Begin With Your Business Plan
Before you start planning how many trucks you’re going to buy and how much it’ll cost you, you need to take a holistic approach. By creating a business plan, you’ll be able to see the path from start to success in its entirety, and you’ll see all the essential milestones along the way.
There’s no one-size-fits-all business plan in the trucking industry. You may decide to hire a bunch of owner-operators with their own trucks, or you could choose to build a fleet of big rigs and find talented truckers to drive them. And your aspirations now could change over the next 2–3 years, and that’s okay. Your business plan isn’t a binding document to keep you headed in one direction—it’s a GPS to get you from where you are now to where you want to go.
So step 1: get out your business plan. If you don’t have one yet, that’s A-OK—check out our step-by-step guide to creating your plan. Once that’s done, you’re ready to start making some real estimates. As we look through all the expected costs of starting a trucking business, you’ll likely discover new opportunities and barriers that’ll change your business plan. That’s great! Keep it close by so you make sure it’s always up-to-date.
Now, on to the costs you can anticipate.
Expect These Costs for Starting a Trucking Business
Starting a trucking business isn’t cheap. You’re going to need trucks, truckers, parking, equipment, office space, licenses, permits, gas, marketing material, and much more—it’s not as simple as buying a truck and hitting the highway.
In fact, depending on what kind of business you want to build, you might not actually drive the truck at all. Perhaps you’ll hire full-time truckers. Maybe you’ll hire subcontractors. Or you may just run a one-person show where you do it all—there’s no right answer, but you’ll need to factor in the associated costs of each decision you make.
It can all be a little overwhelming, and that’s why we’re going to help you take it step-by-step, item-by-item. Let’s start with some of your most expensive assets first: real estate and trucks.
1. Real Estate
As you scale, your real estate demands will grow, but on day one, you’re going to need some basics. You’re going to need docking and parking for your fleet, and you’ll likely want office space for administrative tasks—nothing fancy, but you’ll need something. Preferably, you’ll want to find locations that are easy-access for massive trucks and are close to major highways and interstates. This location will help eliminate unnecessary transportation waste and save valuable time.
Next, you’re going to need trucks. Start small and scale as you grow. You may just want to start with 1 or 2 trucks, at first, and buy more as need demands.
A new truck and trailer could cost you well over $150,000, so you’ll have to decide whether you want to buy new, buy used, or even rent or lease. Purchasing a brand new truck will guarantee it’s in tip-top shape, meaning you’ll have fewer maintenance and repair bills over the next few years. But you pay a hefty premium for that peace of mind.
Buying a used semi-truck is much like buying a used car—just on a much larger scale. You’ll save thousands of dollars up front, but you should anticipate more maintenance costs and fewer years left of operation. Depending on the age and mileage, you could pay anywhere between $30,000 and $80,000 for a reliable big rig.
Another option is to rent or lease a truck, but this can get expensive very quickly. Used trucks may lease for around $800 a month while new rigs may lease for up to $2,500 a month. Oh, and don’t forget about the insurance costs, too, which can run as high as $1,000 a month.
When financing or leasing a truck, expect these costs to make up around 16% of your total truck operating costs.
If you’re going solo, you only need to pay yourself, but if you’re looking to scale, here’s what you can expect. A trucking business crew has truckers, maintenance workers, logistics coordinators, dispatchers, accountants, attorneys, administrative staff, recruiters, trainers, and more. As a small business owner, you may wear multiple of these hats from time to time. However, as you scale, you may hire full-time employees, freelancers, or subcontractors for any one of these positions—it all depends on your business plan and strategy.
If you build a large fleet of trucks, you may hire in-house maintenance workers. Or you may choose to outsource all your maintenance and repair work—it’s entirely up to you and your unique situation. The same is true for your truck drivers. On average, drivers’ salaries make up over 43% of the costs of operating a trucking business.
Depending on your trucks and the industries you serve, you may need to buy and maintain a variety of additional equipment. For example, if you’re transporting frozen goods, you’ll need to purchase temperature-controlled storage containers. If you transport logs, you’ll need a specific bed and ties. Or if you carry hazardous cargo, you’ll need specialized equipment.
This specialized equipment usually has higher costs, and it’ll also require unique cleaning and maintenance. Keep these additional costs in mind if you choose to work with less-competitive niche markets.
If you thought the gas price for your private vehicle was bad, then you’re in for a big surprise. On average, a commercial truck will burn through at least $70,000 worth of diesel fuel per year. That’s a lot of fuel (and a lot of money)! On average, fuel will account for around 22% of your total truck operating costs.
There are plenty of tips and tricks to cut fuel costs, but it’s still going to be a massive expense for every one of your vehicles. You have to spend money to make money, right?
This expense might seem insignificant in the grand scheme of things, but toll fees can add up. Toll charges have skyrocketed over the last decade, increasing by close to 75%. Depending on which study you look at, toll prices could be your 2nd or 3rd biggest operating cost (alternating with fuel). It all depends on where you operate and which routes your drivers frequent.
A tool like Tollsmart can help you plan your routes and predict your expenses—this practice will help you accurately invoice your clients so you get the most bang for your buck. Other tools, like Bestpass, will help simplify your toll management expenses and help you find excellent discounts.
