Invoice Factoring for the Trucking & Logistics Industry
Non-Recourse Factoring for Truckers & Haulers
How to Start a Trucking Company (and Fund it, too)
In America, the economy relies on the ability of companies to move goods from a production facility to stores, restaurants, and other locations. And the trucking industry is truly the backbone of this movement. In fact, the America Trucking Association reports that trucks haul 71.5% of the nation’s freight. That equates to more than $700 billion in primary shipments, totaling 10.7 billion tons of freight in 2017 alone. But payment terms have been stretched out to 60-90 days; you need a non-recourse trucking factoring company like Bankers Factoring.
Yet, even with such a large slice of the freight market, there is a great need for new drivers and companies. Business Insider reports that the U.S. will need an additional 175,000 truck drivers in the next five years to keep up with demand. But why work for someone else? It is a great time to start a trucking business. Even if you are undercapitalized, Bankers Factoring stands ready to factor your freight bills and invoices. As your accounts receivable begin to grow, start factoring your invoices immediately.
For those who are considering starting a trucking company, now is the time to begin planning. There is much to learn and consider when starting the steps to entrepreneurship in the trucking industry. New bosses will need to understand everything from start-up trucking factoring to searching load boards and quoting per-mile rates to every phase of legal compliance.
We designed this how-to guide as a start-up trucking company checklist to help you start a successful business in the trucking industry and how you can fund it with a trucking factoring serve, thoroughly preparing you for decades of success.
Create a Business Plan
Like every small start-up, a new trucking company requires significant planning that begins with a dynamic document known as a business plan. This is an opportunity for entrepreneurs to plan for expected (and unexpected) expenses and revenue, as well as brainstorm the operations needed to make the business run smoothly.
The U.S. Small Business Association offers an online business plan tool that is a good place to start, but these types of documents can also begin with a simple pad of paper and a pen. The first step to creating a business plan is to describe what you are envisioning for your business. Take time to fully describe the kind of company you wish to run. Experts encourage start-ups to begin small but allow for growth.
For the trucking industry, this usually means working as an owner-operator. These types of business owners will need a commercial driver’s license. Or perhaps the structure of the fleet will be different: Some business owners do not drive. Independent contractors work under another company. Whatever is decided, this company description will be the foundation of your business.
Next, the business plan requires an in-depth market analysis. When starting a trucking company, this first involves a decision regarding the business’ niche. Seasoned trucking bosses encourage new entrepreneurs to specialize because it will be easier to compete in the marketplace filled with large trucking companies.
Whether the business focuses on dry vans, reefers, or flatbeds, check out the competition: research other courier firms, for-hire carriers, or those who haul refrigerated goods. Talk to brokers and shippers. Look at their accident reports and see the feedback on drivers from customers. This work will help set a new start-up apart.
Deciding on a niche also makes it easier to create a financial plan, management plan, and sales strategy for your business. Each type of truck freight can vary dramatically in terms of earning potential, and some vehicles are more expensive for maintenance, leasing, and purchase. Consider whether the chosen niche will offer year-round work and, importantly, resistance to the inevitable economic recessions.
We address these elements of a business plan more in-depth later in this document, but don’t skip over it. This planning time is crucial for long-term success. Many new business owners jump right into starting a trucking company, but the ones that last take time to plan first.
Do Financial Projections for your Start-Up Trucking Company
If your trucking business won’t make money, it’s usually not worth doing. Before moving forward with anything else, those interested in the trucking industry should get out the calculator to figure out their financial projections both short- and long-term.
Financial projections are simply a detailed breakdown of estimating how much the business will bring in as revenue and how much it will take in expenses to make that happen. Income comes from determining a per-mile rate, and this needs to be set before searching for customers. The market analysis done for the business plan is the key to understanding what the right price is to charge.
One way to accomplish this is to go to a load board and find loads in the same niche, going in one direction. Call the brokers to find out what they pay and create an average. Add on an additional 10-15% markup, which is what those brokers charge the shippers. Then see what the standard is going the other way to determine round trip rates.
As for expenses, there are fixed and variable expenses worth estimating. All new start-up trucking companies will have to pay for insurance, truck payments, and permits. Gas is an enormous cost, which varies based on the number of miles the trucks drive. Both recourse and non-recourse trucking factoring companies offer free fuel cards. Research freight factoring companies for customer service, termination fees, and can they take your call 24 hours a day.
