Growing pains

July 2, 2014
Without proper financing, expanding operations is a road to ruin

How do you grow from a one-truck carrier to a two, three, four or more truck operation?  Very carefully.

One of the biggest misunderstandings in micro-trucking operations is how to increase from one truck to several trucks and trailers (or a fleet) on the road.  Do the math before jumping to the next level.  Most owner/managers seem to think that all they need to do is buy another truck and trailer, hire another driver, and the money will automatically roll in. Unfortunately, this is too good to be true. There’s a lot more to expanding, even when adding just one more truck.

You’ll need answers to the following questions:

  • What will it cost to acquire the truck and trailer?
  • What will it cost to pay someone to dispatch the truck?
  • What will it cost to find and teach that person in your preferred dispatching methods?
  • What will it cost to find and train a trucker to drive that truck the way you want it driven?
  • How will you pay your driver and dispatcher so they’ll stick around while building the freight lanes and finding customers for whom they’ll be hauling freight?

The problem with expansion for many smaller trucking companies is they fail to look at all the costs of expansion.  The most expensive part of expansion usually isn’t the equipment. It’s the cost of the wages you must pay while waiting for the revenue flow of the new truck to catch up with what you’re paying out in salaries per hour and, yes, even per mile.

For example, let’s say you pay a part-time dispatcher $3,000 per month and your driver $4,000 per month.  The typical time for revenue to equal expenses is two to four months (sometimes longer).  You need $28,000 set aside to pay your dispatcher and driver during the time freight revenue is below costs.  Add to this the truck and trailer payment of $3,000 per month ($12,000 for four months), insurance of $800 per month ($3,200 for four months), and you’re at $43,200 for the four months, or over $10,000 per month.  If you think the revenue produced by the driver and truck will cover this in the first couple of months, you’re likely going to be sadly disappointed. (And out of business if your other truck[s] are unable to support the new truck for that period.)

What’s the solution?  It’s called growth capitalization.  Set aside a portion of your current revenue for growing your operation.  To accomplish this, you need to know how much money you will need to do the following:

  • Acquire the truck and trailer.
  • Hire and train your dispatcher and trucker.
  • Pay all expenses necessary to run the truck for at least four months (including driver and dispatcher salaries).
  • Sustain the fixed expenses of your company beyond the new truck, driver’s and dispatcher’s costs in case something goes wrong.

Growth is the most costly part of doing business, but if done correctly and done with a plan, a carrier can become bigger and more successful.

Contact Tim Brady at 731-749-8567 or at www.timothybrady.com

About the Author

Timothy Brady

Timothy Brady is an author, columnist, speaker and business coach who provides information, training and educational presentations for small to large trucking companies, logistics organizations and community groups. He’s the business editor for American Trucker Magazine, the “Answer Guy” for trucking education website TruckersU.com, an author and business editor for Write Up The Road Publishing & Media and freelance journalist. An expert in crafting solutions to industry challenges after 25 years in trucking, Brady’s held positions from company driver to owner-operator to small trucking business owner. Along with sales and business management, he has a well-rounded wealth of experience and knowledge.

Voice your opinion!

To join the conversation, and become an exclusive member of FleetOwner, create an account today!

Sponsored Recommendations

Leveraging telematics to get the most from insurance

Fleet owners are quickly adopting telematics as part of their risk mitigation strategy. Here’s why.

Reliable EV Charging Solution for Last-Mile Delivery Fleets

Selecting the right EV charging infrastructure and the right partner to best solve your needs are critical. Learn which solution PepsiCo is choosing to power their fleet and help...

Overcoming Common Roadblocks Associated with Fleet Electrification at Scale

Fleets in the United States, are increasingly transitioning from internal combustion engine vehicles to electric vehicles. While this shift presents challenges, there are strategies...

Report: The 2024 State of Heavy-Duty Repair

From capitalizing on the latest revenue trends to implementing strategic financial planning—this report serves as a roadmap for navigating the challenges and opportunities of ...