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Owner Operator 411

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23 February 2009

5) What the Owner Operator Needs to Know About Equipment







2001 Kenworth T600






Information About How to Become an Owner Operator


5) Equipment





See my other posts:


FAQ for the Owner Operator
Pictures
Anti-Idling Regulations
Definitions and Industry Terms
Blackrock Auxiliary Power Unit (APU)
Interactive Cost per Mile (CPM) Calculator Spreadsheet
Privacy Policy
1) Owner Operator 411 – Welcome
2) Income and Expenses
3) Financing and Credit
4) Operating Authority or Leasing?
6) How To Do Bookkeeping and Other Necessary Paperwork
7) What You Need to Know About Loadboards
8) Companies That Lease Beginning Owner Operators
9) What You Actually Need to Get Started - Licenses, Permits, Insurance, and Taxes
10) Truck Driving Schools


There is one more thing you need to decide before you apply for a loan (assuming you have read my previous posts): what kind of freight do you want to haul?

This will determine what company you can lease to (all companies don't haul all types of freight) and what kind of equipment you will need. If you are buying your own trailer, then you need to know what kind to buy based on what you will be hauling. For example, do you need a refrigerated trailer (reefer) to haul food, a dry van for general freight, a flatbed to haul steel, or a drop deck or goose neck to haul equipment?


Even if you don't buy your own trailer, knowing what you will be hauling will determine how to spec your tractor. If you are going to be hauling heavy loads, you need to spec a tractor with heavy duty suspension and a big motor. If you are going to be hauling mostly light loads, you might be able to get by with a tractor with a smaller engine or lighter suspension. Also, the type and length of trailer might determine the length of the wheelbase of your tractor. What you are planning to haul will definitely decide how much your tractor can weigh.

Deciding what you will be hauling will also tell you what other equipment you need to buy. If you are going to pull a drop deck or goose neck, you will need chains, tarps and binders. If you are planning on pulling a flat bed, you will need all of those things plus a side kit. If you pull a dry van, you most likely will need load jacks.

When you are deciding what you are going to haul, don't forget to think about the physical side of what you choose. If you are going to be pulling a flatbed, you will have to be outside in all types of weather chaining and tarping your load. If you want to pull a reefer, you may be required to unload it, which means you will be working in very low temperatures, regardless of what the outside temperature is.

When you spec your tractor, there are several factors you need to need to consider. Will you be making long or short hauls? If you make long hauls, you will probably want to spec a sleeper. You don't want to spend all of your money on motels, and besides, there are a lot of times when you have to spend a night on the road and can't get to a motel.

What kind of engine do you want and how much horsepower do you want? The three major engines are Cummins, Caterpillar, and Detroit.

You need to decide what size tires you want, and what kind of a transmission and how many gears. Today, you can get a semi with an automatic transmission! Definitely a far cry from the old days when many trucks had two sticks (two gearshifts).

Modern trucks have power steering, ABS brakes, heat and air conditioning. They have big comfortable seats and privacy curtains. The beds are large and comfortable and some have a couch, and some have two beds. Most have closets and storage space. You have to decide what you need, then decide how much of what you want you can afford.

Other equipment you will need is a CB radio, gloves, coveralls, fuses, flares, a fire extinguisher (mandatory), tools, oil, fuel, and water filters. You should also carry oil, grease, and anti-freeze.

Optional equipment you may want is a cell phone, a satellite radio, and a TV. If you are planning on being gone from home a lot, you might want to consider buying an inverter. Then you can buy a coffee pot, a toaster and a microwave, and save yourself a lot of money on meals. 

A note about meals: When you file your taxes, the IRS lets people who are in the transportation industry and those who are regulated by hours-of-service rules (see "Income and Expenses") deduct meals differently and at different rates than everyone else. See an accountant or tax preparer for details. To simplify a very complicated rule, basically you can flat-rate your meals for every day you are on the road long enough that you are required to take a sleep break, even if you don't eat a thing, or spend a dime. Of course with the IRS, there are 40,000 ifs, ands, ors, and buts, so be sure to check it out with a tax professional or preparer.

An auxiliary power unit (APU) is becoming a must have. These range from about $6,000.00 to $10,000.00. What is an APU and what does it do? Basically, it is a generator. It is used when you are not driving to eliminate idling. Why is idling necessary? If you have to sleep in the truck in the winter or summer, you will probably run your truck so you can have heat or air conditioning. It is hard to sleep when it 25 degrees or 118 degrees in the sleeper.