Truck owners must follow the International Fuel Tax Agreement or IFTA. This requires that the business pay taxes to each state (or province in Canada) the truck travels through, no matter where the truck fuels up. It is important to track the miles traveled through each jurisdiction and research the individual tax rates to see where it’s cheapest to buy gas. It’s not always at the lowest-cost pump. Also, keep in mind that the business may receive a refund for these taxes.
Other financial projections include the cost of parking, registrations, and maintenance, as well as if the business team includes other professionals. Balance sheets and other general accounting information are available through the U.S. Small Business Association, and a handy dictionary of financial terms is worth reviewing.
Take the time to think through each expense because, without fail, there will likely be more than originally considered! Best practices recommend having three to six months of operating capital available before beginning. This may mean that new business owners will need to apply for a small business loan, take out a home equity loan, sell a property or use savings. Before this happens, check credit reports for errors and be sure to keep everything in good standing. Paying bills on time will avoid the headaches of financial problems in the future.
In the trucking industry, cash flow is one of the biggest hurdles to long-term success. In general, most shippers will pay 90 to 120 days after the trucking company submits the invoice. By far, the most common method for handling this is start-up trucking factoring. This is how huge corporations and almost every trucking company handles the gap between having to pay bills and receiving payment for work.
When determining how to choose a trucking factory company, be sure to find one that understands the trucking industry, offers a Fuel Card program, is able to work closely with your clients, and pays quickly. Be sure that the trucking factoring company doesn’t have added hidden fees that will impact your bottom line.
Get Your Start-Trucking Business in Compliance
Even if this new start-up business is a small operation, it’s vital to get into compliance on every level. New entrepreneurs will benefit from a meeting with a knowledgeable attorney and certified public accountant, as well as doing plenty of research on their own.
All new start-up trucking companies need to apply for a USDOT Number, which they will need before they are able to obtain a trucking authority. Companies can do this through the Federal Motor Carrier Safety Administration’s Unified Registration System. Keep in mind it takes up to a month for this to be completed.
Once they have the USDOT number, business owners need to get permission from the government to transport goods across state lines and also haul specific freight. Just like with the USDOT number, apply online for operating authority. There is a $300 fee associated with this authority.
There’s more: All vehicles must be registered via the International Registration Plan or IRP. This is the system by which registration fees are distributed, based on the distance the trucks travel. The benefit of this process is that it won’t be necessary to register the truck in every jurisdiction through which drivers travel. Each truck will receive a license plate and cab card for display. Check the appropriate state transportation website to register; costs vary by state and type of vehicle.
Plus, all trucks need to have an IFTA sticker as well as a processing agent. Owners must submit what is known as a BOC-3 Filing, which will state the person who will be served legal documents in each state where doing business. Again, the process begins online through the Federal Motor Carrier Safety Administration but must be done by the processing agent, and there are many from which to choose.
Starting a trucking company also involves creating a legal structure for the business and understanding all the tax ramifications associated with each kind of structure. Talk to a professional to learn the benefits and drawbacks of being a sole proprietor, a limited liability corporation (LLC), a partnership, or a corporation.
Other professionals that may make sense for a new business include someone to handle payroll and invoicing. Many entrepreneurs do it all: manager, bookkeeper, driver, and salesman. If so, be sure to have proper accounting software, a laptop, a solid internet connection, and possibly a printer to handle the business on the road.
Purchase or Lease a Trucking Company Vehicle
Working from the business plan, new trucking company start-up owners will know exactly what type of vehicle to look for. Regardless of the make and model, it is vital to check multiple sources and compare prices when searching for a truck that fits the vision for the business. Like purchasing any vehicle, closely inspect everything.
It is often a wise move to spend a little extra to hire an inspector who is experienced in the mechanics of trucks. This professional will be able to look for signs of body damage and rust. He or she will check for tire tread and be able to review the maintenance history and analyze the oil change history in relation to the mileage.
If finances allow for an outright purchase of a vehicle, definitely negotiate. If there are plans for more than one truck, to begin with, see if there are deals for purchasing numerous trucks from the same dealer. It is also worth considering if a used truck is worth the cost savings in the long run. Have an accurate understanding and expectation about maintenance costs to help create a realistic budget for the business.
