The U.S. economy’s total trade volume is on the upswing, and 2018 continues to register positive growth in terms of the total tonnage of freight moved across the country by trucks.
In fact, the American Trucking Association (ATA) predicts that an additional 900,000 truck drivers will be needed to meet the growing freight demands. This trend is another good indicator of why it is a good idea for truck drivers to become an owner-operator and start running their very own trucking business.
The good news is that becoming an owner-operator isn’t as challenging. Here are five steps you can take to become a successful owner-operator.
Step 1: Self-evaluation
Before anything else, truck drivers need to make an unbiased and accurate assessment of their current standing — especially of their short- and long-term goals.
Are they financially ready to run their own trucking business? Do they have a method in place for consistently closing deals?
Other points for consideration are their health while on the road, their family or home time, or the adequacy of their knowledge regarding road regulations.
These are just some of the many questions they need to answer before deciding to become an owner-operator.
Being an experienced truck driver is, of course, an advantage. According to surveys, company drivers with 3 to 5 years of truck driving experience make the best candidates for venturing on their own since they’ve developed a feel for the industry.
If you believe you are the right candidate with the right combination of talent, drive, and grit, then you can begin your journey towards becoming an independent owner-operator.
Step 2: Getting started
To become a driver-operator, you first need to acquire the USDOT and MC numbers necessary to operate legally. Assuming you are already a holder of a U.S. Department of Transportation number, your next move is to secure an MC number.
You can click this link to request an MC number (Motor Carrier number).
Being in the business also requires you to be amply covered by health and truck insurances. To learn about the hows, wheres, and the requirements for your insurance coverage, you can click this link.
It’s also worth pointing out that the trucking industry is heavily regulated. In fact, your seamless transition from being a truck driver to an owner-operator can easily depend on whether or not you’re complying with road regulations.
In December of last year, the ELD mandate was implemented by the FMCSA. The federal rule requires non-exempt CMVs to install FMCSA-compliant electronic logging devices.
To avoid the unnecessary penalties and hefty fees associated with violating the mandate, we encourage you to purchase the KeepTruckin ELD solution.
Aside from being compliant with the FMCSA’s compliance standards, you get more value for your money because of the numerous fleet management features we have. These fleet management features are vital in optimizing your trucking operations, minimizing operational costs, reducing administrative burden and paperwork, and maximizing profit.
Becoming an independent owner-operator can be a bit overwhelming. However, if you have the right information, you can get a headstart that you definitely need. If you are interested in learning more about the processes you need to get right when you’re just starting, read our ultimate guide on starting a successful trucking business that has tons of valuable info and tips for you.
Step 3: Minimizing expenditures
With an average earning potential of $100,000 per year (after taxes and expenses), your trucking business is a bonanza waiting to happen for you and your family — if you play your cards right.
Remember that your goal as an independent owner-operator — as a trucking business owner — is to grow your profit. To do that, you will have to grow your revenue as well as minimize operational expenditures.
Deploying technological devices, compliance with various regulations, fuel expenditures, liabilities, poor driving habits, vehicle maintenance, insurance premiums, etc. are some of the biggest expenses that you will have to deal with.
There are, however, several strategies that you can use to minimize operational costs.
For example, to minimize fuel expenditures, stay within the 65 MPH speed limit instead of going faster. According to studies, you can improve your fuel efficiency by as much as 27% just by doing so. Additionally, vehicle idling also leads to fuel wastage and expenses. You can put a stop to idling by using the idle-time tracking feature in the KeepTruckin ELD Plus.
On the other hand, to rectify poor driving habits, we recommend using the driver scorecards feature. The KeepTruckin ELD automatically detects poor driving habits and critical events, such as hard braking, hard cornering, etc. to help you improve road safety and minimize potential liabilities.
Step 4: Getting the right trucks for the best price
The state of your finances will play an essential part in the acquisition of your trucking equipment.
As an independent owner-operator, your choices are clear: either buy your truck and trailer outright, which would require loads of cash, or acquire your assets through bank financing.
The majority of trucking startups take advantage of bank financing simply because of the substantial cost required to acquire equipment. The good news is that bank interest rates for truck financing average to about 1% a month (12% per annum).
So, two practical tips: First, take your time looking for the best truck deal you can find. Also, look for a bank with the lowest interest rates.
Second, as is the practice in the banking industry, the bigger your down payment on a truck purchase is, the lower your monthly payments will be. This is where you can score significant savings.