With an APU, you can heat or cool your cab without running you truck. This is very important, as an APU can reduce your fuel consumption by about 75 %. Yes, I said 75%. Instead of using a gallon of diesel an hour idling, you use a quart with an APU. Not only is this important for your bottom line, but more and more cities and states are making anti-idling laws with fines ranging from $50.00 to $25,000.00 and/or up to 1 year in prison, for idling your truck.

Sometimes the idle time allowed is as few as three minutes. These anti-idling laws were written to reduce noise and air pollution. 

Click here to go to an: Anti-idling Regulations Chart
To view this chart you need Adobe Acrobat Reader

The cost and age of your equipment can affect the costs of your license plates and insurance.

As you can see, it is very important to decide on your equipment before you make a commitment. Once you have bought that $40,000.00 used truck, it is very hard to change to another truck if you find you don't like what you bought.

Although you will never know exactly what it is like until you actually do it, you need to ask questions of other drivers about their equipment, and what they like and don't like about it. If at all possible, go out on a load with someone. Volunteer to help them load/unload to get a feel of what it is like. The more you know before you buy, the better off you will be.

What make of a truck should you buy? That is up to you. Just a some people wouldn't own anything but a Chevy, some people won't own anything but a Volvo.

Any make of truck, if spec'd correctly, will do the job, it is a matter of personal preference and how much you can afford to pay.

The most popular trucks are Peterbilt, Kenworth, and Volvo. Other popular truck makes are: Freightliner, International, Ford, Mack, Sterling, and Western Star.

Anything with a Gross Vehicle Weight Rating above 33,000 lbs. is a "Class 8" truck.

Good places to look for a truck (new or used) are "The Truck Paper" and "Truck Trader". If you have cash and are very familiar with trucks, good deals can sometimes be found on eBay.



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I am sorry I have to do this, but due to spam "comments"  I feel I need to moderate comments from now on.
I am sorry for any inconvenience this may cause to my legitimate commenters.

18 February 2009

4) Operating Authority or Leasing as it Applies to the Owner Operator







2001 Kenworth T600



 


Becoming An Owner Operator

4) Operating Authority or Leasing?


See my other posts:


FAQ for the Owner Operator
Pictures
Anti-Idling Regulations
Definitions and Industry Terms
Blackrock Auxiliary Power Unit (APU)
Interactive Cost per Mile (CPM) Calculator Spreadsheet
Privacy Policy
1) Owner Operator 411 – Welcome
2) Income and Expenses
3) Financing and Credit
5) Equipment
6) How To Do Bookkeeping and Other Necessary Paperwork
7) What You Need to Know About Loadboards
8) Companies That Lease Beginning Owner Operators
9) What You Actually Need to Get Started - Licenses, Permits, Insurance, and Taxes
10) Truck Driving Schools

I hope you got here by reading my previous posts (numbered 1 - 10) first. If not, I advise you to go back and do so. This post won't help you if you can't get the financing for a truck. If you don't understand how you will be making money (net), then I you are not ready for this step.

If, on the other hand, you understand that you will not get rich by owning your own big rig, have checked your credit report and Fico score, cleaned up all of your debt problems, and are sure you can secure a loan, then read on!

There are two types of owner operators. The one with their own authority, and the leased owner operator. For the purposes of this post, I am assuming you will be driving your own truck. If you are planning on hiring a driver you would be an owner, not an owner operator, but most of this information would still apply.

Your own AUTHORITY: This means that you are a “trucking company”. You will probably have to buy a trailer. You will have to get your own permits, and pay your own taxes. You will have to find your own freight.

The three different types authority are: Common Carrier, Contract Carrier, and Broker Authority.

COMMON CARRIERS provide for-hire truck transportation to the general public. Common carriers must file both liability (bodily injury & physical damage) insurance and cargo insurance.
The definition of an "authorized for-hire” carrier is a person or company that provides transportation of cargo or passengers for compensation. If you are a for-hire carrier, in addition to the USDOT Number you will also need to obtain an Operating Authority (MC Number).
CONTRACT CARRIERS provide for-hire truck transportation to specific, individual shippers, based on contracts. Contract carriers must file only liability (bodily injury and physical damage) insurance.

