9) What You Actually Need to Get Started

 

1973 White Road Commander

 Becoming An Owner Operator

9) What You Actually Need to Get Started

View my Other Posts:

Blogs, Forums and Other Resources
Texting Ban
The Way it Was - A Short History of Trucking
Pro and Cons of Being an Owner Operator
FAQ for the Owner Operator
Pictures
Anti-Idling Regulations
Definitions and Industry Terms
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?
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
10) Truck Driving Schools

OK. You have done all of your research, and decided you really do want to become an owner operator.

Hopefully, you have:

• Read this entire blog
• Talked with other owner operators, especially at the company you want to lease on to.
• Run a "What If" with the Interactive Cost Per Mile Calculator and found you really could make a profit.  Not just a profit, but enough income to pay all of your expenses and to have enough to live on, too.  (Don't forget, you also need to save enough to cover repairs or a major breakdown and enough to live on while you are getting the work done.)
• Made a business plan.
• Gotten your family to support you.  You would be surprised how many people quit driving a truck because their family doesn't like for them to be away from home.
• Decided what kind of entity you want to have.
• Decided what you will be hauling so you can spec your equipment properly?
  Have you found a truck?  Do you need a trailer too?  If you are leasing to a company, many of them have requirements as to how old of truck they will lease.  Be sure to check it out before you buy.
• Made sure your equipment will pass a DOT, state and company inspection.
• Talked with a loan officer at the bank, credit union, or loan company that will financing your equipment to see what information they require, and to see if you can even get financing for your equipment?
• Figured out how you are going to get your Commercial Driver's License (CDL).  Will you be going to a truck driving school?  If not, do you know how you are going to take a road test?
• Found an accountant or tax professional and got a list of what you need to keep track of before you start buying equipment.
• Check out Owner-Operator Independent Drivers Association (OOIDA) for vast amounts of information.  As before, I recommend that if you do become an owner operator, that you join OOIDA (non owner operators can join, too).

I would advise you to get your CDL first.  If you can't pass your tests, it would be a shame if you had already bought a truck and/or trailer.  Then you would be stuck with having to try to sell them.

You do not have to go to a school to get a CDL.


You do have to take both a written test and a (skills) road test. If you can pass both, then you will be issued a license.


You may be able to rent a truck (tractor only) in which to take your road test.

Also, we tried to loan our truck to a friend to take his test in, and examiner giving the test wouldn't let him use our truck because he wasn't listed on our insurance. Don't forget, you have to take your road test in the "type of vehicle" you will be operating. In other words, you have to have a "Class A" type vehicle to get a Class A license.


In my state you must 'supply your own vehicle" and pay the road test examiner $75.00.


Also (any state) before you can even apply for a permit, you must have a long form DOT physical.  Cost depends on the doctor.


Don't forget, if you are applying for your own authority, you have to have a drug and alcohol program in place.  You will be required to have pre-employment  drug testing before you begin to operate your truck.  If you are leasing your truck to a company, they will probably handle the drug and alcohol testing.

After you decide what type of entity you will become (sole proprietor, partnership, LLC, corporation, etc.) you may have to get an Employer's Identification Number (EIN), also called a Federal Employer's Identification Number (FEIN).  It's FREE! and will be issued immediately if you apply online. If you will be a sole proprietor, your EIN will be your social security number, unless you will be hiring employees (including family members), then you will need an EIN.  All others will have to file a IRS Form SS4, or file online at Employer ID Number (EIN).  See: 6) How to Do Bookkeeping and Other Necessary Paperwork Permits and Taxes for more information about sole proprietorships, partnerships, spousal partnerships, employees,and more.

After you get your federal EIN, you will have to apply for a business license with your home state.  (If you are going to be a sole proprietor, you will apply using your social security number, unless you will have employees - then you need an EIN.)  You may also have to apply for a business license with your county (parish), and/or city.  If you are going to be a LLC (limited liability company or LLP (limited liability partnership) then you will also need to have liability insurance.

Are you going to be leasing to a company or getting your own authority?  If you are applying for your own authority, you have to have a USDOT number.

Will you be operating intrastate or interstate? (intrastate is within one state only, interstate is operating in more than one state).

