So You Want To Start Your Own Trucking Company?

The mission of Trucking Truth is to help prospective new drivers make important decisions about starting their driving careers – like, which training/licensing method is best, and which are the best companies to begin driving for, among others. And, while many independent-minded new drivers initially believe they would be happier going on their own as owner-operators, Trucking Truth generally discourages new drivers from taking that route.

So you want to start your own trucking company?

Thanks Dave! That's a great article. I recently had one of our drivers on this dedicated fleet I'm on come to me for some advice. He knew a couple of our drivers decided to lease a truck. (Actually four of them decided to lease, but only two of them made it past three months) My first question for him was, "What's your motivation for wanting to be a lease operator?" He replied, "I want to start making that big money!"

We had a lengthy discussion which culminated with me not feeling sure I actually convinced him it wasn't that great of an idea. It didn't seem to phase him that fifty percent of the four guys we were familiar with had failed in less than three months. He was confident he was smarter than those "Bozos." So, I eventually asked him how much he was making as a company driver.

He was disappointed that he was only making 60 grand. Of course I immediately asked how much he thought he'd be making as a lease operator. He fired off this bold number of 180,000 dollars a year. "Wow," I say, "Where did you get that number?" "That's what George told me he was making," he quickly replied. My response was that I doubted George was making more than 60 grand, and then I explained that number which George so proudly threw at him was strictly a revenue number.

I told him to go back to George with some very specific questions which I laid out for him. Just the other day he found me and told me I was dead on with my figures. In fact, George's accountant seemed to think he made 52,000 dollars. Of course George marked that up to "all the tax write-offs he gets now." Haha! My friend thanked me for taking the time to help him understand it, and has decided for now that he's not going to take the risks involved and possibly end up earning less than he was now.

I can tell he's still not completely convinced, but like most of us he'll probably learn life's most well learned lessons the hard way.

Another thing not mentioned in the article: FLOAT.

As in - most accounts-payable are "Net 30", and the time and expense that comes with having to CHASE YOUR MONEY.

Many O/O's choose to use "factors" - that is, people who will essentially pay off your BOL's, for a 10% fee. Usually only from "approved brokers or shippers". There's also CHARGEBACKS, BOL's that end up NOT PAYING - which results in your factor taking the $$ they advanced you BACK. Most factors will require you to be EXCLUSIVE TO THEM (no "multiple factoring companies") which means you can only take loads that THEY APPROVE (which are loads they have a high confidence will ACTUALLY PAY THEM). So knock another 10% of that gross revenue fee. It's a VICIOUS WORLD out there - between competition, shady brokers. And if you think you get used/abused by shippers as a company driver for a major company - O/O's end up even lower on the totem pole.

Also find the $1.85CPM from brokered loads might be a "little high". Spot rates from brokers are running a bunch lower now (haven't been on the load/brokerage boards in awhile). A lot of the rates are dependent on location. And many "slow lanes" are significantly less. You will NOT SEE $1.85 coming out of S. Florida - and many folks won't even come INTO S.Fla without a rate over $2.00 - so they can just turn around and deadhead out.

As far as a "rookie", just buying a setup and jumping in - most insurers will only insurer a "new guy" with INTRASTATE insurance for year one - which means NO OTR. Even that was incredibly expensive (upwards of $15K).

I did EXTENSIVE RESEARCH a few years ago at the possibility of purchasing a setup and getting on the road as an independent. Even with FULL CAPITALIZATION (as in $200K liquid) and a business plan approved my my accountant and attorney - the risk to reward ratio just DIDN'T JUSTIFY THE EXPENSE.

It's called: BUYING A JOB - and not a good paying one. The "return on investment" was so low, I would be better off putting my $$ in a CD or money market account...

For every GOOD REASON someone thinks they want to go O/O, there are THREE that say you shouldn't. Not to say that there aren't O/O's that aren't making a decent living (and I know a few) - but these are SEASONED VETERANS, not newcomers.

Rick

I forgot to point out here that I walked this fellow through some tips on how he can substantially increase his pay as a company driver. He was skeptical because, "I'm already running my ass off," he said. After some discussion he discovered I was turning considerably more miles than he, and you could sense his bewilderment. He even said, "I don't get it. You're a lot older than me. I'm wearing myself out. How do you find the hours to do that many miles?"

I did my best to inspire him. Time will tell if he starts to lay hold of the concepts. But success is not defined by your title as "owner." It is more often defined by your drive, your initiative, and your understanding of how to put yourself where you want to be.

Any business owner will tell you that the biggest misconception people have about business owners is that they're all just fat-cats riding the gravy train, relaxing, and getting rich. Because the business owner is the boss, they do whatever they want to do, and don't do anything they don't want to do.

That's hysterical! It's the furthest thing from the truth for 99% of business owners.

Do you really know the facts about small businesses? How about some of these facts:

• 85% of small businesses are not profitable
• 90% of small businesses fail within the first 3 years
• Many small businesses that fail were actually profitable but ceased operations because they ran out of operating capital (cash)

There's an irony in becoming a business owner that's similar to gold mining; somehow people become convinced they'll get rich doing it, even though nearly everyone that tries it goes broke. That's in large part because almost everyone sees themselves as being above average, even though by definition that's impossible.

I'm glad most people don't take that same approach to the success they might have if they tried jumping off a building.

Also, keep in mind that the profit margin numbers of 3% - 7% for the largest, most successful carriers in 2018 happened in one of the best years in the history of trucking. Freight volumes and freight rates were utterly fantastic. So those profit numbers are the best possible scenario. Wait until you see what they were for 2019. It will be a very different story for most companies.

