to pay them on time. If you’re paying late, contact vendors to let them know you haven’t forgotten them.
Tip: Take advantage of freight factoring to avoid delayed customer payments. This specialized cash flow solution converts invoices into immediate cash, allowing you to pay bills and build a strong credit history.
Step 3: Prepare reconciliations
Reconciliations (recs) help you spot mistakes in your accounting system. It’s a painstaking but essential task of comparing bank deposits and withdrawals with your company’s income and expense records. You’ll know all records are correct if your business bank balance matches the totals in your business accounts at the end of this exercise.
Tip: Follow this simple step-by-step approach to preparing reconciliations.
Step 4: Review fixed assets and other liabilities
Ensure that all purchase, loan, or leasing payments related to your vehicles, trailers, and other fixed assets are recorded. Depreciation calculations should be recorded. Record any other business loan or line of credit payments.
Tip: Fixed assets include trucks, trailers, machines, equipment, and any real estate owned by the company.
Step 5: Don’t forget your taxes
Be sure to plan for tax obligations. Start growing a cash reserve account and pay each tax on time to avoid penalties and interest from the IRS, state, and local taxing authorities.
Tip: Falling behind on tax payments is a common mistake that can sink a trucking company. Be disciplined, plan, and prepare for tax time.
Step 6: Check how your business is performing
Once all your accounting transactions have been recorded, review the final balances to monitor business performance. Is the company making money or incurring losses? What changes can you make to improve your profitability?
Tip: It is advisable to consult with an accountant or CPA on a regular or semi-regular basis. They can analyze your financial records and provide insights to help you run your trucking company more profitably.
Step 7: Implement discoveries right away
Once you have results from the month-end review, start making strategic business decisions! Consider some of the following questions and action items with information uncovered from your financial statements:
- What went well over the previous month? What did not go so well?
- Identify any issues that should be immediately addressed, such as problem customers who aren’t paying or high-interest rates that you might be able to refinance.
- Pick several Key Performance Indicators that are important for your trucking company. Some examples are revenue vs. target, cost-per-mile, and profit.
Tip: The information from your month-end review provides insights you can leverage to make strategic business decisions to improve the profitability of your business.
As the owner of a trucking company, you’re probably far more experienced as a driver than as an accounting manager. Manage your company’s finances and accounting if you must but make an effort to understand the processes involved and be disciplined and accurate. Following this checklist to complete an accurate month-end close is essential for ensuring optimum control of your business finances. Consult with an accountant or CPA as needed to analyze reports and make strategic decisions to improve profitability.
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For more information about capital management services for your trucking business, visit eCapital.com.