No matter how many years a trucker has spent behind the wheel, the transition from company driver to owner-operator includes a long, wide learning curve. Driving a truck is just one part of the overall job of running a profitable business. A successful owner-operator must be a savvy negotiator, have a solid knowledge of bookkeeping, excel in customer service and problem-solve on the fly.
Many struggle in establishing their business, but even those who succeed may find the road to greater profit is a little smoother if they follow these underused business rules.
1. Don’t focus on securing a minimum rate per mile.
The trucking business speaks in rate per mile, and most drivers evaluate all potential jobs in those terms. But if accepting only loads that pay $X a mile means waiting a day or two and passing on lesser-paying loads, the owner-operator may actually be losing money. Why? Fixed costs.
Fixed costs for a trucking business — the ones that must be paid whether wheels are turning or the truck is parked — may include truck payments, insurance, phone, federal highway use tax and more. It’s common to think of those in terms of monthly expenses, but doing the math to figure out costs per day gives the owner a far better idea of their profit per load.
Say those fixed costs are $300 per day. Each day the truck sits idle costs the O-O money that they are unlikely to make up with a slightly higher paying load. Better to go a short distance at a cheaper rate, or deadhead, to an area where they truck-to-load ratio is in their favor and they will be able to find those better paying loads.
2. Pay yourself a regular salary.
Those fixed costs must include a set, regular salary. An O-O who figures that they will live on the money that comes in from each load risks the entire business. Those are the profits of the business, and they can be used to expand or to supplement a salary. But a business plan that does not include a salary as the cost of business is not an honest business plan.
3. Look into factoring before cash flow is a problem.
Factoring helps a business stay afloat during periods of tight cash flow, with a factor buying the accounts receivables. Invoices that might have otherwise taken 60 to 90 days for payment, are instead paid right away, with a small fee taken by the factor.
It’s common for an owner-operator just starting out to consider factoring until the business gets established, and many O-Os turn to factoring when they are ready to expand.
This is a financial relationship that is crucial to understand before signing any contracts. An owner-operator feeling desperate to deal with their cash flow – RIGHT NOW – probably won’t make a well-considered decision. Those first twinges of concern are the time to investigate. Find out the factor’s terms (recourse or non-recourse, fees, penalties, etc.), get recommendations, pepper a representative with questions. Take the time to get the answers you need and establish the relationship that works best for the business.
Can an owner-operator survive without following these three rules? Maybe, but with them comes greater peace of mind and an easier path to success.