A contract carrier cannot broker loads without first applying for and receiving a license to operate as a broker of freight.

BROKERS (brokers are not owner operators) arrange for the truck transportation of cargo belonging to others, for compensation, utilizing for-hire carriers to provide the actual truck transportation. Brokers must file either a surety bond or trust fund agreement.

If you want to get your own authority, there are lots of companies that can help you, such as (OOIDA). We are members of OOIDA and have been since just after they started, about 30 years ago. They are one of the best things I have ever spent my money on. Membership dues are only $45.00 a year, but sometimes they run a special. Includes a subscription to “Land Line” magazine.  In addition to helping you get your own authority, they offer discounts and rebates on equipment, as well as financing, they have truck, health, and life insurance, a drug and alcohol consortium, retirement plans, fuel cards, load boards, business information services, and much more!

Most owner operators are leased to a trucking company – a common carrier or a contract carrier. Actually, you are not leased, your truck is. When you lease your truck to a trucking company, they provide you with services and charge you for them (see "Income and Expenses" post).

What services they provide and how much they charge you varies from company to company, so ask a lot of questions before you lease on your truck and find out exactly what they do and what you would have to do.

Some of the common services provided:
1. they buy your license plates (and usually you have to reimburse them,
2. they pay fuel taxes,
3. they buy the permits,
4. they do all the record keeping and reporting for fuel taxes and permits, and/or
5. they provide you with a trailer (charging you rent).
 

These are all things you would have to do and pay for yourself if you had your own authority.
 

You need to check with trucking companies and see if they have enough freight and if they are leasing on more trucks. Ask other drivers of the company you think you might like to lease to if they are happy (they will probably say no), how much they gross, and how much they net (they will probably lie), and if they are planning to stay with the same company they are leased to. Why did I say they will probably tell you they are unhappy? Because truckers are notorious for complaining. They complain about the dispatchers, the loads, the dispatchers, the truck, the dispatchers, the pay, and, oh, did I mention the dispatchers? So, when they tell you how unhappy they are, ask them how long they have been with that company. If it is more than a year or two, they are probably happy. I also called them liars, but in reality, they just like to stretch the truth. Most people will tell you they are doing a lot better than they really are, but then you also get those who just like to exaggerate in the other direction. Ask to see their revenue statements. A lot of them will be glad to show you.
 

After you have asked all of your questions, DON'T sign your lease until you have read it completely and understand what it says.
You are the lessor (the party who is giving the right for the use of the equipment).  The company is the lessee (the party getting the use of the equipment).
 

The lease is a legal contract.  It spells out what what percentage or mileage rate they pay, what expenses you are responsible for, and what expenses they are responsible for.  It should tell you when you will be paid and how (percentage or mileage).  It will tell you who is responsible for fines, damages, and losses. It will tell you if you have to have an escrow account.
"Escrow fund – Money deposited by the lessor with either a third party or the lessee to guarantee performance, to repay advances, to cover repair expenses, to handle claims, to handle license and State permit costs, and for any other purposes mutually agreed upon by the lessor and lessee"
Although you can be required to carry insurance on your equipment, you can not be required to buy your insurance through the company you are leased to.  They can not require you to have work done in their shop, rent or buy equipment (covers anything from load locks to trucks) from them, or buy their fuel.  You are an independent, and as such have the right and option of obtaining your own services or equipment from where ever you want.  This does not mean that you can't use their equipment of services, it just means you can't be required to.
 

If you are being paid a percentage, you have a right to see the freight bills, showing the amount the load pays.
If you have your own authority, none of the leasing information applies to you unless 1) you lease a truck from someone else (you are the lessee) or 2) you lease your equipment to someone (you are the lessor), which you can do.

