Did you know that nearly three quarters of all freight moved throughout the United States is handled by the trucking industry? Starting a trucking company is just smart, especially right now, when you can get a piece of that 70% of all freight.
If this is an area that interests you, the first question to answer is “how much does starting a trucking company cost?” Let’s take a look at the kind of investment you’ll be making in your own trucking business.
Starting Costs for a Trucking Company
There are a number of things to consider when budgeting out your new business idea. Keep in mind that costs can differ drastically, depending on where your business is located, where you plan to run, the equipment you choose, and whether or not you buy or lease your trucks and trailers. In general, apart from the equipment needed, you could spend anywhere from $6,000 to $16,000 to start a trucking business.
Costs for starting a trucking company include:
- Formation and Registration documentation – $900-$1,500
- Insurance down payment on each truck – $2,000-$5,000
- IRP plates per truck – $500-$2500
- Permits, Heavy Vehicle Use Tax, etc. – $100-600
- State specific permits – $500
Trucking Authority Start-up Costs
Don’t forget that you’ll also need to set up your trucking authority, which requires time and money. It’s generally around $1,000 to get this set up. The exact cost will vary depending on the state you’re registered in.
Your trucking authority includes a lot of paperwork. You’ll need:
- State formation documents – cost varies
- UCR Form (Unified Carrier Registration System) – cost varies by size of your fleet
- SS-4 IRS Form – free
- MCSA-1 Form (DOT and MC numbers) – $300
- BOC-3 Form – $75-$150
You will also pay an administrative fee to set everything up and the state you are in will have its own regulations and paperwork requirements. It’s a good idea to make sure you know exactly what is required in your state so you can avoid any unpleasant surprises.
Budgeting for Trucking Businesses
Every successful business should begin with a business plan and part of that plan is a budget. On your budget, you’ll have fixed and variable costs. It’s important to plan ahead to ensure you always have the money to cover your expenses.
These are costs that will be the same every single month. Truck payments, payroll, insurance, etc. will not change, even if you have no jobs that month. It’s estimated that it costs roughly $140,000 to operate one commercial truck per year.
You can keep these costs down by opting for used semi-trucks, but there are a number of factors that will affect how much you pay for a commercial truck. A new truck may cost anywhere from $120,000-$150,000, but it will be brand new and have the best fuel mileage. It’s also more likely to run longer without needing repairs.
Used trucks can be found for as little as $10,000, but before you jump on the cheap truck bandwagon, be aware that there are hidden costs. Often, the cheaper trucks require extra repairs that could cost tens of thousands of dollars. The mileage will be higher, as well, so it’s possible you’ll be paying for another, newer truck very soon. Consider the differences and the extra costs before deciding on a truck.
Down payments tend to be 10-25% of the full price, depending on your credit history. The better your credit, the lower your monthly payments and the down payment. You should check with several different options when looking at financing your trucks, to find the best choice for your business.
Insurance is another ongoing cost and one that you do not want to skimp on. Again, there are plenty of factors that result in the final cost, so you’ll need to make a few phone calls to get the right information. Factors that affect the amount you’ll pay for commercial truck insurance include:
Age of the driver
Age of the vehicle
Freight being hauled
Which states you’re driving in
Driver’s driving history
Make and model of truck
You can expect to start out paying around $10,000-$16,000 in insurance fees during your first year. Out of this, a third may be required up front, with the remaining amount paid off monthly. It’s best to look for insurance companies that specialize in insuring trucking companies.
It’s essential that you stay on top of licenses and permits. Make a list and keep a calendar that will help you remember when you need to pay them. Stay compliant to avoid issues. Again, the exact costs will depend on which papers are required in your state.
These costs tend to change month to month and include things like maintenance, fuel, repairs, meals, hotels, etc. Ideally, you will track these variable expenses over a few months and average it out to budget. However, if you’re just starting your trucking business, that will be tough. You’ll need to guesstimate for the first bit. A few examples of variable costs include:
Maintenance and Repairs
Truck upkeep is part of running a trucking business. Regular wear and tear costs money, as do unexpected repairs. If you look at the ATRI 2016 Operational Costs of Trucking, you’ll see that they estimate roughly 15 cents worth of maintenance per mile for a single unit Class 8 truck. That means, for every 100,000 miles your truck drives, you will pay around $15000 in repairs and preventative maintenance.
If you don’t want to calculate the cost exactly, you can simply allot 10% of expenses to repairing your trucks.
Meals and Hotels
Your driver has to eat and sleep and while many truckers sleep in their truck part of the time, you’ll need to plan for this expense. Take a look at the rates for hotels and motels near truck stops and use that number to give yourself a base to calculate from.
Meals can be calculated similarly. Even if you think your driver will only stop for one meal a day and snack the rest, it’s best to plan for three restaurant meals until you have the records to average it all out. Keep in mind that breakfast tends to be cheaper than dinner. A daily amount is usually simplest.
Your truck can’t go anywhere without fuel, but you also can’t say exactly how much you’ll need in a given month. Once you have freight booked ahead, it will be simpler to calculate, but for budgeting purposes, you can average it out to 16,000 gallons of fuel a year, or just over 1,000 gallons a month. Use current fuel prices to plan for this. Fuel will run anywhere from 30-40% of your overall expenses.
Planning for Trucking Company Success
Every business owner wants their company to be a success and trucking company owners are no different. What can you do to make sure your trucking business does well? Plan ahead. Budgeting is essential, but so is ongoing tracking of your income and expenses.
Finding Your Operating Ratio
The operating ratio of your business is a simple math equation. Take your expenses and divide them by the revenue to find the percentage. You should end up with a number that is less than 100%. If you have more than 100% as the final result, you have lost money. Exactly 100% means your company has broken even, or the income just covered the expenses.
Planning out your budget and start up costs will help you get your trucking business off the ground and headed in the right direction from the start. There is another way to help boost your business from the beginning, though. Setting up an account with Factoring Express will let you control your cash flow as soon as you start your business.
Starting out with a factoring company gives you a big advantage as a new carrier. There’s no need to wait weeks or months to get paid. Instead, you get your money up front and Factoring Express handles collections. You just need to do the work and make sure your new company is running smoothly.
Call us today to find out how we can help.