Despite the tough competition in the trucking industry, it’s still a profitable venture. As such, many small business owners pour their capital into it and work as an owner-operator. However, like any business, there’s a lengthy lag between the time you invested your capital and the time you’d see profits. And that in-between period is crucial.
When your business operates, your fleet would start incurring expenses that can rack up the costs in your financial statements. Often, trucking owners are surprised to see how much they’ve spent for a specific period. No business owner wants to feel shocked by their costs, as though they have no control over it.
But by learning how to manage the costs in your business, including the small, everyday ones, you can reduce the unexpected figures and anticipate higher profits. In addition, it would help to hire reliable accounting services for truck drivers. Such uses technology that allows drivers to submit their receipts while on the road. In turn, the business’s profit and loss statement will be updated in real-time.
Besides that, here are the rest of the ways to manage your small trucking business’s costs:
Monitor Fuel Consumption
Fuel, specifically diesel, is the largest operating expense in a trucking business. A commercial truck can accumulate over $70,000 of diesel fuel per year. As the cost of diesel rises, some small owner-operators with limited financial liberty find themselves struggling to continue. But you can minimize your fleet’s diesel consumption.
Planning your routes is key. Figure out the most efficient routes for transport and stick to them. Keep your fleet in optimal condition, and invest in efficiency measures, like aerodynamic attachments.
Know the Costs Per Mile
You can compute your cost per mile once you get a clear picture of all your yearly expenses. To give you an example, the trucking industry incurs $1.38 per mile on average.
Fuel costs play a major role in the costs-per-mile calculation. By knowing your true fuel costs, and keeping them to a minimum, you’ll be able to control and predict your costs per mile as well. Taxes also play a role in this calculation, but we’ll delve into that later.
Save For Repairs and Maintenance
Maintenance costs are the topmost reason small trucking companies fail. Many truckers don’t know how much they need to save for regular truck upkeep and unexpected repairs. To give you an idea, repairs and maintenance cost $15,000 annually, on average. This amount commonly covers issues with line/air hoses, alternators, wiring, and brakes.
Naturally, the bigger your fleet is, the higher the maintenance and repair costs will be. But even a small fleet is a hefty investment. To save money, you may employ your own mechanics and maintenance personnel.
Track Labor Costs
You’re only exempt from labor costs if you run a one-truck company. Otherwise, you have to factor in drivers’ salaries and other labor expenses. Driver salary is the second-largest operating cost in a trucking business.
Standard commercial truck drivers are paid by the mile. Though they spend plenty of time in docks and traffic, they only incur operating costs from the miles they traveled. Their salaries can make up 26% of overall expenses, or $0.36 costs per mile.
Some companies subcontract to independent drivers and pay them as a separate company. If you employ your own drivers, then you’re also responsible for their benefits and pensions.
Stay Updated with Taxes and Insurance
Federal fuel taxes cost $0.04 per mile, while state fuel taxes cost $0.03 per mile. The Tax Cuts and Jobs Act of 2017 will also affect owner-operators through 2025, with some rules changing or expiring.
As for insurance, multiple policies can cost more than $6,500 per year. There are 9 types of insurance for the trucking industry, including cargo insurance, liability insurance, and workers’ compensation insurance. Truckers usually pay more because of the safety risks involved in their operations.
Factor in Permits, Licenses, and Tolls
You’ll also incur these costs daily because of your long-distance deliveries. The required permits, licenses, and tolls may cost $3,600 every year. It’s also worth noting that trucks used within a single state are treated differently than trucks driven across state lines.
Consider Coffee Costs
Since truck drivers often work on ungodly hours, they need their caffeine fix while on the road. Truck stops, in fact, sell more than convenience stores. On average, a truck driver may spend $600 for coffee every year.
Your awareness of these major cost drivers will enable you to create a better profit plan. After all, you can’t just focus on revenues and expect that if they’re high, then you’d also swim in hefty profits. High revenues are ultimately unhelpful if too much costs are deducted from them. Therefore, track and control your expenses regularly, so that you can expect steep profits every period.