Alphabet soup definitions:

USDOT:
United States Department of Transportation
MC: Motor Carrier
FMSCA: Federal Motor Carriers Safety Administration
OOIDA: Owner Operators Independent Drivers Association
ICC: Interstate Commerce Commission. An agency which used to regulate the trucking (and railroad) industry, but is no longer in existence. It was disbanded in 1995.
IRP: International Registration Plan is a registration reciprocity agreement among jurisdictions in the United States and Canada which provides for payment of (truck) license fee on the basis of fleet miles (even if it is only one truck) operated in various jurisdictions
HUT or HVUT: Heavy (Vehicle) Use Tax - A federal tax imposed annually
CDL: Commercial Drivers License
IFTA: The International Registration Plan (IRP) is a reciprocal agreement that authorizes the proportional registration among the jurisdictions (states) of commercial motor vehicles. This means if a truck is operated in multiple jurisdictions, the owner must annually report mileage driven in each state and taxes are paid proportionately based on the mileage driven. The good news is the owner may pay those taxes in one jurisdiction—referred to as the base jurisdiction or base state. Vehicle owners are required to register under IRP, if:
    • their vehicle is over 26,000 pounds gross vehicle weight (GVW); or
    • has three or more axles, regardless of weight; or
    • is a power unit and trailer whose combined GVW is in excess of 26,000 pounds, and
    • your truck operates in at least two IRP jurisdictions
Resources:

FMSCA frequently asked questions – registration and licensing: "FMCSA"
Be sure to subscribe to this blog to get the latest and newest information.


I am sorry I have to do this, but due to spam "comments"  I feel I need to moderate comments from now on.
I am sorry for any inconvenience this may cause to my legitimate commenters.

3) Getting Started – Financing and Credit for the Owner Operator










 


2001 K Whopper (Kenworth)


 Becoming An Owner Operator

3) Getting Started - Financing and Credit


See my other posts:


FAQ for the Owner Operator
Pictures
Anti-Idling Regulations
Definitions and Industry Terms
Blackrock Auxiliary Power Unit (APU)
Interactive Cost per Mile (CPM) Calculator Spreadsheet
Privacy Policy
1) Owner Operator 411 – Welcome
2) Income and Expenses
4) Operating Authority or Leasing?
5) Equipment
6) How To Do Bookkeeping and Other Necessary Paperwork
7) What You Need to Know About Loadboards
8) Companies That Lease Beginning Owner Operators
9) What You Actually Need to Get Started - Licenses, Permits, Insurance, and Taxes
10) Truck Driving Schools




Now that you know how much money you can really earn, your next step, if you still think you want to be an owner operator, is to decide if you can afford it.

Do you want to be a truck driver, or a businessman? Most people think they can just buy a truck and roll, but there is a lot more to it than that. In the first place, a truck can cost anywhere from $30,000.00 for a used one to $150,000.00 for a new one.

You have to look a your complete financial picture and figure out if you can even afford to purchase a truck, much less all the expenses that go along with it.

First, you want your new business to be a money making enterprise, so you don't want to start out too much in debt. Your truck payments will run from $1,000.00 to $2,500.00 a month. As you can see, you will have to have a good credit history before you can even buy a truck.

Many banks and credit unions will want a written business plan when you try to get a loan. This will tell them how you think you will be able to pay back the money you borrow from them.

The first thing you need to do is check your credit report and Fico score before even applying for a loan. Everyone is entitled to an annual free credit report from each of the three credit bureaus: Equifax, TransUnion and Experian. Check with all three, as they do not provide the same information. If you find any mistakes, have them taken care of before you try to get a loan. Banks will look at your Fico score. The credit bureaus will let you buy your credit score. These are not the same thing, but a credit score should give you an indication of your FICO score (if one is high the other should be high, and vice versa.

Before you try to get a loan, you need to get your business license, so that you can get a business loan. I will write about setting up your business structure (sole proprietor, partnership, LLC, S corporation, or corporation) in a later post. I was going to do that in this post, but decided to wait because if you can't buy a truck, there isn't any reason to start a business, so we need to concentrate on financing before we start talking about ways to make money. In a way, it is just like the old saying, “You have to have money to make money.”

See: Types of Entities in Section 6) How to Do Bookkeeping and Other Necessary Paperwork for the Owner Operator - Permits and Taxes
When we bought our first truck, we paid $3,000.00 for it and the person we bought it from financed it for us. Boy! Are those days ever gone. Diesel was 34 cents a gallon, milk was 50 cents a gallon, and I walked 5 miles to work, uphill, both ways, in the snow, winter and summer.

