A trucking company that is not growing is essentially dying. Sooner or later, you will hit a wall where you cannot do anymore with your time. There are too many loads, too many negotiations, too much time purchasing assets. When that time comes, it’s time to expand your trucking business and add more trucks and trailers to your fleet.
Expanding Your Not-Fleet
Before we cover expanding your fleet, we must cover the details that don’t involve driving a truck. After all, chances are you got into this business to drive rather than push pencils in a back office, right? Hiring personnel to work at your base of operations and make sure your truck drivers do their jobs smoothly and effectively is just as important as having more trucks on the road. For more information on this, please check the chapter on Personnel.
The plans to obtain another truck may start years before anyone gets in the driver’s seat: to get a lease or loan for another truck, you will need to have set aside money to fund a down payment. The amount you need for a down payment, as a percentage of the total cost of the truck, varies depending on a variety of factors, most notably your credit score.
When obtaining a truck, you will most likely want to go with a used truck that is not too old. An older truck you pay less to purchase, but pay more for repairs and replacements later on. Finding a balance between these two factors is the key to making a wise purchase on any truck that is new to you.
If you need financing for a truck lease or loan, you can count on TopMark Funding to get you the capital you need to expand your business!
Utilize the Power of Section 179 to Save on Trucks
Without Section 179, business owners depreciate the value of an asset over many years, using a variety of accounting tricks. Section 179 allows a business to write-off the entirety of an asset’s value for the year of initial use, allowing the business owner to frontload the tax savings and effectively reduce the cost of purchase.
The amount a business may claim under Section 179 Deduction has an annual limit. The Tax Cuts and Jobs Act of 2017 (commonly known as the “Trump Tax Cuts”) increased the maximum tax savings of an individual business from $500,000 to $1,000,000.
If your business has a tax rate of 22%, you can use Section 179 to reduce your tax liability by up to 22% of the value of the truck you purchase! At the same time, you forfeit the depreciation write offs in later years, but it is a decent method to frontload the savings for a fledgling company of a small size.
It’s a bit more complicated than that, as tax law tends to be. For more details, see this article on the Section 179 Deduction.
There are a few methods for hiring people to drive your trucks. We will go over each source and list their strengths and weaknesses.
Friends and family are among the easiest to hire because living with them for a good portion of your life can tell you a lot more about their character and work ethic than any interview can. Do you have a friend you would trust with your life? Why not trust them with your second truck?
There are two noticeable downsides to hiring friends and family. First, they may not have the interest to do trucking, and even if they do, they might not have the relevant licensing. You can offer to pay for their training to help bring them aboard, but there is not much you can do about the former.
Secondly, hiring a friend or family member and then needing to fire them for any reason will make for awkward encounters later. Have a fun time explaining to your uncle next Thanksgiving that the reason you fired his son was because he constantly slept in until 10 AM.
Job boards can be another good source for hiring leads, but you compete with larger companies on these websites. You must ask yourself why someone with 3+ years of trucking experience would want to work for your fledgling company instead of a more well established one.
Groups on social media websites such as Facebook can help you find potential drivers, especially if the group is named along the lines of “Truckers Looking for Jobs.” This process tends to be more tacky than using a job board website, so make sure to screen candidates more carefully through this method via interview.
Check out our list of the best truck driver job boards
When you find a candidate you like, it’s time to have an interview. You can ask general basic questions every position gets asked in an interview (“Where do you see yourself in five years?”), but perhaps the best method for setting up interview questions is to figure out what you want to learn from the candidate, and then work a question out from there.
For example, if you want to find out if a driver values safety over efficiency, you can ask them what the best method is to stay awake on the road. If they say “getting a lot of quality sleep the night before”, that shows that they emphasize doing things the right way rather than using the shortcut of “coffee”.
When you are finished with your questions, make sure the interviewee gets to ask any questions he or she has, too. This is an interview for you as much as it is for them! Once you find the best candidate, call them back and offer them a job.
Unless the driver you hired is a walking catastrophe, replacing him or her with a new driver through starting the hiring process all over again will often be much more expensive than simply keeping them aboard. Trucker turnover is a major problem in the industry, a problem you would be best to avoid. For more information, read our chapter on Driver Retention.
While personnel turnover does not occur as often as driver turnover, it still pays to take proactive precautions to reduce the chances of quitting employees at the base, too.
As you hire employees, regulations will require you to carry worker’s compensation insurance. These policies help make sure you can pay for an employee’s injuries if they happen while on the job. Some insurance programs offer methods to reduce injuries and fraud. For more detail, see what we wrote on Commercial Truck Insurance.