Will you be hauling hazardous materials (hazmat)?  Then you need a hazmat endorsement (any state).  You will also need to have a background check and be fingerprinted and get a Hazmat Endorsement Threat Assessment.  Go to Transportation Security Administration for details.  Cost is $86.50.  It is valid for 5 years, unless you transfer (to another state), upgrade (add endorsements), or renew a license, then you need to go through (and pay) all of this again.  You also need to be fingerprinted.

If you will be loading or unloading at ports, you will need a Transportation Worker Identification Credential (TWIC).  You can get information about this at Transportation Security Administration - TWIC.  The cost is $132.50 and is valid for 5 years.


If you plan to operate in Canada or Mexico, you will also need a passport.  Passport Forms. If you travel internationally often, you may be eligible for a FAST: (Free and Secure Trade) card for commercial vehicles.

The answer to each of these questions determines what you need to apply for.  Go to Federal Motor Carrier Safety Administration (FMCSA) Getting Started with Registration for a matrix (list) of the required forms, and to apply online.

You will, of course, need license plates for your tractor and your trailer (if you are purchasing both).  Contact your state Department of Motor Vehicles to find out how to apply.  Unless you are applying for license plates within 30 days of your purchase of your tractor, you will need a copy of IRS Form 2290, Heavy Highway Vehicle Use Tax Return, showing you paid your road use taxes. This is an annual fee.  It is  $550.00 a year for an 80,000 pound vehicle (except logging.) This is prorated if you buy a truck during the course of the tax year, which is 01 July to 30 June.

The type of trucking insurance you need will depend on whether you are leased to a company or have your own operating authority, what type of goods you will be hauling, and whether your equipment is financed or paid for.  Be sure to read all of the pages at the FMCSA website.  Join OOIDA ($45 a year) and they will give you all the help you need to decide what kind of insurance you need.  You can even purchase it from them.  Just as with your personal vehicle insurance, your driving record, type of vehicle and the company you buy from will determine the cost

If you are leasing your truck to a company, you may also be required to be fingerprinted, buy Occupational Accident Insurance, and/or Worker's Compensation Insurance.

I know that everyone reading this wanted a nice, neat little list of what you need and how to get it, and how much it would cost.  As you can see, however, there are so many variables, it is impossible for me to tell you exactly what you need.  In addition to the federal requirements, each state has their own rules.

The costs are also impossible to calculate without knowing exactly who, what, where, why and how, but here is a rough list:

• Money to pay for a truck driving school, if you are going to go to one
• Down payment(s) for your equipment.
• Licenses
• Permits
• Insurance
• Enough money to operate until you get your first settlement check
• Enough money to live on until you get your first settlement check.  I would recommend having enough for at least 2-6 months 
• Money put up for breakdowns (it could happen on your first trip)

If you need to buy products (training manuals or safety and compliance tools), J. J. Keller is a good source for safety and regulatory compliance products and services that help you increase safety awareness, reduce risk, follow best practices, and stay current with changing regulations.  They are used by most of the large trucking companies.

I hope this has helped you.  I would be interested in your comments.  Let me know if you think this has been useful.  If you need information about something I didn't cover, let me know, and I will update this.

Read my other posts for details and resources for of some of the information in this post.
 

Be sure to subscribe to this blog to get the latest information, as I keep updating this site.

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:

Blogs, Forums and Other Resources
Texting Ban
The Way it Was - A Short History of Trucking
Pro and Cons of Being an Owner Operator
FAQ for the Owner Operator
Pictures
Anti-Idling Regulations
Definitions and Industry Terms
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.

When I first wrote this blog, the economy was in the tank.  Fortunately, things are much better now, and carriers are looking for OOs to lease on with them, and freight is more available for those with their own authority.  Unfortunately, freight rates hasn't kept pace with the cost of doing business.  There are good loads to be had, but you have to be diligent in finding them.

DON'T HAUL CHEAP FREIGHT !!

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.

Next post: Operating Authority or Leasing?

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.

FAQ for the Owner Operator - Top 10

Top 10 FAQ

(Frequently Asked Questions) 

See my other posts:

Blogs, Forums and Other Resources
Texting Ban
The Way it Was - A Short History of Trucking
Pro and Cons of Being an Owner Operator
Anti-Idling Regulations
Definitions and Industry Terms
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?
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

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 $2.50 to $3.50 or more per gallon, as of December 2018).

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). Ideally, you shouldn't have to run for less than $2.00 a 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, but the economy is improving.

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.

My eBook details all of this information, and can be purchased

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