Seriously, though, we went into debt to get our first truck, and so will you. In planning how much you need, don't forget all the other expenses. If you don't buy a brand new truck, you will probably have to put some maintenance into it before you can put it to work. If you are lucky enough to find a truck that really is ready to go on the road, you still aren't out of the woods. On your very first trip, all kinds of bad things can happen, and you need to be prepared. You may blow a tire and have to replace it (cost about $250.00), or you may blow an engine (cost $10,000.00 and UP)

Not only do you have to have the money to pay for these things, you will have to have the money to live on while you are getting the repairs done. If you blew an engine, it can take a week or more to have it repaired or replaced. Don't forget that $1,000.00 to $2,500.00 truck payment. If you are down for a week, you still have that payment coming due (and other fixed expenses like owner operator insurance, taxes, and licenses) – and you are not only spending money for repairs, you are not making any money. The moral is, you need to have some extra money in the bank to fall back on.

Anyone can have breakdowns, anytime, for any reason. I knew a guy once who bought a brand new truck and he had to have the engine replaced 3 times in a year. Yes, it was under warranty, but as I said above, he still had payments coming due, and no income each time it was in the shop having the engine replaced.

Of course, he had a lemon, and it is unusual for something like that to happen, but it does go to show, you just never know. I would like to say the best way to not have a breakdown is preventive maintenance. I can't stress that enough. If you hear a whistle in the turbo, don't just sing along with it until it becomes a scream. Have it fixed at the very first chance you get. Believe me, it will pay off in the long run.

If you can get the financing, in a way now is a good time to buy a truck. Many truck drivers are selling their trucks because of the bad economy, and you may be able to find one cheaper than you could have a year or two ago. For some reason, though, truck prices haven't dropped very much – but the freight has. 

As more and more companies are laying off workers and cutting back on production, they aren't making as many goods, so they don't have as much to ship. You may be able to buy a truck, but you may not have anything to haul. Like almost everything else today, truck driving jobs (even owner operator trucking jobs) are hard to get.

Resources:

SCORE: www.score.org This is an excellent resource, and best of all, it is entirely free! They have mentors, online or in person to answer your questions and help you make business decisions. They have online workshops, including one titled, “Can you afford to start?” which will help you answer a lot of the questions raised in this post. If you are serious about starting your own business, don't skip this website.

SBA (Small Business Administration): www.SBA.gov/ They have information about all kinds of things to do with small businesses, as well as online training about how to start a business and how to write a business plan. They even give loans.

OOIDA (Owner Operator Independent Drivers Association): www.ooida.com They give out tons of advice, publish a magazine, make equipment loans, and sell owner operator insurance and truck insurance.

An accountant: They can do tax consultation as well as bookkeeping.

Your local bank or credit union: In addition to making loans, some have legal departments which can help you set up a LLC or corporation.
If you have a favorite resource, let us know and share it with others.

Be sure to subscribe to this blog to get the latest and newest information.


I am sorry I have to do this, but due to spam "comments"  I feel I need to moderate comments from now on.
I am sorry for any inconvenience this may cause to my legitimate commenters.

12 February 2009

2) Owner Operator Income and Expenses

Becoming An Owner Operator

2) Income and Expenses





We have been in the trucking business since 1967, and since 1972 as an owner-operator. Having been around so long, I can guarantee you, you will not get rich quick driving a big rig. You probably won't even make a lot of money.

Well, let me clarify that. You can gross some big bucks, and a lot of owner operators will throw out those numbers when they are talking to you, such as “I made $150,000 last year.” They aren't lying, they did GROSS $150,000 last year, but what did they net?

After expenses, the average owner operator will not make a lot of money, but will only make about ¼ of what they gross – and most don't gross $150,000.

Why does one make so little money if ones grosses so much? Simple: Expenses. The owner-operator has to pay ALL of their own expenses. I mean everything. Want to carry a roll of toilet paper in the truck? YOU buy it. Need a $20,000.00 engine overhaul? YOU pay for it.

We are not netting any more today than we did when we bought our first truck in 1972.  Why?  Deregulation!  Before deregulation, rates were set by the government, and there were few carriers.  After deregulation, every Tom, Dick and Harry could apply for and become a carrier.  Rates started going down.


Let me give you an example.  I used to pull a flatbed, and I routinely hauled steel coils from Washington, PA to Houston, TX for $2,800.00.  Pretty good money for 1975.  Then one day, I was offered the same load for $2,500.  I refused it.  Within a year, the rate was down to $1,800.  The rates have never really recovered.

