Dollars & Sense

Operating your business as a business

You've undoubtedly heard that cliche in the past, but it holds true today as never before.  By many accounts, expediting has been in a slump for much of this year, and tied with the increased cost of operation, now is the moment to adhere to that bit of wisdom.

Dave Corfman is an owner-operator with many years in the expediting business, both as a driver and fleet owner.  He agrees with that maxim.

"Expediting is a great niche of trucking and it's probably one of the few areas, short of heavy-hauling or electronics, that is pretty profitable if it's run right."

"It's essential for the expediting owner-operator to be a common-sense business person in administering his operation.  The bottom line HAS to be his bottom line."

Expediter Dan Jessel amplifies that statement:
"Many owner-operators and drivers have never taken control of their operations and run them like the business they are."

"They haven't become the master of their careers; that is, they need to assess their strengths, strategically plan their futures and know what's happening in their industry."

Expediting/trucking is about business. Whether you are an owner-operator or you drive an owner's truck, it is a business. As a business, it's of a different stripe from most operations.

One of the keys to operating like a business is your knowledge of Cost-Per-Mile (CPM).  You've got to understand what it costs to run your truck.  Knowing the cost-per-mile is essential to running your business profitably. So many owner-operators don't have a clue about what it costs to operate their truck.  

There are two big reasons to be aware of CPM.
First, all of your costs are directly tied to CPM.
You can't accurately forecast your weekly or monthly net income unless you know your CPM. This includes your revenue, fuel surcharge, fuel costs, road & fuel taxes and other expenses.

The second reason CPM is important is that it gives you a basis for comparison - current figures to past, to other owner-operators, and to industry norms.

These figures should be readily available to you through comprehensive bookkeeping practices that the smart owner-operator already employs.

Once you know what your costs are, you can start taking steps to control those costs and that has a direct effect on your bottom line. Cost for operating a truck fall under two general categories - fixed costs and variable costs.

Fixed costs
Fixed cost expenses are those that you entail just through truck ownership. These costs are there whether the truck is in operation or not. Expediting has more than it's share of idle days and these times of no revenue have to be planned on and prepared for. 

Be realistic about this business and be aware that there are slow times through the year and that there can be substantial time spent waiting for loads.

For new expediting owner-operators, those periods of inactivity (and no revenue) require planning and adjustment.  Kevin Rutherford is a former fleet owner and is now works a trucking financial advisor. He says, "You have to structure your business so that you have enough profit left over to support your chosen lifestyle. You may decide to lower your standard of living for the first couple of years to get your business off the ground."

Matt and Katy Foscue are veteran expediters who weigh in on the subject:  "Use self-discipline. Be prepared for both the expected and the unexpected. Pay all bills ahead of time, and put the money aside for tax time that comes around on a regular basis."

"We don't want to be slaves to our truck, or in other words, we don't want to have to work all the time to support the truck. We are planning to have the truck paid off two and a half years early and that requires self-discipline."
 
"We pay cash for everything and if we can't, we don't need it.  In trucking, things can go bad in a heartbeat, so you have to have a reserve. Uncertainty in this business keeps us vigilant."

Variable costs
Variable costs are those expenses that are directly related to operating the truck. Generally, the more you run the truck, the higher these will go, but to balance that out, some of these expenses will decrease per mile as you increase the number of miles. Fuel, tires, maintenance, and meals and lodging are examples of variable costs.

"You've got to know your day-to-day living expenses, your fuel expenses and your truck expenses.  That comprises your bottom line." 

So say Jim and Norah Bell, straight truck expediters.  "We have a weekly and monthly bottom line that we try to meet.  More often than not, we will exceed the monthly line; you have to look at it from month to month and do whatever it takes to meet that line."

"This business is not about big trucks, it's about little trucks, and there's not usually a load waiting for you at the other end.  We don't think you can operate effectively in expediting with a Class 8 'mentality'."

"Keep track of your fuel expenses, and where you buy fuel.  You can spend a lot of money in fuel taxes that you don't have to spend if you don't buy your fuel right.  Keep good records and use a spreadsheet."

Another great reason for Cost Per Mile awareness is in your daily operation.  You will often receive load offers that, at first glance, seem to be profitable.  If you know just how much it costs to run your truck, it will enhance your decision making process and help you determine whether that load is in fact, a good choice.

Owner-operator Dave Corfman has a perspective on that issue:  "It happens all the time that your carrier will call you up and say 'we have this load, can you help us out with it?'"

"To know when to accept a load is key.  You're dealing with someone - a dispatcher - who doesn't always know trucking and you can't always trust his judgment about what is profitable for your truck. That's not his job to know that - it's his job to find you freight and it's your job to determine whether you can haul the load at that price and turn a profit on it."

Kelly and Renee Stillwell came to expediting from truckload transportation and have developed some ideas about spending and saving money in their business:

Kelly says, "You've got to know what you're spending and that you can't overspend.  If you're like me and came to expediting from OTR big trucks, you can't say, 'Look at all the money I'm making' and turn around and buy a bunch of goodies and toys." 

"You have to account for maintenance and really watch your money.  Even if you buy a brand new truck, you're going to have breakdowns.  Maybe not in the first two years, but you'd better bank the money for those first two years, so when the breakdown occurs, you have the money to repair it and not have to dig into your living money."

One last thing
Obviously, taxes (and the timely payment thereof), are a key ingredient in running your business.  It's recommended that you use a taxpreparer or accountant/bookkeeper for this important task, preferably one who is familiar with trucking money matters.  And, a good accountant can save you money and assist you in achieving your money goals throughout the year. 

Check out the helpful Cost of Operations worksheet available from OOIDA.