Want to hear a scary fact? Thousands of trucking businesses – small businesses – closed in one month this year. The economy? The price of fuel? The hardships of life on the road? Every business has their own story, even if they all end the same way. What could they have done better? What should they have done differently? When is a trucking business losing money? TruckingOffice PRO can tell you the secrets about your trucking business and help you stay on the road.
Know your numbers
Franky, we can’t say it often enough. But what numbers are we talking about?
- cost per mile
- cost per load
- revenue per mile
- revenue per mile
- expenses per mile
- expenses per load
Here’s the problem: figuring out those numbers is hard. Accounting packages like QuickBooks, as much as we respect them, don’t compute those numbers. Most accountants don’t have a clue how to figure them out. So a trucking business losing money might not be obvious – until it’s too late.
Let’s break down the critical three types of expenses that any owner-operator has to see how they contribute to the cost of hauling freight.
Fixed expenses are the regular payments that any trucking business has to pay. We’re not talking about your home mortgage or your car payments here. These are legit business expenses that if they’re not paid, the trucking business must close.
Insurance: FMCSA requires different types of insurance – cargo, liability – but owner-operators may want more. Liability insurance doesn’t cover the cost of repairs to the truck after an accident. And medical insurance riders to cover medical expenses after an accident is important now.
Loans: It could be that a trucker doesn’t have a loan to pay for their equipment. That’s the kind of trucker we’d like to be, right? Paid off and putting more in our pockets? Good money management skills can make that happen (along with consistent truck maintenance), but most of us do have loans on our equipment.
Savings Accounts: we say it and say it: save up for those big expenses that you know are coming. Tires. Engine maintenance. Brakes. We used to suggest that any trucker have an emergency debit card with $5,000 for hard times. Now, it might be smart to have at least $10,000 put aside.
How do you save that much up? By committing to a regular savings plan where you pay into those accounts as regularly as you pay your loan payments. By including emergency savings as a fixed expense, you don’t have to justify putting the money away when funds are tight.
Trucking Fees: HVUT is due every year in the middle of August. It’s not a big bill, not comparatively speaking. It may be the principle of the tax that bugs us. But there are other fees that you may have to pay, such as union dues or buying an EZPass. Let’s include load board subscriptions here, as well as the obvious expense: TruckingOffice PRO to run your trucking business. Using TruckingOffice PRO will reduce other variable expenses, such as bookkeepers and accountants.
If only we could predict the future, right? Variable expenses are those costs of doing business that we just don’t know what they’re going to cost.
Fuel: the obvious variable expense. Two years ago, did anyone even imagine what we’re paying for fuel now?
For those with long-term contracts, they probably include a fuel surcharge that covers the increases of fuel prices. But for those who bid on freight on load boards, they include the cost of fuel right now in their bid. (Anyone got a crystal ball?)
Taxes: Along with the fuel price variables, we have IFTA and IRP – taxes based on the distance driven in each jurisdiction. Unlike HVUT, those taxes will vary based on the fuel taxes imposed by each state and the fuel purchased inside their state lines, or how many miles driven in the state. During the slow winter months, those numbers may be lower than the summer months.
Maintenance has to go into the variable expenses. We don’t want to have the fuel pump break down and we can’t plan for it, although we can make sure that the maintenance is done on schedule and there are emergency funds available to cover the expense. There is no greater investment in your trucking company that your rig. Your trucking business losing money and folding can be the direct result of a maintenance failure of your rig.
Gotta eat. Gotta take a shower somewhere. And you gotta take care of your family.
Living expenses should include the cost of living on the road, but must also take into consideration that you have a family you want to support. Savings for your family’s future is just as important as saving for new tires for your rig.
Knowing all your expenses allows you to figure out what you need from a load. What’s a healthy profit margin? Some blogs say that most truckers get about 5% over their costs as profit. In the past two years, we’ve seen record rates paid per mile and profit margins over 7.5% (which when you think about that, it’s a 50% increase!)
Are we going to see the economy support those numbers? It’s anyone’s guess.
You don’t have to guess when you know your costs per mile. You don’t need a good feeling in your gut to make a bid on a load if you know what it costs you to haul freight. If you know what itt costs you, then when the counteroffer you get for a load is below what you need, you can respond in a way that protects you from your trucking business losing money.
Profitability comes from knowing your numbers
How do you get those numbers?
TruckingOffice PRO has a report called the Company Overview Report. On a single page, computed in seconds, you’ll know exactly what those numbers are.
Don’t be a statistic. Don’t let your business close from your trucking business losing money. Use TruckingOffice PRO!