First, for those just starting out, let me explain some terms.

GROSS: This can have two meaning for some owner-operators, depending you whether you have your own authority or are leased to a company.

Example:
ABC Company will pay $500.00 to have their load hauled. If you have your own authority, they will pay you the $500.00. This is your gross. If you are leased to XYZ Company, ABC will pay XYZ $500.00. This is the gross revenue for the load or "truck gross". XYZ will take a cut of that money and pass on to (pay) you what is left. Let's say they keep 25% (for their services). Then out of that $500.00, you will gross 75% of $500.00 or $375.00.

EXPENSES: What it costs to operate your truck. This is pretty much anything and everything. The IRS tells you what is allowable and what is not, but for the most part, just use your common sense.

Need tires? Allowed.

Got a ticket speeding (breaking the law)? Not allowed.

Need to eat? Allowed. Unless you live in your truck. There is an IRS rule about being away from home before you can take the cost of food. If you live in your truck (don't have a permanent residence), then you are not away from home.

Your dog that you take with you needs to eat? Not allowed.

Your daughter that you take with needs to eat? Maybe. Does she just go along for the scenery? Not allowed. Does she drive and/or help in other ways? Allowed.

Your truck needs to eat (fuel). Allowed.

As you can see, the expense has to be directly tied to the operation of the truck before you can claim it. Whoa! Wait up. Some of these expenses can be deducted, and some have to be depreciated, and some you may have a choice of which you want to do. More later.

NET: What is left over after all expenses are paid.

O.K. What do we have now? You worked your butt off last year and grossed that $150,000.00 that someone told you about. You bought fuel (the #1 expense), tires, oil, and grease. You paid for insurance, minor breakdowns and routine repairs, and upkeep. You paid for a cell phone, and meals on the road.

What else? Oh, yeah, you paid taxes. You probably paid taxes when you bought your truck. You paid taxes when you bought your license, you paid taxes for making money, and you paid taxes to use the roads so you could do your job - in addition to the tolls you paid to drive on the roads. Whew! That's a lot of taxes. Lucky for us, these taxes are deductible on your income tax return. You bought tools, and had your truck washed. After you paid for all of these things (and more), you have about $30,000.00 left. That is your net.

Please note: this is only an example of how you arrive at a net figure - not actual figures.
"Wow! I netted (cleared) $30,000.00 last year", you may think to yourself. That is more than I would make working a 9-5 job. That is true, but you weren't working 9-5 to make that money, either. Chances are you were gone from home, at the very minimum, Monday morning to Friday night. In reality, you were probably gone longer than that to make that kind of money. Many truck drivers, especially those who make the big bucks, are gone from home for weeks at a time. While they were gone, they were working 14 hour days. They may be making a lot of money, but they never get to see their family. They miss out on all the things their kids are doing in school. They miss out on their kids growing up. They miss out being with their spouse. They miss out on living.

When you do get home, you will make it up to your family, right? Well... the truck probably needs some routine maintenance done. Aren't going to do it yourself? Fine, you still have to take the truck to a shop, and probably wait while they do the work. If your kids don't have ball practice, or your spouse doesn't have a PTA meeting, take them with you. They will love sitting around a shop while you get the oil changed, but, hey! you are all together. After that, you can go home and sleep until time to go out again. If the kids really want to see Daddy, they can sit around the bed and watch you sleep. When you get up, if they aren't in bed, you can have a family get-together while they tell you how funny you were snoring.


I know I sound kind of pessimistic, but so many people think it is easy to drive a truck and make a lot of money and maybe even get rich, but it just ain't gonna happen.


If you think my figures are unrealistic, see The Real Cost of Trucking at Truckers report.

There are some good things about being an owner-operator and I will get into that in a later post.

***NOTICE - CAUTION***: I am an owner-operator, not a tax professional. I drive a truck for a living, so don't take me at my word about taxes. Have a tax professional check it out, and give you their advice. Not all accountants are created equal.


Try to find someone who knows about trucks. Some truck expenses have their own rules, like how much you can take for meals. There are special IRS rules regarding meals that only apply to someone in transportation, and rules applying to people regulated by hours-of-service. If your accountant doesn't know anything about trucks, they might miss that and not allow you to deduct enough for your meals on the road.

