Looking overhead

by John Curran

It’s a natural step to believe that you’ll make more money by spending more time behind the wheel. That’s true when you consider gross profits that come from payments based on a mileage or a percentage.

But with an over-the-road operation, a Canadian owner/operator will typically see operating expenses that hover between $90,000 and $120,000 per year. The resulting net profits can range anywhere from $25,000 to $55,000.

And the difference will largely depend on your overhead.

Shop smart

Keeping expenses in line really begins before you drive Mile 1.

The idea that chrome will never earn you a dime seems to be a simple concept, but many owner/operators forget the truism when they begin kicking tires at their neighborhood truck lot.

“Don’t assume that nice iron will make you more money,” says Patrick Nagle of the Truckers’ Business Consulting Group.

On a cost-per-mile basis, a $30,000-annual truck payment will breakdown to about 23 cents a mile. If that number is seven cents higher, at say 30 cents per mile, annual earnings drop by about $10,000.

“We’re not even talking about the difference between a Cadillac and Volkswagen. Nowadays, it’s more like the difference between a Cadillac and a Buick,” says Nagle. “Is the nicer truck really worth the extra risk?”

Fleets often get better prices on equipment because they buy in volume. He suggests that it’s time for owner/operators to do the same. “Six fellows need to come together and agree on a common set of spec’s,” says Nagle. “Then they can go to their fleet and get them to pool the purchase.”

For interest sake

But the battle isn’t won with a better sticker price. You also have to arrange for the best financing deal available.

Andree Davis acts as a financial consultant to 45 truckers from her home in Welland, Ont. and says the interest on a loan can be a crippling expense.

“Say you’re talking about a financing a truck worth $100,000,” she says. “The difference between financing at seven per cent versus 12 per cent could be paying for your tires every year.”

Davis says she understands the financial side of the business can be tricky, but insists one of the easiest ways to protect yourself is to watch how you borrow your money.

“A personal loan has about 14 per cent interest added on annually,” she says. “But a line of credit is usually at about only seven per cent.”

If you already have a truck and your overhead costs are killing you, refinancing might be an option.

“For example, we could combine someone’s house, car and truck loans all together and get a better rate,” says Davis. “That can sometimes save up to $7,200 – so it’s like getting you a car for free.”

David Tiessen, who owns and operates a 1998 Volvo 610 contracted to Zavcor’s Trukking Division, says one of the best ways he knows for controlling overhead costs is to make sure you’re paying off both the principle and the interest.

“You may start out with loan payments at about $2,400,” he says. “But those will go down, so that by the third or fourth year they’ll be around $2,000.”

This comes in handy when you consider that repair bills will start to become a reality at this point, explains Tiessen.

Watch your insurance

Because of the way a carrier’s fleet insurance premiums are set, you may be asked to make high monthly payments because of a fleet’s poor safety record.

“The guys who caused the accidents are gone, but you’re there to pay the price,” Nagle complains. “Remember, you can chose where you work.”

In some cases, carriers faced with the prospect of increased premiums will opt for deductibles that are as high as $50,000. In the event of an accident, a portion of that is usually passed on to the owner/operator.

“Read your contract,” says Nagle. “You may be told that it’s a $5,000 deductible only to learn later that it’s $5,000 on the tractor, $5,000 on the trailer and $5,000 on the cargo.”

He says your overhead would go through the roof if you were to write off all three at once.

Preventative maintenance

The lesson of taking care of your toys is one that should be learned early in life, and it’s more important now than ever before.

“I have a good mechanic and I get a good shop rate,” says Davis. “Anything other than basically washing the truck or changing a headlight I send it in.”

He says he checks his brakes once a week while his mechanic greases his rig every two weeks and completely services it once a month.

Exactly how much money this type of preventative maintenance will save you depends on your truck and its application, but Davis thinks it cuts his overhead by about $5,000 a year.

“The difference is paying US $500 for an alternator and the lost time waiting for a repair truck to come out, or doing the whole thing in advance for about $120.”

Tiessen agrees, and says he takes it a step further. “I’m no mechanic, but I consider myself a parts changer,” he says. “Every week I crawl under my truck and go from end to end tightening hoses and making sure everything is sitting right.

“Anything that just needs to be bolted onto the truck I do myself.

“It may take them four hours to do a brake job and I might need seven or even eight hours,” he says. “But my time is free as opposed to $80 or $90 per hour.”

Cash management

The best way to hold on to more of your hard-earned dollars may be to keep them out of reach.

“If you have a lot of money in your pocket it tends to get spent,” Nagle says. “We all love Automated Teller Machines, but the convenience can get you into trouble.”

“Cash advances are one of the things that can really get a fellow in trouble,” he adds. “When they’re freely available and a guy starts to live on them, when you finally get your cheque, there’s nothing left.”

Take a good look

According to Nagle, about 80 per cent of Canada’s owner/operators do their books only once a year. If they really want to reduce their overhead, a quarterly or monthly examination by an accountant is worth the investment.

“The big news in January 2000 is that guys are now seeing their year end results for the first time, and they’re finding out how hard the fuel price increases hurt them,” he says.

“It has made a lot of guys who haven’t been paying attention quite marginal.” n

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