It is also worth mentioning that if you have a solid credit rating, banks will open their doors to you to address your additional financing needs. They may, however, be stringent in their loan requirements.
On the positive side, banks are not your only sources of additional capital. Take a look at the other financial options available for those interested in becoming an owner-operator.
Alternative funding sources:
1. Captive lending institutions.
Truck equipment manufacturers own these companies. They are often more receptive to lending to new owner-operators because they are into the business of selling trucks.
Used truck dealers may refer you to commercial lending institutions. However, a solid second-hand unit with a powerful engine and spotless maintenance can be a good enough purchase for you.
2. Commercial lending institutions.
These finance companies are not necessarily affiliated with truck manufacturers, but certain ones cater to the trucking industry.
With whatever type of financing arrangement you agree to, the interest rate you secure will either leave an unsightly dent in your finances or improve your overall profitability. Your truck monthly amortizations can take as much as 4 percent of your monthly gross revenue.
Following are some factors that can affect your financing interest rates:
1. Your credit history
An excellent credit rating will help you obtain the lowest interest rates. Financial institutions look at your records to assess your credit risk.
2. Permanent address
A decisive factor that will work for you is if you are a longtime resident of a specific address. Banks believe people who have permanent homes also pay better.
3. Stable job background
Borrowers who show a stable job history are generally classified as minimum risks. Job-hopping, on the other hand, can send the wrong signal to your possible financiers.
The three points above (and other intangibles) are considered during your credit risk reviewal.
As a general rule, the shorter your loan period, the better for your financial well-being. Also, truck loans payable in 4 years or less allow you to claim tax deductions on an asset’s depreciation. Typically, when you amortize your trucks for a shorter period, you pay the bank lower interest fees. Payback periods of 5 years and beyond are less of an earning opportunity for you.
Step 5: Understanding the golden equation
The road to your profitable trucking business isn’t complicated. In fact, your day-to-day operations can be viewed and analyzed using this linear equation:
Revenue per Mile – Cost per Mile = Gross Revenue – Taxes = Net Profit
Lower your variable costs as much as possible, so your trucking business can quickly turn in a profit. There are several ways you can go about doing this:
1. Find the quickest and shortest route
It goes without saying that the shorter your route — and the sooner you reach your destination — the lesser your fuel consumption. Not only will you be able to reduce your expenses by finding the shortest route to your destination, but you’d also be able to accommodate more deliveries/contracts, helping you grow your profits.
ELDs with a built-in GPS feature can allow you to find the shortest route to your destinations.
2. Avoid severe maintenance issues
Address your vehicle’s maintenance problems as soon as you get wind of them — while they are still minor — before the issue becomes a full-blown maintenance disaster.
Having a low tire pressure, for example, can cause your tire life to shorten if left unchecked. Instead of simply inflating your tire to address the issue, you might have to replace your tire altogether due to the damage a low pressure might cause.
Having an ELD with vehicle diagnostic features can be a huge help, as it automates vehicle maintenance and enables you to focus on more important stuff.
3. Reduce vehicle idling
According to studies, when a truck idles for an hour, it consumes about a gallon of fuel. When you factor in the productivity loss of truckers — together with the amount of fuel wasted — the damage of excessive idling becomes even more glaring.
The sad part is, not many drivers notice how much idling they’ve done.
The KeepTruckin ELD has an idle-time tracking feature that helps you identify drivers who idle for too long or too frequently. You can see how much fuel you’re wasting because of vehicle idling and fix the issue — which would save you thousands of dollars every year.
4. Avoid road crashes and its possible legal liabilities
Road crashes are a nightmare not just for owner-operators but also for established trucking companies. Not only will the driver’s (and the motorist’s) well-being be put at risk, but the possible legal liabilities that owner-operators would have to pay can quickly ruin a small business.
Make sure that you are doing your best to avoid possible road accidents. Installing a dashcam can help you significantly in this area. With the ability to see what happened, you will be able to exonerate and protect the driver against fraudulent claims with video proof.
Whether you are a company driver or an owner-operator, you need to comply with the FMCSA’s hours-of-service rules and ELD mandate. If you qualify for the ELD mandate and are looking for a reliable ELD solution, give KeepTruckin a try.
You can buy the KeepTruckin ELD online in just a few clicks.
If you have any questions, give us a call at 855-434-ELOG or send us an email at email@example.com.