More on my next post. Later I will also try to get into what it was like when I first started driving way "back in the day" and will try to put some old pictures on here, too. So keep checking back.

11 February 2009

1) Owner Operator 411 - Welcome








 


2001 Kenworth T600



Becoming an Owner Operator

1) Welcome to Owner-Operator 411



See my other posts:
FAQ for the Owner Operator
Pictures
Anti-Idling Regulations
Definitions and Industry Terms
Blackrock Auxiliary Power Unit (APU)
Interactive Cost per Mile (CPM) Calculator Spreadsheet
Privacy Policy
2) Income and Expenses
3) Financing and Credit
4) Operating Authority or Leasing?
5) Equipment
6) How To Do Bookkeeping and Other Necessary Paperwork
7) What You Need to Know About Loadboards
8) Companies That Lease Beginning Owner Operators
9) What You Actually Need to Get Started - Licenses, Permits, Insurance, and Taxes
10) Truck Driving Schools
 
This is the place for owner operators to gain information and tips about starting a business. It probably will be most useful for the beginner owner operator, but old-timers should find it useful, too. This is not the place to be (or the job to choose) if you want to get rich quick. If you want to do that, you need to learn how to hit the lottery, make money online, or have a rich relative die and leave you a lot of money – or anything as long as you don't have to work, because as a small business owner you will have to work - hard.

 Driving a truck and being an owner operator can be rewarding and satisfying in a lot of ways and you will learn about that in future blogs. So check back often and see what you can learn about being an owner operator and about the trucking industry.


I often get asked, "Is it hard to become an owner operator?"  The short answer is "No."  Just buy a truck and start driving.  The real question should be, "Is it hard to become a successful owner operator?"  The answer to that questions is "Yes."  These is so much a person needs to learn and it is a lot of hard work - both mentally and physically.  So read on and see if you still think this is what you what you want to do! 

Some of the things I will be writing about are:  

Income and Expenses; This will cover the difference between gross and net, and an overview of what can and can not be deducted.
 
Financing and Credit; I will explain the basics of getting a loan, and what to do if you have debt problems. I will be telling what you need money for in addition to the truck itself. I will talk about business plans, and the importance of credit reports and FICO scores. 

Operating Authority or Leasing?; There are two kinds of owner operators – those with their own authority and those leased to a company. This will explain the difference and advantages and disadvantages of each.

Equipment; This section will cover the equipment an owner operator needs in addition to the tractor and/or the trailer. It will explain necessary and optional equipment. Equipment can be something as expensive as an auxiliary power unit (APU) or as inexpensive as a screwdriver.

Miscellaneous; I will be listing resources, definitions, and anything else I think might be helpful or informative. I will try to do all this in a simple, easy to understand way, with a little experience, and (I hope) humor thrown in to make a boring subject a little less so I hope to give you enough information so you can make an informed decision about starting your own business, for that is what you are doing when you become an owner operator. You aren't just becoming a truck driver, but a businessperson. Maybe after reading this, you will decide to not to become an owner operator, but a company driver instead-- or maybe even find another profession.

Two of the main reasons a lot of people say they want to become an owner operator is: to make a lot of money, and to be their own boss. As I stated earlier, you will not make a lot of money, and very few people are their own boss. Sure, you have more freedom to make decisions when you are a tractor trailer owner operator, but everyone has a "boss", of one sort or another.  Mainly, those in long haul trucking has the shipper as their "boss".  The shipper tells you when they expect a load to be picked up, when it is to be delivered, under what conditions it is to be shipped (tarped, refrigerated, on an air ride trailer, etc.).  If you don't follow through in a professional manner, you may get a second load, but you probably won't get a third. You may be thinking, "Well I am going to lease to a company, I don't have to worry about that." You would be wrong.  Your company may be the one giving you the information, but it is the shipper who has the ultimate say. My next post will be: Income and Expenses 

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I am sorry I have to do this, but due to spam "comments"  I feel I need to moderate comments from now on.
I am sorry for any inconvenience this may cause to my legitimate commenters.

FAQ for the Owner Operator - Top 10


Top 10 FAQ
(Frequently Asked Questions) 


Here are the "short and sweet" answers to some of the most popular questions.  For details to these answers and a lot more information, read the appropriate post. 

