As a young owner/operator, what I wished for was a shiny truck that didn’t break down and some extra cash when I got some downtime. I accomplished what I wanted, but it was more out of good luck than having planned for success. I got lucky, but you don’t need to depend on luck. You can put a solid business plan in place very quickly; a plan that will tell you if you are a good fit for the company you currently are at and if not, you will have a business model that will help you find the right company for your next move. It will also tell you your likelihood of being profitable or frustrated.
I am going to discuss the old mantra of failing to plan or plan to fail. It is not difficult; in fact, it is quite straightforward. I have a simple cash flow exercise for you to do that shouldn’t take long to fill in just follow the link provided. The key to it is being factual when doing the exercise. I can’t stress this enough. You must know exactly what your monthly needs are both personally and as a small business if you are going to be successful. When I was in management at MacKinnon Transport, I could tell the type of owner/operator I was dealing with by asking one quick question: “What is your fuel cost per mile?” Quite often I would get a blank stare and then a guess. Well, I’ve been at this for a while and there is little future in BS’ing an old BS’er.
What was interesting was talking to owner/0perators who knew precisely what their MPG was going west and south and then short haul. But I would suggest that they were measuring only half of what they should be looking at. MPG is good for talking to your service provider or the engine manufacturer to ensure you are getting what you’re supposed to from your iron. But the correct business answer is a cost per mile, not MPG. You can have the most fuel-efficient vehicle made and buy your fuel all wrong and still have a higher than average fuel cost. MPG is a measure of equipment efficiency; cost per mile is a measure of a business expense for an owner/operator. Know your cost!
The cash flow document that over the road can email to you was designed with owner/operators in mind but can easily be used for company drivers also. The thought behind it is to determine precisely how many miles it takes for an owner/operator to break even.
The simple equation is: what is your monthly cash requirement including truck payments, maintenance, mortgage payments, car payments etc. You simply total all these and divide them by the net revenue per mile that you are being paid by your carrier, or the income you receive after any standard deductions that the carrier may make for plates, insurance etc. and net of your fuel cost. Now divide the net revenue per mile by your cash required and you now know how many miles per month you need to drive to break even.
This is your benchmark number. This little bit of information will tell the whole story for you. If this number is around 8-9,000 miles and you’re driving for a long-haul carrier who is offering up to 12,000 miles per month, and you want to run those types of miles, you’re probably in pretty good shape. On the other hand, if you need 11,000 to break even and your carrier is offering only 10,000, guess what? You are slowly sinking. You will need to do one of two things. Either you take a hard look at what you can do without to lower your cash requirement, or you try and find a carrier who is paying more and offering the miles you need to succeed.
Before you jump ship from the carrier you are with now, I urge you to do this exercise. It’s a good reality check. If in fact, you are your own problem because your expenses are too top heavy, you can go to as many carriers as there are out there and you will never be successful. Know the facts of your business before you leave and share them with your carrier. If they are reasonable business people, they will appreciate knowing where you stand and what your numbers are. If they are not interested, then they probably are not the right fit for you anyway.
This exercise is good for many applications, not just seeing if you’re at the right carrier. Thinking of buying a new truck, house or pickup? Plug your new payment numbers in and see what it does to the number of miles you need. If you are cruising at a higher than posted speed, try slowing down a little and then look what it does for your fuel cost and see how it affects your miles required. Before you commit to a new carrier, plug their net number into your cash flow. Is it any different than what you have now? Making educated business decisions based on the facts will have you win over good luck 99.9% of the time.
Mr. Ray Haight has enjoyed a successful career in transportation starting as a company driver and Owner Operator logging over one million accident free miles prior to starting his own company. After stepping down from a successful career managing one of Canada’s 50 largest trucking companies, Ray focused on industry involvement including terms as Chairman of each of the following, the Truckload Carriers Association, Professional Truck Drivers Institute, North American Training and Management Institute and the Ministry of Training Colleges and Universities voluntary apprenticeship of Tractor Trailer Commercial Driver, along with many other business interests, he enjoys a successful consulting business, also sitting on various Boards of both industry associations a private motor carriers. He is also Co-Founder of StakUp O/A TCAinGauge an online bench marking service designed to assist trucking companies throughout North America focus on efficiency and profitability within their operations. All posts by Ray Haight