The Ins and Outs of Becoming an Owner Operator
The transportation industry is an important part of providing products to society. You have the potential of a great career by obtaining your CDL, and becoming certified through a reputable transport driving school. However, this is just the first step in becoming a transport truck driver. Finding the right job, a cargo type that you are comfortable in hauling, regularly scheduled work hours, along with good wages and benefits, may lead you to exploring the possibility of becoming an owner operator. If you are considering this move, study the possibilities carefully. In essence, you will be starting a new business that requires a test of discipline, salesmanship and management skills. It can also become the best way of life, ever imagined.
1. Securing your Assets
Going into business for yourself requires a certain amount of capital. Because you will not be utilizing employees, the process can be less complicated, but not any cheaper. In order to deliver a product, you first need reliable transportation equipment. It is not unusual to pay over $100,000 for a truck. Used models can be found at significantly lower prices but unless you are a skilled diesel mechanic, the cost of repairs can eat up what you would gain through a new purchase warranty. A trailer is not always necessary, but nice to have on hand, for good jobs that come along. Either buying a new tractor-trailer that has a good warranty and dependable service location, or purchasing a used unit, and keeping a fully stocked repair shop, can both add up to $130,000, or more.
Visiting the bank with your proposal for a loan can be intimidating. You are asking for an entity to trust in your dream that may, or may not, come to light. Good preparation is key in approaching a financial institution with this type of request. Gather these items before making the appointment.
• Three years of tax returns
• Personal income and expense statement
• A business plan for the next two years
• Secured contracts for work over the next year
• Portfolio of employment history and training
Only after you have proven to a bank or other financial institution officer that you have the means to meet payment obligations on a regular basis, will you even be considered for a loan of this magnitude. If you have collateral in your property, and feel you have a shot, visit your local Small Business Administration (SBA) office to learn how to create a realistic business plan.
2. The Truth about Leasing
There is another option in securing the assets needed in getting started as an owner operator. Leasing your equipment gives many drivers a way to get started when money is tight. In the beginning, this route may sound like a simple solution, but leasing also carries its own set of problems and expenses. Ask for a copy of the leasing company's contract before deciding that this is the right move for you. Down payments, inflated insurance costs, high lease payments and carrier-mandated repairs may put you right back into the situation of not having enough capital. These contract stipulations do not pertain to all leasing companies. You may find a company that offers attractive terms and presents a good opportunity for leasing. It is up to you to filter out the difference through extensive research.
A few trucking companies are getting very creative today, by offering to lease their equipment to employees. This way, the company is relieved of paying employment taxes, carrying expensive insurance and still retaining seasoned drivers. Owner operators are given the freedom of selecting runs and receiving a percentage of the generated income. These types of programs are working out very well for some drivers that are having trouble with starting their own company. Although these types of situations exist, they are not widely publicized and can be difficult to locate.
3. Regular Expenses and Bookkeeping
Making equipment payments and putting money back for repairs, is far from the total cost of having your own trucking business. The cost of fuel is ever changing in the market and bidding on a job today, can cost you dearly, just by filling up your tank tomorrow. It is a delicate balance to price a job and count on a certain amount of profit in the end. That $100,000 that looked really good in the beginning, can soon be whittled down to less than $30,000, when considering the long list of expenses associated with owner-operators. Here are a few of the expenses that are required to keep your truck moving.
• BT/DH Insurance
• Cargo Insurance
• Workers' Compensation Insurance
• Gate and Toll Fees
• Scale/weight Tickets
• Road, fuel, mileage, usage taxes
• Cellular services
• Permits and licensing
• Other costs, such as meals, lodging, and traffic tickets are in addition to these minimal required costs.
4. Taxes and Insurance
Businesses are required to pay taxes on gross income, just as employees of companies. Many times, the tax bracket far exceeds the 22% average that is paid by most employees. Currently, the federal government in America is proposing a tax hike on the country's wealthiest wage earners. Those exceeding $250,000 in gross income, would see an average increase of $4,400 per year. If you are thinking that $100,000 per year is plenty for a one-man operation, you could find that this amount needs to be increased, just to meet the expenses. This is why a good accountant and attorney are vital to any type of business. Skirting around costs, just to survive, is their specialty.
