by Nori Gale
Are you thinking about starting a trucking company?
Have you been driving a truck for some time now, and become really good at it? Because you know the industry well, and have confidence that you can make it as not just a driver, but as a business owner now may be the perfect time to set up your own over the road trucking business.
There are more than a million trucking companies in the U.S., the vast majority of which, 90 percent or more, are operating six trucks or fewer. According to statistics shared by the American Trucking Association:
- 70% of all freight in the United States is currently transported by the trucking industry
- 27% growth is expected over the next decade
- 91% of trucking companies operate six or fewer trucks, meaning the industry is dominated by small carriers
The trucking industry is competitive and there’s big upside for professional truck drivers who already understand the trade. If you’re ready to start a trucking company, but aren’t sure where to begin, this straightforward guide will help you plan and execute on building your own business.
What does it take to start a successful fleet company? Here are nine steps to get your over the road trucking company up and running:
Step 1: Shift your mindset from fleet truck driver to fleet company owner
Every year hundreds of drivers make the decision to transition from being a single operator to running a business with what they hope will become a growing number of vehicles and employees. What’s essential is that you shift your mindset at the beginning of the process. You need to begin to think like a business owner versus thinking like a driver. This will help ensure your success.
The fact that you already have experience as a driver will give you a solid foundation for becoming a successful fleet owner, and building on that will be important as you grow your business. In order to thrive as a business owner, developing business skills will be a great place to start. Up-front planning will be a crucial first step in the process.
Step 2: Write a business plan for your fleet company
The first thing you will need to get your new fleet company off the ground is a comprehensive business plan. The Small Business Administration (SBA) characterizes the business plan this way: “A business plan is an essential roadmap for business success. This living document generally projects 3-5 years ahead and outlines the route a company intends to take to grow revenues.”
Your business plan will define where you want to go, and how you intend to get there. Writing it will allow you to think through all the details needed for your new fleet trucking company to be successful. Financial institutions will be engaged with you and more apt to provide startup funding when they see you have produced a comprehensive business plan.
What should my fleet company business plan include?
Here are some of topics ideally addressed in your business plan document:
- What is your business? Exactly what will this business do, and how will it do it? How will the company be organized?
- What is your market? Discuss current and future business conditions, the specific market niche you expect to fill, competitors with whom you will have to contend, and the factors that will differentiate your business from others.
- What is your financial outlook? Provide an overview of your expected expenses and income. Address issues such as the number of trucks with which you expect to start, whether you will purchase or lease them, and the costs of acquiring, operating, insuring, and maintaining them. Discuss the number of employees you expect to hire, the office space where they will be housed, and the costs of their salaries and benefits. It will be useful to project the amount of hauling revenue you expect to receive and how long you expect it to take for your business to become profitable.
- What is your customer base? Who, specifically, do you expect to be your customers?
- What is your marketing plan? Describe how you plan to get in front of potential customers.
- What makes up your fleet driving team? How many drivers will you use, and from where do you expect to get them? Will you hire them directly or bring them in as subcontractors?
Step 3: Fulfill regulatory compliance requirements for your fleet business
There are a number of federal and state regulatory details to address as you get started with your new company. These include:
- Getting your USDOT number and authority to operate across state lines from the U.S. Department of Transportation
- Obtaining International Fuel Tax Agreement (IFTA) decals for your trucks if you will be operating in multiple states
- Preparing a BOC-3 filing to designate your company’s process agent in case of any legal proceedings
You will also want to ensure that you meet licensing requirements for your trucks, and that you understand and fully implement applicable health and safety regulations.
Step 4: Choose the right fleet equipment based on what you plan to haul
The kind of equipment you need will be dictated by the type of freight you plan to haul. How powerful must the truck engines be to accommodate the loads they will be pulling? How much trailer capacity do you require? Do you need regular trailers, flatbed trailers, refrigerator trailers, or perhaps car hauler trailers?
Before acquiring a semi-truck, do a physical inspection, including the engine, doors, windows, and tires. Examine the exposed surfaces of the vehicle for signs of rust. Just as you would approach purchasing a family car with care, approach purchasing your fleet vehicles in the same way. For example, you will want to do as extensive a test drive as you can with any truck you are considering adding to your fleet.
Should you lease or buy your trucking fleet?
One of the first things to decide for your new fleet business is whether to purchase or lease vehicles. Leasing can save you both time and money, especially when you’re just getting started. Leasing minimizes the amount of up-front capital you need and relieves you of the burden of finding funding sources.
Starting with short-term leases can provide an important advantage; they give you the opportunity to gain operating experience with specific tractors and trailers and evaluate how well they meet the needs of your business before you purchase them.
One potential downside to leasing is in the controls put in place by the lease management company. Because you do not own the trucks, you cannot fully control how they are used and maintained, and you will be subject to the guidelines of the leasing company. Additionally, with a long-term lease, you may find yourself locked into monthly payments for a truck long after you’re ready to move on to a newer model or one that better fits your needs.
What about buying a used over the road fleet vehicle?
Catherine Macmillan, founder and editor at Smart Trucking, recommends that if you plan to buy a used truck, you should have an attitude of “buyer beware.” Find out as much as you can about the vehicle’s history. The following items will be useful to request when looking at purchasing a used fleet vehicle:
- Ask for copies of the maintenance records
- Find out how often the oil was changed
- Find out who maintained the vehicle – which mechanics were responsible for its care
- Find out what hasn’t yet been replaced that is due for replacing soon, such as transmission, rear ends, etc.
