One month at a time
As we head toward the end of 2014, it’s very important to look at where your trucking company is financially. Has your revenue over the past 11 months increased or decreased? Have you achieved the necessary cash flow to pay business expenses? Do you have any money left to sustain and grow your operation? What do you need to do going forward? Set your annual goals, then your monthly revenue bull’s eye.
The first step is to know your daily fixed expenses, per mile operational expenses, and load-specific costs. This will establish your break-even point. Don’t forget the most important expense of any small motor carrier is your salary. Your trucking company can’t survive if you, the owner, depend on the leftover cash to support your family. Establish a monthly salary equal to what would be needed if you had to hire someone to replace you. This covers two bases: one, it ensures you’re paid a regular salary to support your family; and two, if you had to stop driving, you’d already have an established salary to pay a replacement driver. Add this as a fixed expense.
Consider your profit goal next. If you haven’t figured in a profit within your hauling rate range, you have a recipe for disaster. You can’t depend on shippers/brokers to set your rates, as they haven’t a clue as to what it costs you to operate. You need an established hauling rate range that, at a minimum, meets all your costs, including your salary. At best, it provides a profit that you place in reserve for slow periods and capital for growing your operation. The minimum rate should cover your break-even point. (That’s fixed costs per day: your salary; cost per mile for maintenance, repairs, tires and fuel for actual miles required from a previous load’s destination to the current load’s destination; and any load-specific costs like tolls, special permits, load/unload labor, etc.) Your top rate requires that you determine the per-day profit necessary to sustain your operation in slow periods plus an amount you need to grow your operation.
From your break-even point and your profit goal, you can then establish your revenue bull’s eye: Estimate total odometer miles for 2015 and multiply by operational cost per mile. Next, estimate tolls, load/unload labor, special permits or other load-specific costs for next year. Add both of these estimated figures to annual fixed costs (including your salary) and annual profit goal. Divide by 12 and that becomes your monthly revenue bull’s eye. By establishing a monthly target, you now have a goal to shoot for each month.
Think of it like this: If you want to be a star basketball player, in order to improve your game skills, you obviously need a basket to practice shooting balls. As a trucking company owner, you need a revenue bull’s eye for the same reason: You can’t hit what you can’t see.
Contact Tim Brady at 731-749-8567 or at www.timothybrady.com
