Should you start your own trucking business? Is this a good opportunity for an entrepreneur to create a thriving business? If you’re asking these types of questions, you’ve probably heard that freight businesses can be lucrative.
The way to get the most reliable answers to your questions is to do some heavy research. On one hand, trucking could be profitable because there is a lot of demand for it since commercials goods need to be moved from one city to another and from one state to another all the time. On the other hand, it can be challenging to build a successful business because there is also a lot of competition.
What to Research
Here are 3 things you’ll need to research before starting your own business:
- Research how you will finance your business.
Naturally, all businesses need to get a loan or raise money to start, but things are slightly more complicated with a trucking business –clients expect you to extend 30 to 60 days of credit. This means that you will not get paid after you make a delivery until the invoice date comes due. This delay will make it difficult for your company to manage its overheads—paying truckers, fuel costs, administration staff, office rent, utilities, and so on.
While you could get a larger loan to offset this inconvenience, it’s only a temporary fix. If a client is late in paying or doesn’t pay at all, it’s easy for your costs to spiral out of control when cash outflow begins t exceed cash inflow. If you refuse to provide clients with credit or offer stricter terms of credit than your competitors, then you won’t get enough clients to stay in business.
One way to overcome this negative cash flow is to contact a factoring business like TBS factoring. Factoring is a financial transaction where your business sells your accounts receivables (your invoices) to a third party (a factor business) at a discount. By factoring your receivable assets, you’ll be able to avoid negative cash flow because you’ll have a way to meet immediate cash flow needs.
- Research how you will operate your business.
Once you’ve worked out the financial questions on how to fund and run your business, the next thing you need to think about is how you will operate your business. Your key decisions will include whether you should sub-contract drivers or hire your own drivers.
If you subcontract drivers, you will still receive the contracts and run the business, but you won’t employ the drivers, who will work for you on the legal basis of an independent contractor agreement. The upside is that you will not have to be concerned about operating, insurance, and equipment costs. The downside is that you will earn a much smaller profit and will have no direct control on the drivers pace of work, schedule, or quality of work.
If you hire your own drivers, you will have complete say over how you run the business. The upside is that you will have a much larger share of the profits. The downside is that you will have to pay for all the various business costs. This option is possible only if you can raise enough capital to build and operate your business.
3.Research how you will market your business.
You now need to research where demand for your trucking business is highest and competition is lowest. You also have to figure out how to niche down your business, rather than take on any type of client who needs freight transported. The more you can niche down your business, the more your business will stand out from the competition. Since you offer specialization, you will attract clients looking for the highest quality of work and this makes it possible to charge higher rates.
How to Create Your Business
If you do decide to start a business, then you need to follow the following 7 steps:
- Create a business plan.
- Determine the legal structure of your business and meet federal and state requirements for a business entity.
- Finance your business smartly, arranging for a startup loan, getting capital from investors, and factoring.
- Rent an office or facility, buy equipment, and hire employees.
- Set up business administration processes, including bookkeeping, accounting, and tax compliance.
- Comply with all trucking industry regulations with the right forms, licenses, and permits. For instance: Federal DOT Number and Motor Carrier Authority Number, Heavy Use Tax Form (2290)’, International Registration Plan (IRP) Tag’ International Fuel Tax Agreement (IFTA) Decal’, and BOC-3 Filing .
- Get all the required insurance to protect your business. This will be more expensive than for most other types of businesses.
Minimize Risk to Maximize Reward
Since the upfront costs are high and there are many things you need to learn to manage in order to run a successful business, it’s advisable to start small and grow your business over time.