1.  Q:  Can being an owner operator make you a millionaire?
A:  No.  Probably not, although there is always an exception. If you operate your business correctly, you can make enough for it to support you. 

2 :  How much does it cost to start an owner operator business?
A:  There is no set answer to this.  It depends on the equipment you buy (new or used?), what states you run in, and whether you lease on to a company, or have your own authority.  If you lease to a company, it depends on what they pay for (permits, fuel taxes, etc.).  It depends on whether you (or your spouse) does your own bookkeeping, or if you need to hire an accountant.

You need approximately 10% to 20% down payment for your tractor and trailer.  If you are buying your own permits, you have to pay for them upfront.  Insurance companies want from 1 month to 3 months worth of payments in advance.

If you buy used equipment, what does it need before you can put it on the road?  Does it need tires? brakes? other repairs?  If you are leasing your truck to a carrier, you may be able to charge your fuel, but if you have to buy you own, you will need to pay for that before you can haul a load (200 - 300 gallons of fuel times $4.00 or more per gallon (as of August 2013).

If you are getting your own authority, you need to pay for that. Whether you are getting your own authority or not, you will have to pay for business licenses, and equipment licenses. 

3. Q:  How much does an owner operator make?
4. Q:  How much does a company pay an owner operator?
5. Q:  What is the average net income of an owner operator?
6. Q:  How much per mile should an owner operator get?
A:  What do you mean by "make"?  Do you mean gross or net?  Are you talking about being paid by the mile, or percentage?

Loads can pay anywhere from $1.00 to over $3.00 per mile gross, to the truck, but a good average figure to use is $1.50 per mile (I wouldn't run for less than that, but you need to make more per mile than your expenses per mile).

If you are leased to a company that pays a percentage, the average ranges from 65% to 75% of the freight bill.  (You still need to figure how much that translates to per mile.)  It also depends on what you haul.  The average net income is about ¼ of your gross (fuel will cost you about 40-50% of your gross).

You need to know if the carrier you will be leasing your equipment to will pay for deadhead miles (empty miles: running without a load - such as going from a delivery point to a pick up point). 

7. Q:  What is a good business plan?
A:  There is no set rule for a business plan.  A business plan is really a blueprint for what you expect your business to be financially.  What it needs to do is show a realistic income, and expenses.  This needs to be based on research.  You can't just go to a bank and say, "I can make $2.00 a mile, run 175,000 miles a year, and I will have $20,000 in expenses.  You need to show where these figures came from.  You need to break down your expenses (start up costs: down payments, licenses, permits), and ongoing expenses (insurance, fuel, maintenance).  This needs to laid out in a logical, easy-to-read and -understand manner.  Keep in mind that most bankers don't know anything about the trucking industry, so add supporting documents to show what you are talking about.  You might even want to add a "glossary" page, as some of the terms you will use will be unfamiliar to the financial officer.  Put everything you want them to know on paper, as you may not have the opportunity to speak to a person and explain what you mean. 

8. Q:  What kind of insurance do I need and how much will it cost me?
A:  It depends on whether you have your own authority or are leased to a company.  If you have your own authority, you will need to buy all of your own insurance.  If you are leased to a company, they will cover what is needed for a carrier, but you will probably have to buy a minimum of bobtail and liability.  If your equipment is financed, you will probably need additional coverage.  How much will it cost?  Just like your car insurance, prices vary depending on who you insure with and what type of insurance you need.  A minimum cost will be at least $1,500.00 a year, and can run to $10,000 a year if you have your own authority. 

9. Q:  Is now a good time to become an owner operator?
A:  Unless you really know what you are doing, probably not. 

10. Q:  How much do I need to have in the bank before I become an owner operator?
A:  Lots!  In addition to the cost of equipment (down payment, getting it road ready before putting it in operation), insurance, permits and other expenses, you need to have enough to live on until you start turning a profit, and you need to have enough to pay for a major breakdown (and to live on while your truck is being repaired).  You need at least enough for your first month's equipment payment(s).

You should have at a minimum enough to operate on and live on for at least two months. 

Have other questions not covered in this blog?  Add a comment.  I check this blog almost every day and I will try to answer quickly.

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I am sorry I have to do this, but due to spam "comments"  I feel I need to moderate comments from now on.
I am sorry for any inconvenience this may cause to my legitimate commenters.

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