7. Repairs and Maintenance
Alternators will break, tires will puncture, wiring will need to be fixed, breaks maintained—there’s a lot that goes into sustaining efficient trucks. Repairs and maintenance costs average around 10% of your total truck operating costs ($15,000 annually). Tire repairs and maintenance cost around $4,000 annually per truck on average, and that doesn’t take into account when you’ll need to replace some tires completely.
Increasing labor rates, parts costs, and replacement tire prices caused maintenance expenses to increase by up to 5% in 2018, and that number will likely keep steadily rising. Keep that in mind as you create your financial forecasts for your operating expenses.
8. Licenses and Permits
As you can expect, you’ll need several licenses and permits to transport massive trucks full of cargo across the US. This post contains an excellent checklist, although you may need additional licenses depending on your home state and if you’re transporting unique goods. Here’s a quick list for reference:
- Business Registration
- Commercial Driver’s License
- Federal DOT and Motor Carrier Authority Numbers
- Unified Carrier Registration (UCR)
- International Registration Plan (IRP) Tag
- International Fuel Tax Agreement (IFTA) Decal
- BOC-3 Form
- Standard Carrier Alpha Code (SCAC)
Depending on the kind of cargo you’ll be hauling, you may need additional license endorsements. For example, if you’re transporting “hazardous” material (meaning explosives, combustibles, flammables, gases, and other potentially dangerous goods), you’ll need a HAZMAT endorsement.
Total, you’re looking at a few thousand in annual expenses for licenses and permits.
9. Insurance and Taxes
Like with most insurance plans, you’ll pay a different amount for varying degrees of coverage. Your basic coverage will be cheaper, and your more comprehensive coverage will be more expensive. Obviously, you’ll also pay more if you’re insuring newer vehicles. It’s better to be safe than sorry, but you’ll need to decide which coverage packages will most benefit your business.
The government puts some heavy taxes on the trucking industry. The Heavy Vehicle Use tax and permit, as well as state-specific taxes, could cost you an average of $500 per truck annually.
You could argue that trucks market themselves, and we wouldn’t entirely disagree, but you’re going to need some additional budget to market your business. First, let’s start with branding.
At a bare minimum, you’ll need a name, logo, color scheme, social media profiles, and a website. Of course, you can always go deeper and wider to create an impressionable brand, but you’ll need these basics. Unless you’re decently design-savvy, you’ll likely need to hire a freelancer to lend you a hand.
Next, decide which clients you want to work with. Do you want to work with construction companies, large corporations, small businesses, the timber industry, oil and gas companies, or manufacturers? Once you know who you’re targeting, then you can decide how best to reach them. That strategy might include social media ads, Google display ads, brochures, email marketing, cold calls, etc. If you lack marketing experience, you might want to get some advice and help from an agency.
Start Preparing a Cash Cushion Early On
You’ll want to start preparing a cash cushion to deal with any unexpected disaster on day one. The trucking industry is a fun one—every day is different, and you’ll deal with a variety of challenges week in and week out. But it’s also rife with risk. Truckers will suddenly quit, tires will blow, trucks will crash, clients will delay payments—there’s a host of things that can and will go wrong.
By building a rainy day fund, you’ll have the capital you need to deal with any challenge. When you’re just starting and cash is low, consider getting a business line of credit. A business line of credit is a financial safety net that’s there when you need it, but you’re under no obligation to use it. So if you need to fix a truck’s engine immediately or hire an additional trucker, you’ll always have the cash you need on hand.
Find the Right Financing Solution
With all this talk of money, money, money, you’re probably starting to worry about how you can afford everything. Don’t panic! Getting a trucking business off the ground takes a lot of cash, but lenders understand the investment and know it’ll pay off in the end. That’s why they offer some fantastic financing options for transportation businesses in 2020. Let’s look at a few options.
- Equipment Financing: With trucks costing upward of $150,000, you’ll likely need some financial help to get your feet off the ground. Truck cabs, beds, your coffee maker, and even the software on your computer—equipment financing can help you afford it all. With loan amounts up to $5 million and terms as long as 5 years, there’s no better way to finance your big rig fleet.
- Term Loan: You can use a term loan to finance just about any part of your business. You’ll get a lump sum of cash with transparent rates and terms, so you know exactly how much you’re paying every month.
- Short Term Loan: If you need money, and you need it fast, a short term loan could be your best option. You’ll pay a higher interest fee, but you’ll get the money you need in as little as 24 hours.
- SBA Loan: The US needs the trucking industry, and that’s why the government offers a suite of loans with top-notch rates. Qualifying is difficult, and the process is long and tedious, but if you qualify, an SBA loan is a stellar financing choice.
Now, Get Trucking
Remember, all of the numbers we shared are just general estimates. Your specific costs will vary based on your business plan, goals, and geographic location. Open up Google search, pick up the phone, and start getting accurate quotes. Once you have a better idea of your exact startup costs, then you’ll know how much financing you need. Then, once you have the capital in the bank, you’ll be ready to get your business off the ground.
Starting and operating a trucking company is a lot of hard work, but it’s well worth the money and time in the end. Done right, you can make a fantastic business within the trucking industry. So what are you waiting for? Put your pedal to the metal and get your trucking business on the road.