I'm very familiar with being an O/O, what it takes, and factoring. You are definitely right about the net 30 pay terms and how factoring works, although there may be a disconnect on how it benefits O/O's. One of the biggest benefits to factoring is that it helps O/O's get paid higher for the loads they haul. When going through brokers and debtors, what they are really looking for is one of two things: 1. if you are going to be negotiating the days to pay (aka taking quickpay directly from the broker/debtor) or 2. if you are going to be negotiating the load value. Obviously they have a competing interest. The broker/debtor wants to move that load for as low as an O/O will move it for and the O/O wants to move it for as high as he can move it for. When carriers don't have a factoring company, the reality is often times they will opt for quickpay. By doing this, the negotiating power for the load value goes out the window and it can be dropped anywhere from 10-20% right off the bat! By having a factoring company it allows an O/O to only focus on negotiating how much they get paid instead of how fast they get paid keeping load values high on the front end. Then when they drop off and submit the load they can get paid same day. So more up front, and you receive it faster on the back end. Then, the factoring company does all billing and collecting for the O/O and keeps the invoice history. When you talk about factoring companies only approving certain debtors and brokers you are absolutely right. They will have a form of a credit check system to make sure whatever brokers/debtors the O/O hauls for are in good financial standing and that they pay out every time so the O/O can haul with confidence knowing they will never haul a load and take a loss on it. This is a major benefit, not a deficit of working with a factoring company. Especially being under your own authority there is a great deal of value in having a credit check system to make sure you always get paid for the loads you haul.

There are benefits to being an O/O and benefits to being a company driver as well. There is no one right way to do it!

Another thing not mentioned in the article: FLOAT.

As in - most accounts-payable are "Net 30", and the time and expense that comes with having to CHASE YOUR MONEY.

Many O/O's choose to use "factors" - that is, people who will essentially pay off your BOL's, for a 10% fee. Usually only from "approved brokers or shippers". There's also CHARGEBACKS, BOL's that end up NOT PAYING - which results in your factor taking the $$ they advanced you BACK. Most factors will require you to be EXCLUSIVE TO THEM (no "multiple factoring companies") which means you can only take loads that THEY APPROVE (which are loads they have a high confidence will ACTUALLY PAY THEM). So knock another 10% of that gross revenue fee. It's a VICIOUS WORLD out there - between competition, shady brokers. And if you think you get used/abused by shippers as a company driver for a major company - O/O's end up even lower on the totem pole.

Also find the $1.85CPM from brokered loads might be a "little high". Spot rates from brokers are running a bunch lower now (haven't been on the load/brokerage boards in awhile). A lot of the rates are dependent on location. And many "slow lanes" are significantly less. You will NOT SEE $1.85 coming out of S. Florida - and many folks won't even come INTO S.Fla without a rate over $2.00 - so they can just turn around and deadhead out.

As far as a "rookie", just buying a setup and jumping in - most insurers will only insurer a "new guy" with INTRASTATE insurance for year one - which means NO OTR. Even that was incredibly expensive (upwards of $15K).

I did EXTENSIVE RESEARCH a few years ago at the possibility of purchasing a setup and getting on the road as an independent. Even with FULL CAPITALIZATION (as in $200K liquid) and a business plan approved my my accountant and attorney - the risk to reward ratio just DIDN'T JUSTIFY THE EXPENSE.

It's called: BUYING A JOB - and not a good paying one. The "return on investment" was so low, I would be better off putting my $$ in a CD or money market account...

For every GOOD REASON someone thinks they want to go O/O, there are THREE that say you shouldn't. Not to say that there aren't O/O's that aren't making a decent living (and I know a few) - but these are SEASONED VETERANS, not newcomers.

Rick

Danny, factoring companies are nothing more than glorified payday loan sharks. Notice the 100 pages of legal papers you have to sign to get started?

They will also want to be listed as #1 beneficiary under any truck loans in case of the shipper not paying.

Some people use them because they find their services useful. Also, this is the year 2020. If someone says they take longer than a week to pay, than I'm not pulling for them. Plain and simple.

I am a long time business owner. I never resorted to factoring. I had them hounding me often. I think anybody who has to rely on factoring is really fooling themselves. Sid put it well when he compared them to payday loan sharks. That's where desperate people go who don't know how to manage money and/or receivables. You don't typically find successful business operations resorting to this kind of shakedown. They aren't so gullible. They don't need to put themselves through it.

There is no benefit to the driver with using the factoring rip off groups. These are as bad as payday loans or the "we buy ugly houses" places.

"Here, I'm due 100%, but if you give me 75% of it, I'll gladly take it. Where do I sign up?"

Hold my beer while I go out of business real quick!

There are benefits to being an O/O and benefits to being a company driver as well. There is no one right way to do it!

Danny, you're obviously new in here, and it seems you don't really understand our purpose here. We empathize, encourage and inspire new drivers coming into the industry. Teaching them that there are benefits to being an O/O fits nowhere in our stated purpose. In fact it's contrary to what we teach. We pretty much believe there is one way to do it, and we labor vigorously to inspire people to understand that. Teaching them to use factoring is just one more misconception that we don't need promoted here.

I know you think you're something of an expert at this, but there are plenty of other places you can share your knowledge. We are glad you're here, but we really don't need you educating us about the economics of trucking. Stick with the basics and you'll find yourself very welcome here.