Owning a carrier can be lucrative, but running it can be quite challenging and competitive. Like any small business, there is high risk, but high reward. There’s a reason that 50% of new private sector businesses in the US falter after their first five years. Running a successful trucking business requires effective financial management, especially now that the industry is shifting. Good accounting practices help your business effectively use resources, gain a competitive advantage, fulfill your commitments to customers, and prepare for long-term financial stability.
This guide shares finance organizational techniques that trucking businesses can use to thrive, even when the economy takes a turn.
Carriers who don’t prioritize financial management techniques can lose money in the long run. Below are common mistakes that fleet companies make.
It’s not unheard of for new trucking businesses to take on accounting responsibilities. However, accounting requirements become more complicated as the business grows, and mistakes can have devastating consequences.
You can’t get paid if you aren’t tracking receivables and invoices. Payments equal cash flow, and that is the lifeblood of any business. Experienced fleet managers understand that delays between when you must pay carriers and when you receive customer payments can strain cash flow.
Many fleet managers find themselves too busy handling the day-to-day. As a result, crucial bookkeeping tasks like reconciling bank and credit accounts fall by the wayside. While it’s tempting to postpone these tasks, handling them as soon as possible allows you to promptly catch lost checks, fraudulent charges, missing deposits, and other errors.
A telltale sign of poor bookkeeping is miscategorizing expenses or having too many expense categories. This can be a huge red flag when you decide to apply for loans.
Inexperienced bookkeepers tend to record liabilities and forget to reverse them when payments are made. This results in an overstatement of liabilities and understatement of net income, making the company appear less financially stable than it is.
It’s important to provide sufficient details when invoicing customers. For instance, do you charge per mile or per weight? Or do you invoice a flat fee? Any additional charges such as fuel or reimbursement fees should be listed on a separate line. These distinctions and details help prevent client pushback, which may result in payment delays.
Planning for profitability isn’t always easy and requires understanding the company’s current and future needs. Below are a few tips on planning for profitability in the trucking industry.
Fleet expenses are either fixed or variable. On the one hand, fixed costs are already established and don’t change regardless of usage. Some examples are taxes, depreciation, loans and lease payments, insurance, and licenses and permits.
On the other hand, operating costs vary depending on various factors. Controlling these costs is key to optimizing profit margins. The most significant variable costs fleets deal with are expenses and maintenance. Other examples include parking, part replacement, detailing, and tolls.
Some of these costs fluctuate significantly from one month to the next, while others are incidental. Regardless, every dollar spent affects your bottom line.
Performing fleet cost management analysis can help determine where your money is going and identify ways to reduce them. What equipment is hurting profitability? Are you spending too much on fuel? What freight lanes are the most profitable? Monitoring this data can help fleet managers improve efficiency and maximize profits.
Finding freight to move can be tricky and a significant roadblock to profitable trucking. The good news is you can prevent this by utilizing load boards.
Kamion’s load board, for example, provides real-time access to freight by aggregating available loads from the nation’s biggest load boards, like DAT and Loadsmart, all in one place. It can also match trucks with loads, allowing fleet owners to keep operations simple.
The load board also allows you to find nearby loads and drop-off locations. Drivers who drop off a load at its delivery location can pick up another load nearby if one is available. Similarly, you can send a driver to a nearby drop-off location if you need to send them to another site. Load boards also make it easy to find drivers near pickup locations, ensuring you don’t have to send them far with an empty trailer.
Growing fuel costs is a significant factor limiting the profitability of trucking fleets today. If kept unchecked, they can lower your fleet’s potential profits and make it challenging to realize your expansion goals.
Vehicle idling can be a real problem for fleets. Idling can increase maintenance costs by $2000 per vehicle yearly and shorten the lifespan of an engine, as estimated by The American Trucking Association. Finding a way to monitor and minimize idle times can go a long way toward reducing fuel costs.
Other ways to manage fuel costs include:
While some aspects of your profitability plan should be strictly adhered to, you should be prepared to make adjustments as new information comes to light. Planning for these uncertainties ensures that your fleet remains agile and adapts as needed. Fleet management software such as Kamion powered by Loadsmart makes this manageable while allowing you to control costs and improve productivity in uncertain times.
Planning for profitability in fleet management requires financial literacy and an understanding of your fleet operations. At Loadsmart, we understand that and strive to provide the tools, like Kamion, you need to improve profitability and ensure long-term sustainability. Sign up for a demo today to learn more about how TMS can drive growth for your fleet.