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?

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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.

2) Owner Operator Income and Expenses

96 Kenworth

Becoming An Owner Operator

2) Income and Expenses

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
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

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.

1) Owner Operator 411 - Welcome

  2001 Kenworth T600

Becoming an Owner Operator

1) Welcome to Owner-Operator 411

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 Operato
Pictures
Anti-Idling Regulations
Definitions and Industry Terms
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."  There 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  Be sure to subscribe to this blog to get the latest and newest information.

Interactive Cost per Mile (CPM) Calculator to Aid the Owner Operator

How Much Does an Owner Operator Make?

Interactive CPM Calculator 

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
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

To use: Just fill in the boxes on the lower part of the chart. The results will automatically fill in the boxes on the upper part of the chart. Depending on what you enter, the results can give you your Cost per Mile, Cost per Day, Income per Mile, Income per Day, Expense per Mile, Expense per Day, Net per Mile, Net per Day, Average Miles per Day and your Expenses to Income percentage.

You can enter actual amounts if you already have a truck (useful when doing your taxes, too), or you can play around putting in different figures to see "What If?", as in "What if I paid off my truck?" or "What if the price of fuel goes up (or down)?" 

If you are wanting information about becoming an owner operator, you probably want to know how much much it will cost you to get started, and how much money you will make, or even if you can make money if you buy your own equipment.

These are all good questions that need answered before you take the plunge and spend all that money on a tractor trailer rig. I have developed a Cost Per Mile (CPM) calculator to help you answer these questions.

After you get a good grip on your initial outlay, this calculator will help you with the numbers you will need to write a business plan for when you go to the bank to get financing.

These are questions no one can give you a dollar amount on. It depends on many factors and variables (see previous posts). You need to determine how much you will be paying for your truck, find out how much your insurance payments will be, and find out how much loads pay at the company you want to lease to. You need to figure in all expenses, including Miscellaneous (paper towels, glass cleaner, etc.). 

Enter these amounts in the spreadsheet and you will get a rough answer to the questions above.
 
If you are thinking of getting your own authority, then this spreadsheet will help you determine how much you would need to charge to haul each load.
 
You need to talk with other owner operators (see “Income and Expenses” post). You need to determine what you will be hauling, and to where. You need to find out approximately how much these loads pay. If you are going to lease to a company, you need to find out what expenses they will pay and what expenses you will need to pay (taxes, permits, etc.). Do they pay a fuel surcharge?
You need to get a rough estimate of what other expenses you will have: truck/trailer payment, licenses, permits, insurance, cell phone, accountant, etc.
What else are you going to have to buy? Will you need tarps, chains and binders? What about straps or load jacks and hand tools?
 
If you don't even know what some of this stuff is, then you need to ask more questions and talk with more drivers.   Be sure to ask your questions in the comment section.
 
You need to determine about how many miles a year you will have to run to deliver the loads the lease company contracts for, and how many days you will be on the road.
 
After you get all of these numbers, then it is time to use the calculator.

Be sure to subscribe to this blog to get the latest and newest information.
 
I am interested in knowing if you found this calculator useful.

Please CLICK HERE to open, not on the chart below. Interactive CPM spreadsheet by Google (Will open in a new window):

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