Sunday, August 15, 2021

How to Start a Trucking Business

If you’re an experienced truck driver, you may wish to go it alone and become an owner-operator or even operate your own fleet. 

The good news is, the outlook is promising for the American trucking industry: Trucks move 72.5% of US freight, and trucking’s revenue accounts for 80.4% of the nation’s freight.

The not-so-good news is that trucking isn’t the easiest industry to start a business in. There are a lot of steps you need to take and many legal requirements. 

But don’t worry, this guide will walk you through every step of starting a trucking business.

The Easy Parts of Starting a Trucking Business

With insider industry knowledge and the right tools at your disposal, you’ll be off to an amazing start. These are the aspects that make starting your own trucking company easy:

Drawing on Your Experience

You may already have a lot of the groundwork covered if you’ve been working in the industry as an employee for a while. You’ve got the tricks of the trade down, which in turn you can pass on to future employees. 

If you’re astute you may have also watched and learned from the way management runs the business. You may already have made some industry connections that you can utilize, too.

And even some of the simpler things will help you on your way to starting your own trucking business. For example, the fact that you already have a commercial driver’s license (CDL).

Forming an LLC

Given the hazardous nature of the trucking industry, you’ll need to form an LLC. This kind of business structure means that the business is responsible for any losses or legal claims and not you personally.

There are several steps, and lots of paperwork, involved in forming an LLC. But if you find the process intimidating and can’t afford to hire a lawyer, then you can use an LLC formation service.

One excellent example is Incfile. The company files your LLC documents for free and even offers a free registered agent service for one year.

The Difficult Parts of Starting a Trucking Business

Starting a trucking company may not be entirely smooth sailing. Here are some of the more complex aspects:

Permits and Licenses

There are several permits and licenses you must acquire to operate a trucking business. It can be time-consuming and quite a hassle. Plus, it takes careful research to know exactly which permits you need for the states you operate in and the freight you work with.

Managing Finances

From insurance to fuel costs, there’s a lot to keep track of when doing the books for a trucking business. Add to this the fact that if you’re an owner-operator, you might need to operate your business while you’re on the road. 

The way in which shipping contracts work can also lead to cash flow problems if you’re not careful. Though we have outlined some solutions to these issues later in this guide.

Step 1: Lay the Foundations

These fundamentals govern the next steps you’ll take in starting your trucking business, e.g. the markets you’ll work in, what equipment you need for those markets, how much profit you’ll gain from these markets, and so on.

Choose a Niche

You need to choose the niche you’ll target when you launch your trucking business. It’s one of the first key steps. This is because the niche you choose may impact the equipment you buy, your rates, and your routes.

As a small fleet owner or owner-operator, it’s a good idea to pick a specialized niche, at least to begin with. For example, you might haul refrigerated goods, electronics, fluids, or cattle.

Specialized niches are less competitive so you’re more likely to bag your first customers. And you don’t have to worry about fighting with large carriers to get gigs.

You may also want to see what’s transported on the freight lanes close to your home base. Then pick the more specialized loads from those offerings.

Set Your Rates

The next thing to do is work out what to charge per mile. You’ll be able to use this information to estimate your profits once you get going. And you’ll have solid numbers to provide to potential customers, which is not only professional but necessary to get jobs.

One way to make sure your rates are competitive is to see what others charge. You can use an online load board to find examples. 

Go through the details of the loads on your chosen freight lanes and in your chosen niche. Many display the rate so you can calculate the average per-mile rate from, say, ten similar loads.

Bear in mind that many of these boards are run by brokers rather than shippers. If you hope to work directly with shippers (which you should do) consider the broker’s markup which may be around 15-20% when you calculate your per-mile rate.

Calculate Operating Costs

Naturally, you need to work out your operating costs to see if you’ll make a profit with your business. If your profit calculations are not to your liking then you can adjust your business model by choosing a different market or freight lane, for example. 

First, there are fixed monthly costs you’ll need to pay, e.g. truck payments, insurance, and the like. There are also variable costs to take into account, such as fuel. Bring these costs together and divide them by the number of miles you’ll travel each month to figure out your operating costs per mile.

Step 2: Take Care of the Formalities

Given the nature of the trucking industry, it’s particularly important that you take care of your legal and financial needs and requirements. You don’t want to be slapped with heavy fees if something goes wrong.

Form an LLC

Forming a limited liability company (LLC) provides personal liability cover among other benefits, such as tax efficiency. Trucking can be a hazardous business so this will come in handy.