Having a good health insurance policy for yourself and your family is also a concern that needs to be approached when running your own business. A premium for an individual is higher than for a group of employees. Also, many times an employer will cover anywhere from 50% to 100% of the cost as an employee benefit. You will need to shop around for the best rates on individual health insurance policies and make sure all family members meet the criteria. Life insurance and a 401k plan are other perks that are included in an employment package when working as a driver for a transportation company. These will also need to be reviewed and subtracted from the bottom line.
5. Transportation Software
The days of keeping track of mileage and hours has faded away. Almost every reputable trucking company has built-in software that monitors every mile and every stop. This is not so much a way to keep tabs on a driver, as it is to protect them. As an owner operator, this will come to light in just a few months on the road. The old saying, 'the customer is always right', never had a trucking business. There are hundreds of mileage software programs on the market and it seems that each customer has a different one. Being able to prove that there were detours that forced you off-course and that certain routes do not allow transports, is an important part of being paid on time and being paid the expected amount. Without transportation software, the owner operator is at the mercy of the customer. Since miles are your business, this could cut you down in no time at all. As technology becomes more advanced, so do the items affected. Upgrading and expanding software will be an ongoing concern and additional cost.
6. Specialty Hauling
There are different types of specialty hauling that can quality you for higher pay. Refrigerated items, explosives, liquids, petroleum, and steel are a few examples of specialty hauling. The type of equipment necessary to deliver these runs can also be higher than just a single-axle truck and a box trailer. There can also be different types of licensing, individual state requirements and additional insurance coverage that is needed. For example, you may find it extremely tempting to haul pressurized gas. Adding a few extra thousand dollars onto your Motor Carrier's insurance policy seems adequate, and well within the mandated amounts. However, when a car pulls out in front of you at a busy intersection and leaking gas is the result, you may find that a million dollars in coverage is not enough. Even though the accident is ruled the other driver's fault, it is your cargo that has contaminated several blocks of busy city streets. The Environmental Protection Agency (EPA) is called in and determines the damage, and amount of money that your company is responsible for. This amount can, and has, put many owner operators out of business, in addition to bankrupting them, personally.
7. Associations and Partnerships
There are associations and organizations, for owner operators, popping up as the process of going into business for yourself becomes increasingly complex and costly. Some offer educational programs on running your own transportation trucking business, transportation software, equipment financing, medical insurance and other services. A national, reputable organization could help you realize what you are getting into before taking that leap.
Also consider going into a partnership agreement with a larger trucking company or a customer that you have been a close relationship with. Many times they are able to accomplish what it seems you will never be able to. For instance, they may have the contacts to set up your equipment under an umbrella company of their own, in exchange for contracted services over a specified period of time. You could even find your company insurance needs met, as being part of a larger group. Although you will not be able to say that you own 100% of your company, the chance of moving there, slowly, is better realized.
If you love to drive and have a burning desire for being your own boss, make the choice as an independent owner operator. Although it may seem that the cards in the deck are all stacked against you, there are ways to make it happen. The first step is to gain some experience by working for a transportation company. Without knowing the ins and outs of the trucking industry or what type of hauling is your forte, you could easily change your preference more than once or twice. Secondly, rely on professionals and lots of research to find out what your chances are of going alone in your particular area, and if the economics are right. Last of all, weigh the pros and cons of what your life will be like as an owner operator. The responsibilities, marketing, discipline and possible failure are all aspects that few employees realize before embarking on becoming a business owner. Give yourself plenty of time to mull the idea around in your mind. Switch jobs, if necessary, to try another type of hauling for awhile.
A large percentage of owner operators fail within their very first year. This may not be due to lack of work or paying bills on time, but being unskilled in running a business. Regardless of whether you have one employee or one hundred employees, keeping up-to-date on a changing society, making reports, and hustling to keep an adequate amount of work pouring in, is just too much for those that just want to drive. Sometimes a spouse or child can be a great asset in taking care of the management details of owner operators, which works very well. Be sure to think about all aspects of this position and if you still have a desire to make it happen, it will.