Most of the owners are not, which is why it is difficult for small transportation companies.
Businesses have been proven to be tricky, especially when it comes to costs. Regarding this, one profit mistake and you might break your trucking company.
Continually, there are trucking companies who tried to increase their revenue but have strongly failed in the attempt.
There are trucking companies that destroyed their profit simply because they did not make detailed trucking Expenses calculations.
In addition to this, there are statistics which show that 250 trucking companies have faced financial stagnation in a year by the end of 2017.
Out of those 250 companies, 5.2 % experienced revenue decrease and 3.4 % revenue decrease for motor vehicles.
The unmanaged profit of these trucking businesses is due to the changes caused in the trucking industry as well as economy fall.
What are The Biggest Trucking Expenses When Running a Business?
To begin with, there are more than 3 million truck drivers, 3 million trucks and 1 million transportation companies in the US.
Additionally, there are 9 tons of freight on an annual basis.
To put it in a different way, that is 70% of the freight in America, transported with the help of trucks.
Considering all the factors involved in the industry, starting or running a trucking business needs a hard work and dedication.
Moreover, the industry requires a wide knowledge of the following:
- How to run a trucking business?
- Coping with regulations (SAFER, DOL, TSA etc.)
- How to manage trucking expenses?
Without the equipment, the company’s initial expenses would be varying from $6,000 to $15,000.
In particular, the costs of starting or running a transportation business would be the following:
- Registration Documents – 900$ to $1,500
- Insurance Payment – $2000 to $4,800
- IRP – $500 to $3,000
- Heavy Vehicle Tax – $100 to $550
To continue with, the cost requirement for trucking companies is huge. To be honest, one of the industries that involve the biggest business and company costs is definitely the trucking industry.
Additionally, down below are mentioned the total trucking expenses that are inevitable for a trucking company:
1. Extra Miles
2. Profit and Cash Flow
3. Cost Per Mile
4. Fleet Trucking Expenses
6. Fuel Trucking Expenses
Reading this, you have already made the first step – you have found the trucking expenses that actually leak out of your profit.
The rest of the work to be done is to figure out the following: “Why am I making deadly profit mistakes, and in which way”?
Furthermore, discover what it takes in order to change, improve and avoid the expense problems in your company.
1. Not Cutting On Extra Miles
Have you ever faced with out of route trucking expenses?
Normally, the start-ups or small transportation companies face this.
Continually, they provide unnecessary mileage which not only soaks the routing time but also increases the trucking costs.
Having said this, there are trucking companies which haul OTR (over the road) for example, and they have many places to visit.
For instance, if a truck driver has a starting route from state A and the ending route is state B in order to get there, he needs to make a lot of stops.
Consequently, visiting truck amenities sometimes means having to go out of the route in order to get a proper and safe rest and then going back on the road that actually leads to the end of the route.
Correspondingly, the profit mistakes that you are actually making here would be translated into fuel trucking expenses as well.
How To Avoid
One of the most practical solutions to avoid extra miles trucking expenses would be the involvement of technology and use of tech tools in the industry.
Particularly, taking advantage of the interconnectivity of the modern business communication is the most effective and easiest way to get in touch with a particular person, learn or get informed about a specific matter.
To put it in a different way, you could use the latest technology equipment in order to improve the proficiency of the drivers.
Furthermore, using the newest technology GPS trackers is the latest innovation in the trucking industry.
Continually, there are the telematics solutions as well. Having said this, there are the two essential truck part accessories of today which are beneficial for improving your delivery efficiency.
2. Not Paying Attention To Profit and Cash Flow
No matter how great your business idea or model is, the profit you make or how many investors support your business, the company cannot survive without cash flow management.
In addition to this, there are studies which show that small transportation companies fail to the poor management of cash flow.
When it comes to cash flow trucking expense, your brilliance does not count.
The key is to manage costs in order to avoid putting your profit in unavoidable danger.
In particular, there are reasons why you fail to manage your cash flow. Continually, here are the results of the research:
- Overestimating the volumes of future sales
- Impulsive spending during the company’s startup phase
- Not collecting clients’ payments on time
Having said this, the issues with cash flow are one of the biggest among the companies. Furthermore, reining in constant and unnecessary spending keeps you away from the potential business success.
How To Avoid
When it comes to spending money, you need to know that the balance is key, especially when it comes to small transportation companies.
What happens if you run out of cash?
Your trucking business is then led to bankruptcy.
Having said this, you need to always be prepared for the unexpected trucking costs as well as stay alert to the possible pitfalls.
To continue with, you need to have yourself a safeguard to decrease and avoid the cash flow trucking expenses mistakes.
There is a cash-flow statement which helps small transportation companies to track the inflow and outflow of trucking expenses.
In this way, you will be anticipating in the revenue control allowing you to plan the money ahead.
This is important because in this way you will significantly decrease or avoid the trucking expenses in your business.
3. Not Calculating Cost Per Mile
As a trucking company, one of the biggest trucking expenses you will ever find is the cost per mile.
In your constant effort to increase the profit, you are in fact killing it without even realizing.
As a company owner who is still new to the business, you may consider the industry as a rather unknown field.
Due to this matter, you make mistakes with cost per mile trucking expenses, although you are not allowed to, especially when it comes to startups.
More importantly, your miscalculation leads to nothing but increase the costs in your business.
To emphasize, there is the IFTA tool expenses, the fuel costs, the truck driver salary, the road trucking expenses, their stops at truck stop amenities etc.
In other words, after the act of not predicting the cost per mile, you will face a never-ending battle.
How To Avoid
Calculating and knowing the cost per mile is key to every trucking company’s profit.