To start with you’ll need to file articles of organization, create an operating agreement, and appoint a registered agent. Then you’ll need to maintain your LLC by filing annual reports. 

The process is further complicated in that you’ll need to register your LLC in any other states you plan to do business in. This is, of course, very likely as you’ll no doubt haul goods across multiple states. 

Given the complexities, you may wish to use an LLC formation service that can take care of all the legal documents for you.

Get Licenses and Permits

All trucking companies require a number of state and federal licenses and permits to operate legally:

  • A commercial driver’s license (CDL) – you may already have this if you worked for a trucking company previously. 
  • A Motor Carrier Operating Authority (MC) number – if you plan to transport federally regulated commodities.
  • A USDOT number – a unique identifier the Federal Motor Carrier Safety Administration (FMCSA) uses for audits and investigations.
  • A BOC-3 Filing – to assign a process agent in each state the company operates who will accept legal documents on behalf of the company.
  • An International Registration Plan (IRP) and IFTA (International Fuel Tax Agreement) decal – if you plan to haul goods in other countries.

You should check with the relevant state licensing agencies to see if there are further licenses and permits you need.

Get Insurance

In certain cases, the FMCSA requires general liability and cargo insurance before it’ll issue licenses. The level of insurance you need depends on the type and weight of the freight you intend to carry.

But, it’s a good idea to get general liability and cargo insurance anyway to cover the costs if you run into any issues. Your insurance should cover property damage, medical payments, and legal payments.

Note that some trucking companies get their general liability insurance at a discounted rate as part of a business owner’s policy. Other types of insurance you may wish to research include commercial auto insurance and workers’ compensation insurance. 

Step 3: Set Up Your Trucking Business

Setting up your business is obviously a lot more exciting than filling in forms and taking care of the legal stuff. But acquiring the right assets and getting customers on board is still hard work. So we’ve put together some useful advice:

Get Funding

If you don’t have the startup costs for your new business, you may need to seek funding. You can expect to invest $10,000 to $20,000 in a trucking business if you plan to buy equipment. This also takes into account business registration fees, insurance down payments, and ongoing costs.

One fantastic option for securing funding is a US Small Business Administration (SBA) loan. The administration offers a guarantee to lenders so that a percentage of the repayments are covered even if your business fails to make payment. This gives security to both you and the lender, thus making it easier to get funding from lenders.

Source Equipment

If you can’t get funding or don’t want to take out a loan, you may consider leasing a truck. You could also opt for a lease-to-own agreement in which part of your monthly payments goes toward buying the truck.

When it comes to buying a truck (or trucks), always opt for quality over cheapness. The reason being you could end up paying more in maintenance and breakdown costs in the long run.

This doesn’t mean you can’t buy second-hand. Just make sure the truck is less than five years old with fewer than 600,000 miles on the clock.

The trailer(s) you purchase will depend on the freight you plan to transport. For instance, you might be looking for a dry van, flatbed, car carrier, or refrigerated trailer.

Acquire Customers

An easy way to pick up jobs is via online load boards. However, as mentioned above, these are usually run by brokers that take a fee.

You can start out this way to begin building connections and keep the business running. But the ultimate goal is to cut out the middle person and work with shippers directly. Then your trucking company gets all the profit.

Get the attention of shipping companies through marketing and networking. Reach out to local shippers and form relationships at local industry events and trade shows. 

Step 4: Run a Successful Business

Naturally, the work doesn’t stop once you have everything set up. You need to manage your business efficiently and effectively.

Manage Your Business Efficiently

If you’ve got the time and skills, you can, of course, manage your business yourself. As an owner-operator, you may even do this from the cabin of your truck as long as you have a solid Internet connection and some business management software.

Alternatively, you can work with a dispatch service. They cover a lot of the legwork involved in managing a trucking company and keep your business running efficiently. 

They can find loads, negotiate deals, and take care of billing on your behalf. The service also might assign work to drivers and manage employees.

Manage Your Finances Effectively

It’s important you maintain records of your income and expenses. It’ll help you chart the growth of your business, work out where you can make savings, and more.

The simplest way to do this is to use small business accounting software. You can use it to make and receive payments online, pay members of your fleet, set up payment reminders, and so on.

Another aspect you need to keep in mind when running a trucking company is that payments from shipping contracts usually take 30 to 90 days to come through after delivery. So you have to plan for this in advance to avoid cash flow problems. Another option is to work with a freight factoring company that pays your invoice the day you submit it but takes a fee.



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