CORRECTING FINANCIAL MISTAKES TRUCKERS MAKE
As an experienced trucker you already know that running a trucking business is a challenging endeavor. There are many hurdles to cross to be successful. Mistakes are inevitable. Yet knowledge can be gained from these mistakes to help your trucking enterprise flourish. Often, the fastest path to success is to avoid mistakes altogether and learn from the experiences of others. In this article we outline common financial mistakes truck owner-operators make and the remedies.
1. NEGLECTING FINANCES
Many truck owner-operators make the mistake of neglecting their finances from initial stages of launching their business; setting up for disastrous outcomes. These mistakes include bad asset purchasing terms, such as paying high interest rates, paying too much for an asset or burdensome lease agreements. Being bad at bookkeeping and financial planning is often the fundamental issue.
According to investopedia financial planning is documentation containing a person’s (or business’) current money situation and long-term monetary goals, as well as strategies to achieve those goals. A financial plan begins with a thorough evaluation of the person’s current financial state and future expectations. Does your financial plan justify the high interest rate, total cost to purchase the asset and other expenses? In other words, will you make a profit?
Bookkeeping is a process where a business records its financial transactions regularly. Successful trucking enterprises need to watch their cash flow to help their business thrive. Expenses such as insurance, maintenance, and fuel must be adequately tracked to have visibility gross income vs net income. Cash inflow and outflow must be tracked to have an accurate report of your profit and loss. This process of bookkeeping requires business owners to collect and input financial information into accounting software to achieve precise financial tracking.
2. SPENDING TOO MUCH
Outsourcing work, such as maintenance and repairs, has several benefits. These include allowing more time to devote to business operations and high work quality because of using subject matter experts. There are other times when outsourcing repairs brings frustration. This frustration can range from the poor work quality, the actual cost of the work performed, and how long your truck can potentially remain at the repair shop before the repair is completed. This can result in lost revenue. You can save thousands of dollars a year when you do your own repairs and keep your operating expenses down.
Yearly truck maintenance costs about $15,000- $20,000, however doing the repairs yourself would cut it by half. DIY oil change saves you about $150 in labor costs; lights for trucks are between $20-$30, but fixing it in a shop costs about $100-$150. The shop charges about $60 to change the filter, but they cost about $12-17 to buy. You save money each time you purchase and install your own filter.
Keep more of your hard-earned money in your account by lowering expenses.
- Start by purchasing some toolkits from hardware stores.
- Read the owner’s manual to know the suggested maintenance by the manufacturer.
- Do your oil change when it's due.
- Always heed the warning signs to avoid significant damage.
- For the more complex repairs, partner with local repair shops and technicians. Seek to generate business for repair shops either through reviews, business referrals, or even paying retainer fees for services. This may help lower costs due the mutual trust and revenue assistance you bring to the partnership and reduce wait time for repairs.
3. NOT KNOWING COST OF OPERATIONS
Not knowing your actual cost per mile could result in you operating at a loss and put you in a weaker negotiating position.
The Formula to calculate cost per mile is:
Total expenses / Total miles = Total cost per mile
You would need all the receipts from your lodging, food, fuel, and other expenses incurred for your business from the previous month.
For example, if your total expenses (including your fixed and variable costs) for march totaled $7,000 and you drove 20,000 miles, your cost per mile is $0.35. You are better positioned to negotiate rates and determine which loads to accept or decline when you have the correct numbers.
4 LACK OF CASH FLOW AND CASH RESERVES
Businesses fail because they run out of cash. Cash is the fuel to ALL businesses. So how can you fuel your trucking business with cash? Factoring is one option. Factoring allows you to improve your cash flow by selling the invoice on a load you have completed for instant cash. This helps you maximize cash flow.Factoring companies charge up to 3%, so there are some costs associated (remember what we said about pros/cons of outsourcing). One of the major benefits of Factoring is that you get immediate funds to pay your short-term operating expenses instead of using cash reserves, or worst personal funds. Note, you can bypass factoring by maintaining excellent personal and business credit. Make it a habit to track financial performance and reporting. These actions can help you escape from the factoring cycle and qualify for bank funding for such products as SBA loans or lines of credit.
Dispatching helps you find good-paying loads, negotiate the best rates and ensure the shipper pays the invoice on time. They mostly charge a flat rate of about 5% -10 % of each load (again pros/cons of outsourcing). Dispatchers also manage weather delays and handle your billing paperwork, among other things.
Another alternative to dispatch is using a load board, which is a marketplace that allows shippers to find a carrier for their loads. You can quickly find loads through load boards, and they are free. This might benefit a new owner-operator. The profit margins are slim because they are the most competitive. It takes up to 3-4 weeks to get paid from a load board.
5. TRACKING YOUR FINANCES TODAY
As you can see there are many variables that increase cash flow and profit. Yet there are just as many variables to erode profits. The challenge for you as an owner-operator is to keep track of income and expenses to determine profitability and cash needs. This is where you as the CEO/CFO must ensure your business is executing proper bookkeeping practices.
There are several options for bookkeeping services. You can hire a bookkeeper, CPA or do it yourself. A Bookkeeper charges between $30 – $90 per hour, while a CPA amounts between $150 – $450 per hour. They can charge up to $2500 for a financial statement and $500 to file taxes.
However for $99/year you can achieve DO-IT-YOURSELF truck bookkeeping with DUKE.ai. DUKE.ai, is an automated bookkeeping app with many easy-to-use features, including receipt capture and processing, direct bank transaction feeds and instance reporting, such as profit and loss, profit margin, and profit per mile. DUKE.ai simplifies the financial tracking while saving money and time. Truckers need only to take a picture of their receipts (or connect DUKE to your online bank account). DUKE automatically stores and categorizes the transactions for you to retrieve later when needed (Toss your paper receipt in the trash). The app automatically generates financial reports based on these transactions and can easily track your IFTA miles with the press of a button. DUKE.ai is making it easy for truckers to know their financial numbers and file quarterly and annually tax returns.
A simple and affordable solution to track financials is now available to truck owners. Move away from difficult and labor intensive solutions and start using the DUKE.ai app today!