Dollars & Sense

Starting and Managing a Successful Trucking Business Part II

Our prior article discussed getting into the trucking business.  This article we are going to discuss the haul and financing your equipment.

Now that you have decided to go into the trucking business, your first decision should be choosing the type of haul that will be the best suited for you.  You’ll want to consider not only the amount of money to be made but the type of operation, who are you going to haul for and what are you going to haul?  Is it going to be light local freight or heavy construction material?  Are you going to travel over the road or limit it to local daily runs where you come home each evening?  Are you going to need a helper?  Sometimes these decisions are made for you based on the availability of jobs. 

Once your decision has been made, you have to choose the broker or motor carrier for whom you are going to haul or, whether you are going to be independent and/or get your own authority. Whatever your ultimate decision, do your research, research and more research when choosing who you are going to work for. Find out if they are established. How long they have been in business and how reliable they are. You can talk to other owner operators and check with local government agencies as to whether any complaints have been filed. Again, talk to people who have worked for them.  What is their payment reliability?  Do they constantly miss meeting their payroll obligations?  Do they perform according to the contract you signed with them?  Are the people working for them happy? 

You now need to decide on the type of equipment you are going to operate  Your choices may be dictated based upon the commodity you are going to haul and the area that you are going to frequent. If you are going to work for a motor carrier, they will probably make that decision for you. Once you have decided on the type of equipment, is it going to be new or used?  Are you going to purchase, lease/purchase, or lease?

How are you going to pay for the equipment? One of the most frequently asked questions is “Should I pay cash?” or “How much down payment and can I afford the monthly loan payments?  We do not believe that you should pay cash for your equipment since the money can be put to better use.  We think that a minimum down payment is in your best interest as the government will help you pay the loan by allowing you to deduct the interest on your income tax return. You need to shop around, find the price that you think is affordable, and work out the terms. Have your tax advisor project the affordability of the equipment based on your projected net income. Then discuss if you are going to purchase or lease and how to finance it. Also discuss where the money is coming from.

Once you have a reasonable estimate of how much money you are going to make and the cost of the financing on your equipment, a projection of your income and expenses should be done so that you will know if you’re making the proper amount of money needed to be successful in this business. Any projection of net income should include the effect of income and self-employment taxes.

When you go into the trucking business you should have enough working capital on hand. What is meant by enough working capital? We suggest that you have at minimum, three months of gross income on hand in the form of cash so that you can operate even though you may have a late payment from your customer, a breakdown of your equipment, or larger than expected bills or an illness.

If everything we discussed in the articles signals green, then you are ready to go into the trucking business.   

This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century.  If you would like further information, please contact us at 800-697-5153.  See our Web Site at www.pbstax.com .

“Everyone’s financial situation is different.  This article does not give and is not intended to give specific accounting and/or tax advice.  Please consult with your own tax or accounting professional.”