Of course, payment plans or leasing are also widespread options. There are many different options for leasing. Full service operating leases will have the business owner handle the maintenance, taxes, and permits but allow a clean break at the end of the lease. Terminal Rental Adjustment Clauses, or TRAC, leases are different.
Business owners make a small down payment and have the opportunity at the end of the lease to purchase the vehicle or have the leasing company sell it on behalf of the company. If the vehicle is sold at a profit, the start-up trucking company benefits; if it is sold at a loss, the business owner pays the difference. Finally, there are also lease-purchase plans. That is an alternative to traditional financing methods if there is not enough for a down payment.
Once a vehicle is in the fleet, it must be road-ready. This means adding the USDOT number, a decal showing the company’s registered name, and the Radio Frequency Identification tags on the front windshield. License plates and IRP plates are also necessary.
Also, no need for that paper logbook anymore. Fleets now must include an electronic logging device, or ELD, to record each driver’s RODS or Record of Duty Status. This government-mandated requirement is a blessing to business owners who hire drivers, as it provides real-time data on a variety of important topics including vehicle needs, IFTA information, and downtime tracking. While is it not a requirement, new trucking company owners may also wish to consider a dashcam for the vehicle, too.
Research Trucking Company Insurance
Perhaps not surprisingly, all trucking companies are required to purchase liability insurance for all vehicles in the fleet to cover damages to the truck, other damages, or injuries that may result from driving commercially. Just as they did to find the right vehicle, all smart business owners should take the time to shop around for the best insurance policy. The specific coverage varies with the freight being hauled, so check what is necessary for the business with the Federal Motor Carrier Safety Administration. This is also where business owners must submit the insurance paperwork to the government.
Start-up trucking companies must have at least $750,000 of primary liability coverage, but some shippers and brokers require even more. Sometimes up to $1 million in coverage is necessary.
Cargo coverage is also important, but it will help in case of theft. Most trucking companies have $100,000 in cargo insurance, although it varies dramatically with what is being hauled. It’s a good idea to have insurance for physical damage to the truck, as well as what is known as non-trucking use insurance. This covers the business if there is damage when a driver happens to not be doing a haul.
When deciding on insurance companies, research is key. Ask on social media or online trucking forums about individual experiences with insurance brokers before creating a new account. A good place to start is the Owner-Operator Independent Drivers Association, which offers policies and information.
In fact, it’s not a bad idea to consider joining the OOIDA. It is an international trade organization based in North America that is designed to protect the interests of truck drivers. They handle lobbying and other political works with federal legislators. They also have programs for health and life insurance, retirement plans, and educational tools.
Market Your Trucking Company Business
There’s a lot to do when starting a trucking company, but none is more important than finding and retaining customers. An annual marketing plan is an extension of the business plan that can change dramatically over time. It’s something that many small business owners neglect until it’s too late. Without a marketing strategy, there is often a feeling of desperation about connecting with potential customers. Understanding the value this new business is bringing to your clients – and expressing it in a targeted way – will help ensure success.
It’s possible to hire a marketing professional, but entrepreneurs can start the process with a dedicated brainstorming session. The first step is creating a strong and in-depth understanding of the ideal customer. What type of needs does this business have? Where is the business located, and how do they prefer to communicate?
There’s some psychology involved here, and it may feel like a guessing game. But it will help to find and establish relationships with core customers who have regular loads. In general, make sure that one individual client does not make up more than 20% of the business’ revenue. Relying too much on a single client sets the business at serious risk if they suddenly don’t need the services. The goal is to have at least five clients with needs the business can meet.
To find these clients, business owners have to be proactive. Be sure to create an easy-to-navigate website for your business. It must be filled with all the information these ideal customers are looking for. Sign up for all social media under the new business name, even if it’s not something that’s not quite comfortable yet. Have accounts on Facebook, Instagram, YouTube, Twitter, and any other social media that may help. LinkedIn is also an excellent platform for business.
It’s important to think in scale. Even if there isn’t enough time to devote to this kind of marketing campaign during the beginning, clients may still find the business through these channels. Even if there is no time to write blogs during the first year, someday, the team may include a marketing professional who is well versed in social media to expand the message and reach of your trucking company. It’s also possible to hire public relations specialists on a contractual basis, as well.
