The State of the Small Trucking Company – How They Can Survive the First Year in Business?
Many new trucking companies close their doors within the first year of operation. Why? There are many causes such as growing too quickly; not meeting CSA requirements before hauling freight; not having enough liability or cargo insurance; and not fully understanding their true cost per mile and underbidding freight at a loss. These are just a few of the common mistakes that I’ve seen carriers make and as a result I’ve seen a huge number of them close their doors before their first anniversary. How can you avoid these same mistakes?
Growing Too Quickly
Running a small fleet is a daily challenge that requires patience, organization and hard work. However, many owners jump out and hire too many people to help them through this process. Hiring people is usually the single largest expense to a company – in trucking it is usually only surpassed by fuel costs. Outsourcing simple tasks will allow you to focus on your core competency, hauling freight. Good examples of items that can be outsourced: back-office functions, fuel cards, payroll processing, human resources and marketing. Most of these services can be handled by experts at a much cheaper rate while also ensuring that your meeting all state and federal guidelines related to these functions.
Before hiring paid staff members make sure that you’re current staff is overwhelmed and often working overtime. Take one extra cautionary step and ask them to outline all of their tasks for the week outlining how much time they spend on each task. Ask yourself, are these tasks essential to meeting our goals? Can we eliminate this task? Can we outsource this task? The answers to these questions will force you into a discipline so that you don’t outspend your revenue.
Not Meeting “New Entrant” CSA Guidelines
Many new fleets understand that they will be monitored during the initial “New Entrant” period of 18 months. The “New Entrant” guidelines state that all new fleets filing for DOT registration WILL BE audited within the first 18 months. Most “New Entrants” assume this means that they have 18 months to meet all of the guidelines before they are audited. However, a closer look at the guidelines states, “within” the first 18 months. I’ve known many fleets that were audited on month 3 and were shut down for 30 days until they met all of the requirements. This temporary shut-down almost always results in bankruptcy. By this time, the fleet has trucks rolling which means they have expenses adding up but yet may not have cash-flow solidly coming in the door. A 30 day shut-down could bring everything tumbling out of control. “New Entrants” will AUTOMATICALLY FAIL the CSA Safety audit for the following violations:
Alcohol and Drug Violations
- No alcohol and/or drug testing program.
- No RANDOM alcohol and/or drug testing program.
- Using a driver who refused a required alcohol or drug test.
- Using a driver the company knows had a blood alcohol content of 0.04 or greater.
- Using a driver who failed to complete required follow-up procedures after testing positive for drugs.
Driver Violations
A New Entrant fails the Safety Audit for knowingly:
- Using a driver without a valid CDL.
- Using a disqualified driver.
- Using a driver with a revoked, suspended, or cancelled CDL.
- Using a medically unqualified driver.
Operations Violations
- Operating a motor vehicle without having in effect the required level of insurance.
- Failing to require drivers to make hours-of-service records.
Repairs and Inspections Violations
- Operating a vehicle declared Out-of-Service for safety deficiencies before repairs are made.
- Not performing OOS repairs reported in driver-vehicle inspection reports (DVIRs).
- Operating a CMV not periodically inspected.
Ensure that your fleet is meeting all of these guidelines to avoid temporary or permanent shut down or something worse. For a full list of carrier requirements please check out:
www.fmcsa.dot.gov/new-entrant-safety-assurance-program
Not Having Enough Insurance Coverage
Most fleets realize that they need auto liability and cargo insurance and most fleets generally meet the base guidelines. However, it’s also important to ensure that your fleet has physical damage coverage for non-owned trailers and general liability protecting your drivers or others when the truck is not involved. Such as customers slipping or falling on your premises; erroneous delivery of products resulting in damage; actions of a driver while representing the insured and on the premises of others like loading docks, truck stops; etc. Some fleets based on size and type may also need Workers Compensation coverage – too many fleets are not carrying enough in this area. The result of not having enough or the proper insurance has left many fleets with the inability to pay for damages; they just purchased enough to meet the minimum requirements and didn’t fully understand the long-term effects of their decisions.
Not Understanding Your True Costs Per Mile
There are many sources available on the internet dedicated to helping small companies to identify their true costs per mile. They all start with the general understanding of both your fixed and variable costs to operate your business. Fixed costs are generally those expenses you would incur even if your truck is sitting idle in the parking lot. Items such as the truck payment, insurance, building rent, etc. Variable costs are associated with those items that you spend on to move a load like fuel, tires, maintenance. The cost per mile and other financial reports are a good barometer for measuring the financial health of your business. It is advisable to understand your basic cost per mile based on the annual mileage and annual expenses both fixed and variables for all of your vehicles. The simple calculation is to divide the annual costs by the number of miles run in the year. The challenge is to accurately allocate ALL of the expenses – the key reason many fleets don’t survive. All too often, new fleets do NOT take the time to understand their expenses, document their expenses and then fully understand their cost per mile. As a rule they then accept nearly any rate just to get a load. Over time this model gets them upside down with their cash flow and before long bills aren’t getting paid, drivers aren’t making the amount of money they need and the entire business starts to collapse from within.
Running a successful trucking company that will survive the first year and beyond requires discipline and dedication to following basic business practices. Ask yourself the hard questions up front, seek out those in the industry that have the heart of a teacher and learn to establish key measurements that provide you with indications that something is amiss before it becomes a total catastrophe. While the regulations seem to never end running a successful trucking company can be done and can be done with greatness, take the extra measures to ensure yours is one of the survivors.
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