Becoming An Owner/Op: Sound Financial Planning Key
October 1, 2004
TORONTO, Ont. - Becoming an owner/operator is as easy as eating apple pie, right? There seems to be plenty of work out there, truck dealers have parking lots full of bargains, and carriers are competing to attract independent contractors.
BIG DECISION: It takes a special combination of skills to become a successful owner/operator. Make sure you have them before you invest.
TORONTO, Ont. – Becoming an owner/operator is as easy as eating apple pie, right? There seems to be plenty of work out there, truck dealers have parking lots full of bargains, and carriers are competing to attract independent contractors.
But before you sign on the dotted line, there are a few things you should consider. Owner/operatorship is a huge step. It could be the beginning of a successful career or the start of a fledgling trucking company. On the other hand, owning your own rig could become a money-bleeding nightmare that ends in personal bankruptcy, so it’s good to know what you’re getting into.
Joanne Ritchie, executive director of the Owner-Operators Business Association (OBAC), thinks that drivers have to do the math before jumping in a truck.
“The first thing anyone should do is sit down with a good sharp pencil and look at their financial situation and living expenses, and balance that with the cost of buying or leasing a truck,” she says. “It’s important to understand your needs, and remember that includes a salary for yourself.”
Ritchie thinks having a clear idea of the bottom line gives the owner some leverage. “Knowing what you need helps when you’re negotiating with a customer,” says Ritchie. “That way you can walk away from a bad situation. Don’t wait until you’re trapped to start your research.”
One of your first decisions will be whether or not to register as a company. You’ll have to decide whether to run your truck as a sole proprietor business or to incorporate. “Incorporation is a big step towards independence, but it’s not necessary,” says Ritchie.
However, Chris Bennett, general manager of Transportation Financial Services Group of Waterloo, Ont. thinks that incorporation is almost a must for today’s independent trucker. “It costs about $700 to register a numbered company and another $400-500 per year in bookkeeping fees,” says Bennett. “But an incorporated driver will have a minimum saving of around $2,000 per year. In the first six months any owner/operator will reap the rewards of an equal amount (of the registration fee) plus that year’s initial operating expenses as an incorporated entity.”
Another good tactic for the novice truck owner is to take a business skills training course. An interactive kit, available on computer disk and geared specifically to owner/operators, is available from the Canadian Trucking Human Resources Council (and can be purchased through OBAC at a discount to members).
As well, some carriers offer financial seminars to new owner/operators, while others provide some assistance with accounting and records.
Good financial planning should make spec’ing a truck a little easier. Banks typically want 20 per cent down for used trucks as compared to about 10 per cent down for new models, and this may affect the type of truck you decide to purchase.
Your own mechanical abilities may also determine whether you buy new or used equipment. “Used trucks make the most sense if you have a bit of a mechanical bent,” says truck journalist John G. Smith.
“I knew some guys who could keep equipment rolling for years beyond their final payments, soaking up the labour costs by doing much of the work themselves. But new equipment is a better bet for someone who wants to limit mechanical work to things like fluid changes, bulbs and the like.”
Maintenance costs tend to multiply after the first three years, after warranties expire. “That’s why a lot of guys with new trucks seem to rake in the dough in the first couple of years of a lease and then go belly-up before finishing their payments,” adds Smith.
The line between success and failure as an owner/operator may be a subtle one.
Working with thousands of brokers at the TFS Group, Bennett has seen profiles of almost identical drivers doing almost the same work, but who end up on different sides of the ledger.
In some cases, a little more cooperation with the carrier, or a slight change in the payment model, or a differently spec’d truck can make or break an operator.
“Your cash flow is upside down,” says Bennett. “Drivers think they’re making great money the first year and go out and buy a big house. Some of them don’t make it when the bills come in the third year.
“You’ve got to be closely in touch with your personal and business budget and stick to it,” adds Bennett. “Cost per mile is something you can work with and you’ve got to watch it like a hawk.”
On the whole, Bennett thinks that now is a good time for a young person to become an owner/operator.
“If they do it right, it’s an awesome opportunity,” he says. “We’re seeing many of our drivers, even those in general freight, starting to do much better.”