- Take a look at the tire tread depth. Do the tires have a reasonable life left in them?
- Ask if samples from the engine, transmission, and rear ends have been analyzed?
- Have the suspension, wiring, rear-ends, complete drive train, and transmission checked for viability
- Research what types of problems engines of this type typically suffer from and when in their life cycle and find out if the vehicle you’re looking at purchasing has experienced any of these problems yet
- Check the history of the specific engine
Step 5: Choose whether you will hire employee truck drivers or partner with subcontractors
In the fleet trucking business there are two common methods for employing the host of drivers you will need to keep a steady flow of trucks on the road. You can hire drivers as employees or you can partner with fleet drivers as subcontractors. Each approach has its own advantages and disadvantages.
The least costly and most common way for a new business to employ drivers is by partnering with independent owner/operators as sub-contractors. Because these drivers have their own trucks, your expenses for acquiring, maintaining, and insuring vehicles are minimized. Two things to bear in mind with independent contractors: you will pay higher fees to these drivers, and you will have less control over the management of their time than if they were on your payroll.
On the other hand, if you hire your drivers, you must supply and maintain the trucks they drive, which requires a much greater amount of startup capital. You will also be directly responsible for operating expenses such as vehicle maintenance, repairs, fuel, and insurance. The positive side to having drivers who are employees is that once your business is established, you will probably achieve better profit margins, while retaining complete control over your operations.
If you decide to use independent contractors as drivers, it would make sense and be in your best interest to get legal advice before entering into any contracts with independent contractor fleet drivers. The law in this area varies from state to state, and is still somewhat in flux. Misclassification of drivers can be costly. For example, since 2011, drivers in California have won more than $35 million in wage and benefits claims after courts agreed these plaintiffs were in fact employees rather than the independent contractors the companies for which they drove considered them to be.
Step 6: Come to an understanding of all operating costs for your fleet trucking company
The most important aspect of running a successful trucking business is managing and understanding your operating costs. Over the road trucking is a highly competitive space, and getting profitable loads requires bidding with precision. Bid too high, and you don’t land the contract. Bid too low, and you win the contract but lose money on the haul.
Knowing how much you must charge in order to make a profit on the loads you carry requires having a good understanding of your operating expenses, including the costs of maintenance and repairs, truck lease or purchase payments, insurance, fuel, salaries and benefits, and office expenses. One of your first priorities must be putting in place effective systems for tracking that kind of information.
Mike Thrasher, chief sales and marketing officer with Apex Capital, explains it this way: “Your business will have two types of costs; fixed and variable. A fixed cost stays the same each month, and a variable cost changes. So you should develop a solid understanding of what your costs are and what you need to charge per driven mile in order to make a profit.”
Step 7: Be sure you have the cash on hand to keep your fleet business running
New fleet owners are often overly optimistic about how quickly they will receive the revenue they need to cover their costs. In reality, you’re likely to sometimes experience a cash flow squeeze, at least at the beginning. That’s because most shippers do not pay at the time their loads are delivered. Often it’s 30, 60, or even 90 days after a delivery before payment arrives. However, your expenses for items like fuel, payroll, repairs, and even the office electricity bill will not wait for you to be paid. To ensure you’re prepared for slow payment, plan at the outset to have a reserve of at least six months of operating expenses to cover any delays in receiving payments.
One alternative is to work with a factoring company that, for a percentage of the bill, will pay you immediately.
Step 8: Set up a management team for your fleet company
As a fleet operator with a growing business, you will likely reach the point where you cannot personally keep up with all the administrative tasks required. Instead, you will need other people to take care of the dispatching, invoicing, accounting, payroll, maintenance scheduling, and regulatory compliance chores that you may have handled yourself when you were a single owner/operator. Setting up an adequate back office operation will ensure your business is ready to take off and really grow as your hard work and experience begin to pay off.
Although it is vitally important that you develop an efficient and effective back office, build your team in a slow and methodical manner. Before hiring new employees and putting them to work, work through the administrative processes you will use and determine how you want them handled. Have the steady cash flow required to support additional employees and then add them to the team. That way your monthly fixed costs will be well below your profit levels.
Step 9: Set up systems to manage your expenses
For your new fleet business to be profitable and grow, it will be important to manage your expenses and keep them under control. Start with figuring out what all your costs are, and then find creative ways to reduce them. One way of doing that is by making use of a fuel card system such as the Fleet One EDGE card. Fuel has historically been the single greatest expense over the road fleets incur, and the Fleet One EDGE card will not only provide critical information about your fueling costs, but can actually reduce them. Designed for fleets of 1 to 25 trucks and accepted at over 8,000 locations, the Fleet One EDGE card has the largest fuel discount network in the U.S. Companies that use the card save an average of 12 cents per gallon on fuel and an average of $40 on tires.
If you would like to know more about how the Fleet One EDGE card can help you get your fleet company off the ground, please contact a sales representative today.
All fleet cards are not the same, and different types of fuel cards suit the needs of different kinds and sizes of businesses. View WEX’s fleet card comparison chart to see which fleet fuel card is right for you.
American Trucking Association
Small Business Administration
Editorial note: This article was originally published on November 26, 2018, and has been updated for this publication.