This online presence can extend to outreach for clients, too. Start gathering email addresses for all potential clients early in the business and continue to build the list over time. Write a newsletter to send on a regular basis to establish the company as an expert in whatever chosen niche.
Also, don’t forget the power of offline marketing too. Collect (or pay for) addresses of any company that might benefit from this new business. Direct mail is an excellent and effective tool that can be surprisingly affordable, given bulk mail rates through the U.S. Postal Service. Either brochures or even personalized letters offering competitive rates are almost always worth the effort. Within the marketing plan, schedule times throughout the year to connect with potential and current clients.
Marketing and sales are all about building relationships. Use an inexpensive graphic designer online through a website like Fiverr to make business cards, brochures, and a logo for the company. Purchase pens with the name of the business on the side and drop them off in the offices of prospective customers. This is the way to let core customers feel important and interested in returning for a more direct shipping business.
Of course, this process takes time. When beginning, it’s possible to find hauls using load boards and brokers. This is also a great way to fill an empty truck on return from a big load with a current client. However, brokers take up to 20% of the load price, and that can eat into the bottom line. Some load boards, like Trucker Path, Trulos, DSSLN, Live Loads, Load Up, Freight Finder, Landstar, and Check Freight Broker, are free.
Shippers and brokers also offer free load boards, which are worth visiting regularly. They include Atlantic Logistics, Brokered Loads, Buchanan Hauling and Rigging, Carroll Fulmer, Erwin Bros. Trucking, Forest Commodities, FST Logistics, Greenbush Logistics, Harte Hands, and JB Hunt. Finally, some load boards cost money to join but offer free trial memberships, which all new trucking companies should try. They include Direct Freight, Getloaded, Truckers Edge, 123 Loadboard, Dat, Loadmatch, and Load Solutions. There are also separate load boards for car haulers too.
There are other downsides to load boards, too. They are extremely competitive – especially the free sites. Also, because there isn’t a direct shipping relationship, these shippers can take months to pay. To alleviate this problem, be sure to work with a trucking factoring service. Start-up trucking factoring is especially vital for new trucking companies. Specially vital for new trucking companies, start-up trucking factoring is the answer to being paid in a timely manner while still maintaining good relationships with a wide variety of shippers and brokers.
Have a Plan for Your Trucking Company’s Growth?
If the business has a start-up plan, is in compliance with government regulations, has a decent fleet, good insurance, and a method for finding customers – congratulations! Starting a new business is a big undertaking, filled with surprises and lessons along the way. However, entrepreneurs in the trucking industry soon realize that the work is never over. Start early in the business’ life to form a plan for growth and expansion.
Growth for trucking companies usually means hiring new drivers. The American Trucking Association report that turnover rates for drivers are extremely high. In 2018, it was 78% for large-haul fleets and 77% for fleets with less than $30 million in revenue. The reasons are varied and a matter of debate, but, like all jobs, money, and expectations are at its heart.
To limit the turnover in the growing company, create an official onboarding procedure so that drivers understand the expectations. We recommend The Pre-Employment Screening Program to see any potential driver’s crash data reaching back five years, plus roadside inspections for three years.
Also, growth means always finding a constant stream of new customers. To do this, business owners (or, eventually, a sales team) must constantly be scanning the load boards and making in-person calls to potential clients. Think of where the clients are located in the niche is fresh produce; for example, head to produce markets with a stack of business cards and a handful of pens. Always be on the lookout for opportunities and keep a positive attitude during the inevitable challenging times.
Finally, savvy entrepreneurs in the trucking industry are always looking for technology and methods to make the job easier. Search for apps, software, and online tools to keep up to date. Also, be sure to find a start-up trucking factoring company that offers fuel cards, for example. Working smarter, not harder, will help the business grow and prosper.
There is a lot to consider when deciding to move forward to start up a new trucking company. But it is an industry with substantial growth opportunities. You can expect the large financial rewards to increase as the need for drivers and trucks continue to outpace the supply of smart business owners ready to work in the industry.
For questions about starting a trucking company with a strong financial future, work with the experienced professionals at Bankers Factoring. Celebrating 25 years of funding entrepreneurs’ dreams, Bankers offers no-credit risk invoice factoring, payroll, and PO funding to companies from start-ups to $30 million in B2B and B2G sales. Let Bankers Factoring take the credit risk and turn freight invoices into cash. We want to be your Non-Recourse Trucking Factoring Company of choice.