I talk to a lot of carriers every day. Some of them own just one truck, while others run fleets. I used to think that if you had been in the trucking business for any length of time and you ran a few trucks, you would have figured out that to be profitable, you needed to know what numbers to hit on a weekly and monthly basis. If you are a financial geek like me, you know what it cost to run those trucks down to the day-to-day expenses, and the gross revenue you need to bring in each day to be profitable. It blows my mind how many carriers have no clue what their weekly or monthly revenue targets are, and if they are on track, falling behind, or beating their goals; it blows my mind how many have no goals at all!
If you don’t know, and you are going through the motions every day just to pay the bills, I have to question your sanity. After all, the car hauling industry is not rainbows and butterflies by any means; if you are going to be in this business, with its pressures and stresses, I hope that you are turning at least a modest profit, if not a robust and healthy one. That is the way to eventually get you out of the truck and back home doing the things you love to do.
High Overhead, Low Margins
The transportation industry has always had high overhead and low margins. Threats of increases to major expenses such as fuel, labor, and insurance haunt every business owner in the industry. But the car hauling industry has its own, special threat: rate cutting. Rate cutting in the car hauling industry has gotten out of hand. Volume is good if you can keep a decent margin, but carriers sometimes cut margins extremely low just to win the bid war, and it will prove to be a bad choice in the long run. Those who pay attention to our industry news will start to see large fleets shutting down as a result of the downward pressure on rates at the first sign of any economic slowdown.
So, to be successful in a more sustainable manner, you need to understand what the cost of doing business is for you and your fleet. Once you understand your true cost, you can reasonably shoot for a revenue target on a weekly or monthly basis that will not only pay the bills but allow money to accumulate over time.
Our biggest challenges over the years have been juggling increases in cost, a shortage of drivers, and customers who are spoiled by other carriers undercharging them just to win their business. All of those challenges can be, and always are, overcome with a little bit of education and fine tuning to our business. Entrepreneurship means adapting to changes.
Profit and Loss
I am lucky enough to have spent 10 years analyzing the financial statements of public companies for a living, but believe it or not, many entrepreneurs do not know how to read a basic profit and loss or balance sheet. If they do, they don’t really understand the story it is telling. If this is you, don’t feel bad, because you are not alone. But now, I’m making sure that you have no excuse. Figure it out, read a book, google it, listen to an audiobook in the truck! Don’t just bury your head in your bunk, hoping and praying for better days. You can begin to tweak and tune your business toward profitability once you have a basic understanding of three things:
Income – Expenses = Profit (profit & loss)
Assets – Liabilities = Net Worth (balance sheet)
Cash in – Cash out = Net Cash (cashflow statement)
We are traditionally programmed to collect money, pay bills, and keep what is left over. Mike Michalowicz wrote a book called Profit First, which has changed the way I will do business forever, and has even changed the way I do my own personal finances. The moral of the book is to turn the traditional profit and loss formula on its head: take your profit first, and then pay your bills. Before I read this book, our accounting department collected money and paid bills in the same account. Money in, money out.
Every time we had a surplus of money it felt like we had money to spend. “Yea! Okay, let’s put lights on the trailer and get that bad ass bumper Michael always wanted on his new Pete!” At the end of the year, we were wondering where it all went. The profit first system has forced us to pay our bills on a diet, and is helping us accumulate assets for the right reasons in the right bank accounts. Give it a read. It will be the best money you ever spent. If you have never made an Audible account, you can even pick it up for free as your first audiobook. If you really don’t want to do that, at least check out this short video where he explains it and get the gist, for the good of your business and your family.
Break down what it costs to run each truck in your business. Account for everything, including maintenance, repairs, downtime for drivers time off, insurance premium balloon payments, all the little expenses that add up every month.
Determine what amount of gross revenue you need to bill in order to turn a modest 5-10% net profit (the transportation industry average). If you can achieve a higher margin, that’s amazing! Let me know how you did it. We are always looking to learn new things.
I hope this helps you get out of the hamster wheel and driving on a track to financial freedom.