Fleet Management Software
Thanks to modern technology, you can now know the geolocation of every one of your trucks. Not only can they reduce driver fraud when one of them decides to stop at Las Vegas for some gambling, but they can also track hours of service and alert you of any engine problems that may require attention. There are various software and hardware combinations out there.
One vital aspect to running a tight ship is to make sure you understand where money comes and where the money goes to measure the health of the business. You could hire an accountant or do it via pen and paper, but the best way to track everything is with an accounting software suite.
You can use a general accounting suite such as QuickBooks, or one tailored to the trucking industry such as Rigbooks. Specialized accounting software can tell you specific trucking statistics such as cost per mile automatically, but with general accounting software, you will still have to do some number crunching yourself. If you want to learn more about accounting, check out the relevant chapter in our book.
Factoring (but only when Necessary)
With all of this expanding, there are tons of expenses whose payments are due sooner rather than later, but your recent deliveries don’t pay for another 30, 60, or 90 days. You can utilize a factoring company to be paid the value of your invoice immediately, minus a percentage fee.
This percentage fee can eat into your margins very quickly, as the fee is based on the total cost of the invoice. If you drove for $2.00 per mile and you have a factoring fee of 5%, you effectively drove for $1.90 per mile.
If your use of factoring gets you money 90 days faster for a 5% fee, that’s approximately a 20% APR loan (the actual math is a lot more complicated and beyond this article, so for simplicity we use basic division to get close to the APR). 30 days, approximately 60% APR.
If you need cash to make payroll, fuel, and other immediate expenses, it often makes more sense to have a line of working capital. Borrowing money this way is much cheaper.
Does factoring have its uses? Yes, it can provide you money in fewer than 48 hours while other forms of financing can take longer. However, the price of factoring makes it a short term strategy for companies strapped for cash used to expand, not for luxuries.
Going Nationwide: Authority and Other Paperwork
If your business does not already have Authority, which is permission from the Federal Motor Carrier Association (FMCSA) and the Department of Transportation (DOT) to haul freight across state lines, you are crippling your business growth. For a more in depth analysis, you can check out our article which is the authority on Authority, but here is the abridged version:
- Certain goods being hauled are exempt. Check out the list.
- There are over ten different types of Authority. Apply for the right one(s).
- Applications for Authority require fees that are non-refundable. Make sure you are confident you will be approved before applying.
- You will need a USDOT number and process agents.
- Applying for Authority will cost a minimum of $300.
- Your proof of Authority comes in the form of a Motor Carrier number, given to you by the FMCSA.
After obtaining Authority, you must then pay the IRS Heavy Highway Vehicle Use Tax, and fulfill your International Fuel Tax Association and your International Registration Plan obligations. These international agreements might seem complicated, but they are certainly easier than having to deal directly with each individual state in which your trucks drive!
Changing Your Business Entity
If you are an owner-operator, there is a pretty good chance that your business is a sole proprietorship. This is for good reason: sole proprietorships are by far the easiest and cheapest business entity to establish.
As your business expands, however, one of the downsides of owning a sole proprietorship rears its ugly head: unlimited personal liability. If a driver your HR manager hired causes a spill on the highway, you might be three degrees separated from causing the accident, but all of your personal assets can be taken from you to pay for any damages.
A limited liability corporation (LLC) gives you the simple tax benefits of a sole proprietorship, while also providing you with limited liability: the most amount of money you can lose is only what you invest into the business. The downside to an LLC is there tends to be an annual fee and a lot more paperwork to establish your business as such.
You might also be interested in changing your business entity type to something else, like a limited partnership or a co-op. For more information, check out our article/chapter on forming a business plan.
Joining a trucker’s association is a great way to meet like minded individuals in pursuit of a common goal. There are associations on the state level, and on the national level. With at least one association for every state and a good handful of associations on the national level, there is sure to be one whose culture fits with your company.
Like being an owner-operator, owning a fleet of any size is a full-time job. Depending on who you hire, though, you can delegate tasks that need to be done to other people. Whether it is hiring another driver to increase revenue or a head of HR to manage future hires, your ability to plan growth effectively is the first step to going from owner-operator to the owner of your personal trucking empire.
ABOUT TOPMARK FUNDING
TopMark Funding is a top-rated truck financing and equipment financing company located in Roseville, CA. We specialize in commercial trucking and heavy equipment. Our mission is to become your long-term financial partner by helping you grow your trucking business and fleet.
We’re not here for the short-term, we’re on the long-haul with you!
Learn more about: How to Get Commercial Truck Financing
Fill out the contact form or give us a call at (866) 627-6644. One of our truck financing specialists will contact you as soon as possible to go over your truck lease needs and learn more about you and your business financing goals.