Owning a trucking company can feel like the odds are stacked against you. Starting your business requires a large amount of capital and it takes even more to stay on the road. Overhead costs are a never-ending cycle, but you have the tools to keep them from spinning out of control! Make a plan and pay attention to continue rolling toward success.
This is where your runaway expenses start gaining momentum. Just ask John Doe. John Doe found and accepted a $2,000 load for his truck. That sounds like a lot of money, but John did not pay attention to the miles. The drop-off location is 2,000 miles away. John is only earning $1.00 per mile on this load; it costs him $1.259 a mile to run his truck. John loses $518 by running this load.
$2,000 / 2000 miles = $1.00 rate per mile
$1.00 – $1.259 cpm = – $0.259 lost per mile
– $0.079 x 2,000 = – $518 loss
Sometimes low-paying loads are inevitable. There are freight areas that pay less than others, but you can prepare for them. If you know you are driving into a low-paying area, try getting a load going into it that will cover the cost of getting out again. Plan ahead and pay attention to spot market rates. Don’t be like John Doe.
John Doe’s $2,000 load took him into a low-paying area. To get back home, John accepts a $1,750 load. John is now only earning $0.875 per mile. With this new load, John loses another $768.
$1,500 / 2000 miles = $0.875 rate per mile
$0.75 – $1.079 = – $0.384 earned per mile
– $0.329 x 2,000 = – $768 loss
By the end of these 2 loads, John lost his business $1,286. To avoid this situation, all John needed to do was know his operating costs/cost per mile and paid attention to spot market rates.
Cash flow moves like molasses in the trucking industry. Most customers take anywhere from 30-90 days to pay on an invoice. John just spent $5,036 driving 4,000 miles on 2 loads. The more he drives, the higher that amount will climb. Unless John has extra capital lying around to pay for his expenses, John cannot afford to wait out his customers’ pay terms. He needs another option.
Factoring and quick pay are the most popular options within the trucking industry. Do your research to determine which one is best for your business. Since John needs cash now, John decides to factor and is excited to know he can get his money in as little as 1-hour after his invoices are approved.
John Doe still needs help with his cash flow, but he has a way to fix it. When dealing with cash flow, pay attention to these 3 things – operating costs, freight rates/market trends, and customer pay terms. With these in mind John’s business can start putting money into his pocket instead of taking it out. With these profits, he can prepare for other trucking business hurdles.