Figure It Out
Why truckers need to crunch the numbers
By Timothy D. Brady
When most people think of bookkeeping, they likely don’t think “trucker” in the same thought. Bookkeepers sit on a stool over a writing desk with a visor, garters to keep sleeves out of the ink, and a furrowed brow. But in reality, any trucker who isn’t a bookkeeper will be out of business shortly.
Bookkeeping is the foundation upon which your business is measured. Without keeping good books, you have no means to determine where your company has been, where it’s at today and where you need to head tomorrow. Not having a good bookkeeping system would be the same as purchasing a road atlas with all the pages blank.
Doing the math
Many truckers think of bookkeeping as just having the correct information to file a tax return. And while it’s very important to keep excellent records to minimize your tax bite, that’s only a small portion of what keeping a good set of books is all about.
The first question to ask yourself is, “How much income does my operation require to meet the cost of doing business?” To answer, you must know what it costs to run your operation. There is a point where income meets cost in every operation. That is the break-even point.
Think of it as the front center of your truck’s hood. You can’t very easily keep your truck going in the right direction unless you can gauge how straight you are to the center line of the road, and the front center of your hood is the reference point from which this is determined. The break-even point becomes the reference point in determining how you are headed toward your company’s financial goals.
To figure your break-even point, you absolutely must keep track of all expenses. What are your fixed costs, the bills that come due month after month? What do you shell out to get the job done, as far as truck maintenance, meal expenses, tires and so on? When you take on a load, what kind of expenses are attached to that load specifically?
And you can’t wait until the end of the year to start separating your receipts into the correct expense categories. In today’s trucking business environment if you don’t know where you stand financially every single week you’ll find yourself in trouble.
If you rely on hauling rate information from brokers or customers without knowing your costs — all your costs — you will find yourself short of revenue. Put it this way: if you don’t know your break-even point and how much income above it you need to cover expenses and have a bit of profit, you won’t know whether you’ve got a money-making load or not. It isn’t the brokers’ or shippers’ job to know what that point is; it’s your responsibility.
Then you have to put all of that information into context. With the cost of fuel and the limited amount of available decent-paying tonnage, you must focus on what makes a load worth hauling. By knowing your numbers and having a hauling rate range based on your break-even point and profit, you won’t be wasting your time hauling shipments that don’t pay enough to cover your expenses.
If you really want to improve your financial standing in the trucking industry, begin with knowing your numbers. Others may not think of trucker and bookkeeping in the same sentence, but successful truckers do.
Develop your three Super Categories
Fixed Costs: Any expense that must be paid regardless of whether the truck’s rolling or not. Think: if I have to pay this expense even if the truck sits for two months, it’s most likely a fixed cost. This includes truck payment, insurance, license and permits, FHUT, cell phone, other office expenses, etc. And don’t forget the most important expense — a fixed salary for yourself and anyone assisting you. These costs need to be totaled for a full year, then divided by 365 days to determine your fixed cost per day.
Constant Variable Costs: These expenses occur every time you jump in the truck and roll. They include truck repairs, truck washes, uniforms and laundry, tires, maintenance, actual cost of meals on the road, state fuel tax and ton-mile taxes, equipment repairs, etc. Constant variable costs are figured from what it cost last month to run your truck. Divide this total by the actual hub miles your truck covered last month to find your constant variable cost per mile.
Load Specific Costs: Some expenses only apply to specific loads — tolls, lumper labor, or trip permits — while other expenses have significant differences in the amount spent each trip, like fuel. These figures need to be up-to-date to the load or week in which you are paying the money for them. Take your total hub miles for a week, divide by your truck’s anticipated miles per gallon, and multiply by the current fuel cost per gallon, for the total fuel cost for the week. Add the week’s tolls, labor and permits outlay to your fuel cost total to determine your weekly load specific cost.