Therefore, the question is: “How to avoid per mile trucking expenses that are destroying your profit”?
The analysis is the following:
In order to find and decrease trucking expenses per mile, take the total costs and divide them by the number of the monthly miles traveled.
Additionally, you can start doing the math by calculating the costs per mile first and then sum it all up.
What you also need to keep in mind is that the income, as well as profit, may change and vary on a monthly basis.
Besides the profit which you might make same as you did the last month or not, other influential trucking expenses are the weather as well as changes in mileage.
In the end, in order to save yourself from additional and unnecessary trucking expenses, do the calculations monthly, or weekly if needed.
4. Fleet Trucking Expenses
Whether you want to buy or lease a truck, it is very important for you to know the fleet trucking expenses for both decisions.
Although there are small companies which decide that leasing or buying used truck will reduce their trucking expenses it is not always the case.
Think about it.
If you buy a new custom truck, it may cost you probably a lot more but you will buy quality which will save you from further repair costs in the near future.
Continually, with the changing trends in the industry, the technology mostly prevails in trucks.
To put it in another way, the trucks of the future have better parts of equipment that you can use for minimum a decade without a repair if we omit the accidents.
In particular, the fleet is the biggest of all trucking expenses.
The truck maintenance is also essential for the trucks and the company in general. In addition to the above-mentioned, if you buy a brand new truck, the maintenance would be less frequent.
Moreover, you even might not be needing it for at least several years. However, this does not include truck driving accidents.
However, due to the necessity of truck warranties, you might not be able to avoid the maintenance costs after all.
Additionally, although your truck might be under warranty, you will still not going to be able to cover all the expenses related to the truck.
In particular, the regular maintenance may cost you $450 per month.
Repairs and Breakdown
On the subject of this, monthly trucking costs for repairs and breakdowns are also huge. However, as mentioned above, this strongly depends on the condition of the truck, whether it is used or new.
Whichever it is, you will still not be able to avoid these necessary check-ups and repairs in case of a breakdown.
Same as truck accidents or climate changes have a huge impact on trucking and are unavoidable, the checkups go straight proportionally with these variations.
To continue with, as natural the insurance trucking expense as it may seem to you, you need to be careful because there are different insurance policies for the trucking industry.
Several of those specific insurance policies can cause over $6,500 costs on a yearly basis.
Having said this, besides the different insurance programs, you have various insurances to cover as well:
- Drivers (Medical and Dental)
- Trucks Insurance
- Business Insurance
Same as the previous inevitable trucking expense in your business, the insurance coverage soaks money profit as well.
How To Avoid
As shown above, you will need from $2000 to $4800 per truck in your trucking expenses.
In addition to this, there is the cost of the health insurance as well. For example, a health insurance for a truck driver on a monthly basis will cost you for about $420.
In particular, the insurance trucking expenses are categorized in the fixed costs. To put it in a different way, these are the costs that you will have on a monthly basis.
Therefore, in order to avoid the insurance expenses make sure you keep detailed calculations and records in order to stay compliant.
6. Fuel Trucking Expenses
To continue with, one of the largest cost in trucking companies is the diesel fuel trucking expenses. Due to the trucking in the industry, the company owners face immense sum of money in order to cover all the fuel costs in their trucking company.
As an illustration, there are 20,500 gallons of fuel in a year for a commercial truck. In addition to this, there are trucking companies which are involved in OTR (over the road) truck driving.
On the subject of this, the largest operating cost is the diesel fuel. In particular, the sum that can be consumed is $70,000 per year.
How To Avoid
Initially, there is an easy way to avoid the fuel trucking expenses. However, in order to decrease one expense, you will need to purchase another.
I am referring to the increase in the technology devices in your trucking company.
Due to the changing trends in the industry as well as varying fuel prices, there are two ways to avoid the fuel trucking expenses and they are the following:
- GPS Tracker and Route Optimization
- Truck Stops Contract
In addition to the above-mentioned, the GPS tracker might decrease the time needed for a trucker to get to the end point of the route. Thus, it will save enough time to make on-time deliveries.
Furthermore, there is a possibility for trucking companies to make arrangements with the truck stops in order to get fuel discounts.
The arrangement is simple – you visit their truck stops and amenities, you get a discount on the fuel prices in return.
I think it is a win-win situation.
Setting Your Company Up For Success
One of the smart ways to track your company’s success is to find the ratio. Notably, the ratio is the expenses divided by the revenue.
As an illustration, if your ratio is under 100% then your business is doing great. On the other hand, if it is over 100%, then your company is in trouble because the profit was soaked up by your trucking expenses.
In order to avoid these constant expenses that I mentioned previously above, you need to make a plan.
Notably, there are two ways to avoid trucking expenses and create successful and reputable trucking company:
- Get higher cost per mile
- Require advance pay by customers
- Hire freight brokerage companies
If you happen to find yourself in a situation where your clients are not paying on time, increase the cost per mile.
In the worst case, hire brokerage companies. There are a lot of them, you just need to choose among the best freight brokerage companies in the US and lead your company to success.
in this way, you will set your company up to success by first finding and then avoiding trucking expenses.
As a conclusion, although you might assume it is easy to operate a trucking company, sometimes the pitfalls are driving you back enough leaving you unable to find a way out.
Furthermore, there are the constant trends in the industry, and the regulations as well, which make it difficult to cope with and embrace all the changes.
To sum it up, the solution to your problem is always logic and math. With calculating trucking expenses as well as incomes, you can definitely find a balance in your cash flow.
The post How to Find and Avoid Trucking Expenses That are Destroying Your Profit? appeared first on Fueloyal.
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