Streetsmart insurance Blog
Are you interested in starting a new trucking business? The trucking industry is one that provides ample opportunity to large nationwide corporations and new companies alike, simply because there is such high demand for commercial freight shipping. From perishable goods to consumer products, goods always need to be moved from one location to another. Trucking companies are frequently contracted to handle this movement of goods. As such, the number of clients or potential clients in this industry is high. Because there is so much opportunity in the trucking industry; there is also a lot of competition as a result. Therefore, if you want to give your trucking company a chance at succeeding, you will need to make sure to set a strong foundation. Here are seven things you need to build that foundation.A Proper Legal Structure
To start a new trucking business, you have to register a business. You have to set up a business entity with the proper registration and legal structure. Essentially, this step will ensure that you establish your business in accordance with all state and national laws and that you can be taxed as any other business would. While every true business needs a legal structure and needs to pay taxes, though, the type of business entity you choose for your trucking company can vary. For federal income tax purposes, there are five primary options here: Sole Proprietorship, Partnership, Corporation, S Corporation, and LLC (Limited Liability Company).
Even if you are an independent owner-operator, it might still be in your best interest to establish either a corporation or an LLC. By doing so, you can keep your personal assets and your business assets separate. This separation is beneficial if your firm ever finds itself as the target of a lawsuit or claim. In a sole proprietorship, you could be fully liable for any claims, and you would have minimal protection for your personal assets and finances. In an LLC or corporation, the business would be responsible. You limit your personal liability by choosing to register your business as a corporation or LLC.
As to which setup you choose, it’s a good idea to do some research online to learn about the pros and cons of both corporations and LLCs. For most trucking companies, an LLC is a superior option. An LLC is easier to manage—particularly if you are a sole owner—and usually offers better tax breaks. Again, though, it is best to do a bit of research here.
The Necessary Licenses and Permits
Perhaps the most complicated step of setting up a new trucking business is the process of obtaining all of the necessary licenses and permits. The specific requirements here can vary a bit depending on the state in which you base your corporation or LLC. However, as a general rule, you will need a commercial driver’s license, a Federal Department of Transportation (DOT) number, a Motor Carrier Authority number, an International Registration Plan (IRP) tag, an International Fuel Tax Agreement (IFTA) decal, and a BOC-3 form. The commercial driver’s license permits you to drive big and heavy trucks, the Federal DOT number tracks your safety and compliance records, the Motor Carrier Authority number clears you to carry specific types of cargo, and so on. Read up on your state’s requirements to learn more about each of these licenses or permits or to find out what other documentation you need to have. Also, if you plan on hiring drivers to help with jobs, those workers will need commercial driver’s licenses of their own.
Trucking businesses tend to have fairly hefty insurance rates, simply because there is so much to ensure. Any equipment you buy for your business will need to be insured, especially the trucks themselves. You will also need primary liability coverage to cover any injuries or property damage that you, other drivers, or your truck itself may cause. It is illegal for truck drivers to drive without this primary liability coverage. If you have employed drivers or cargo loaders on your payroll, you may also consider worker’s compensation insurance. As for your cargo, trucking companies can get specific cargo insurance policies to insure any and all cargo that might become damaged in transit.
You may need to show proof of some of these types of coverage to get your licenses and permits. Others are just wise to have to protect your business from losses or potential accidents. Either way, it’s a good idea to speak with a specific insurance company that deals with the trucking industry. A representative from such a company will be able to tell you what types of insurance are available and set up a coverage plan for your business.
You can’t operate a trucking company without proper insurance, licensing, and business structure. Even despite the importance of the first three steps, though, buying your trucking equipment is likely the most important and defining phase of starting a trucking business. What you buy and how much you buy will depend on several factors, from your startup budget to the type of cargo you will be carrying, all the way to the setup of your business. If you are an independent owner-operator and don’t plan to hire other drivers, then you might be able to get by with just one truck. If you have a large budget and grander designs, you might invest in a larger fleet. Some cargo types will do just fine in a simple semi-trailer truck. Other cargo might demand a vehicle with particular features, such as refrigeration for perishable foods.
Regardless of truck type and quantity, you should put anything you buy through a relatively rigorous inspection process. In all likelihood, you will be buying used vehicles to start your fleet so that you can keep expenses down. As such, it’s essential to check the brake pads, axles, wheels, tires, engine, and other components. Taking a look at the maintenance history of the truck is also advisable. If there is a commercial truck and trailer inspector in your area, it’s a worthwhile investment to bring them in to check everything before you buy. If there isn’t, make sure you do plenty of homework online.
As previously mentioned, not every trucking company needs a team of drivers. Especially if you are starting small, with a limited budget, you are probably going to go the independent owner-operator route for a while. As your business grows and you win more and more contracts and clients, you will probably need to bring other drivers aboard. While you could sub-contract other drivers and trucking companies to help with your workload, you will be able to establish a clearer brand identity and improve your profits by hiring drivers as employees of your business. With that said, remember that to hire your own drivers, you will have to think about salaries, benefits, income tax reporting, and more.
All of the equipment and licenses in the world won’t mean anything if your trucking business has no clients. Knowing where to start is key. You aren’t going to land a contract for a large nationwide account right out of the gate—and if you did, you likely wouldn’t have the capacity to do the job anyway. Instead, you are going to start small. Start making phone calls to local businesses about their shipping needs. Talk to grocery stores and breweries; talk to restaurants and clothing retailers. Your goal is to find clients who already have regular transportation needs and who might be willing to take a chance on a new, locally based freight company. These local customers, if you can win them over, have the potential to become lucrative repeat customers, so do your best to charm them.
Also, you can check for load boards or freight boards online. These sites are primarily places where freight brokers will post freights, and trucking companies will make bids. On one hand, load boards and freight boards are extremely competitive, so having a different plan A for getting business is a must. However, as you learn how to bid, and you start to establish a reputation for your business, you will start winning contracts on load boards and broadening your client base in the process.
A Knowledge of How to Bid
Speaking of bidding, a knowledge of how to make and win contract bids is the last big thing that your trucking business needs to get off the ground. Bidding is all about strategy. As a smaller company, your bids are going to have to be lower if you want to win contracts. Freight brokers will be more likely to consider bids from new or unknown shippers if those bids are particularly affordable. However, you also need your bid to be high enough to cover expenses and earn you a reasonable profit. As you go, you will get a better feel for how much money your company spends on expenses each month, from fuel to truck maintenance to employee wages (if applicable).
You also need to consider the specifics of a job, like how far away the delivery is and whether or not you can pick up another load near the delivery location. The last thing you want is to bid conservatively for a far-off delivery, only to have to drive the truck all the way back home without carrying a load. This concept—called deadheading—is the worst-case scenario for most trucking companies, so avoiding it should be a top priority when you make bids.
In the competitive world of trucking, getting a new business off the ground isn’t easy. However, with so many opportunities available in this industry and with so much demand for quality trucking services, a new company can find a way to be successful. Making sure that your business has the seven essentials listed above is the first step to discovering that success.