As a lender, what are some of your most challenging clients? Start-ups, owner/operators, or fleet owners. We have found that the single truck owner/operator going from one truck to their second truck is by far the most difficult task to accomplish. The risk for default or troubled loans escalates at this point.
Your client(s) may not realize the complexity of doubling the size of their operation to two trucks. The emotional investment into the idea of being a fleet owner, dominates their thoughts as they drive across the country. Even before purchasing their first truck, the idea of growing a trucking company has always been with them.
With your client being so emotionally invested into building the trucking company, they may not be able to see some of the challenges that lay before them. After a time as a profitable single unit owner/operators, the natural next step is for the business to grow and acquire a second truck. Most owner/operators drivers have probably thought…how did all the larger, multi-unit fleet owner/operators companies get their start and grow their companies? The answer is more common than you might think…one truck at a time. Still, this path is fraught with pitfalls and each business owner must do some serious planning and thinking before doubling their fleet.
Making the jump to a two-truck operation doubles the responsibility, increases expenses, raises one’s stress, and adds time commitment; everything multiplies. Purchasing a second truck and finding a reliable and trustworthy driver creates a feeling of being overwhelmed. Knowing this and going through it will require perseverance and determination. Understanding these facets beforehand and successfully surviving the two-truck transition creates momentum which, when sustained, enables more growth toward a third and fourth truck. Each successive additional truck will be simpler once the second truck difficulties are conquered. The owner/operators who make the leap successfully will become even better clients and will turn to you to help grow the company.
When working with your client(s), here are the most common steps required, but sometimes overlooked, to make the second truck owner/operator’s acquisition a success.
- Get their own Department of Transportation (DOT) authority. Many single power unit owner/operators are leased-on and run under some other entity’s authority. Insurance and loads are handled by the leasing company, in addition to their paycheck. All that’s required is for the owner/operators to drive and maintain the truck. But having their own DOT authority provides the freedom to make additional operating decisions about their trucking company.
- Even if there is a sole owner of the business, create a legal business entity such as a limited liability company, S corporation and even limited partnership. These entities provide more legal protection over a sole proprietorship. Are you going to be 100% owner, do you have a partner, or is your spouse involved? Choose partners wisely as their credit history may have a profound effect on the company’s ability to secure financing.
- Check and maintain the credit score: Keep the credit card debt low and meet your financial obligations…even on medicals. Slow pays on the credit bureau report (CBR) will drag down the score. Lending sources have a minimum and as long as their score is met along with satisfactory installment accounts (typically home and auto) and paid-up monthly bills – you should qualify financing with monthly payments that will cash flow to make a profit. Run the financial projections!
- Create a Business Bank Account: The accountant or bookkeeper will be happy that the business income and expenses are separate from the personal accounts. This will make company tax reporting and profit/loss statements more accurate…and easier to produce.
- Prepare to step away from driving: as the owner of a trucking company, the best seat is often from the office. When at the office the perspective of business will change which will ensure the paperwork is in order. This will open up to see new business opportunities that would have never been seen while driving.
- Pay yourself: expect the business to make a profit. If you do not pay yourself then all you have created is a new job and you are now working for a lunatic…..yourself!
- Create a budget and stick to it. This will give the insight to see all the costs, observe where the revenues are coming from, and assess what the profit should be.
- Buy a profitable truck: a long nose Pete 389 Glider is a profit challenge. Yes…it has a 550 hp, DD15 engine mounted to an 18 speed transmission with dual stacks and chrome fuel tanks; those features look and sound good but don’t necessarily make a profit. A load is only worth so much a mile and there are not enough miles in the day to force a gorgeous truck with a corresponding monthly payment to cash flow and make a profit. Shop for the right truck; it’s out there.
- Determine beforehand how to manage and communicate with an employee driver and how the second truck will acquire its loads. Will the additional unit be local, regional or OTR?
- Set aside money for the worst case scenarios. The number one reason small trucking companies fail in the US is because trucks break down and there are no funds for repairs. Protective Advances are possible but hard to get and even harder to pay-off.
- Never stop learning. Read, listen to podcasts and audiobooks, and keep current on trucking trends and business ‘Best Practices’. These activities will give you insight to help make smart business decisions. There are numerous resources available that can help to develop the business.
- Stay healthy: keep yourself in good condition both physically and mentally. Ensure the mind is in the right place when making big decisions. Ask for help, call a friend, partner, spouse, or even your lender.
The 12 steps above will not guarantee a successful transition from a single unit owner/operator to a dual truck operation; however, if utilized they will help ensure most facets of doubling a company’s operations are considered. Having your clients understand what it takes to make the jump to the next level is critical for their business as well as yours.
Disclaimer – following these directions will give a solid foundation for your client to build their company, but there are so many additional items that can influence your success. Staying focused and determined will give the confidence to succeed in building the business.