Dollars & Sense

Kevin Rutherford

2 trucks, 20 new costs

Kevin Rutherford | September 01, 2011

Many of the large fleets you pass on the road started just like you – a one-truck operation. But owning a business is risky and isn’t for everyone. Adding trucks, hiring drivers and managing a small fleet are tremendous undertakings. If you follow a plan, it can be very rewarding. It’s important to invest time in two areas.

Know your operation

You shouldn’t add even one truck and driver unless you have at least one full year of accounting data – a profit and loss statement – and a budget on your current truck. Not only does that make sure you are running a solid operation now, but it also becomes the blueprint for your next truck.

Use your P&L statement to forecast profitability on any truck you add. The crucial part is costs. First, add the driver’s wage. Then realize the trucks you add with drivers will never be as profitable as the truck you drive. Fuel mileage won’t be as good. Maintenance costs will be higher. You can expect more downtime. Finding and hiring drivers will bring additional costs.

Finally, you have payroll costs and taxes, such as state and federal unemployment and worker’s compensation insurance. To get around taxes, some owner-operators try to pay drivers as independent contractors, but that creates a risk of serious tax disputes with the IRS and the state. If you own the truck, your drivers are employees by law. If you can’t afford to pay the costs, you can’t afford to expand your business.

As you do the math, don’t be surprised if there is little or no profit left over. Many fleets operate on a margin of just pennies per mile after expenses. Learn how to run one truck profitably before attempting to expand, and know your numbers inside and out.

Get a quality driver

If you really want to be successful, don’t cut corners or try to save money when it comes to drivers. You get what you pay for.

You have to offer something the other carriers don’t. Check out average driver wages in your area or freight segment and then pay 5 percent to 10 percent more. That certainly cuts into your profitability in the short term, but hiring and retaining good drivers will be the key to success as you grow. This is why you have to excel at controlling costs in other areas.

To find drivers, cast a wide net. I normally take out ads in a few large newspapers. I don’t advertise in trade magazines or websites, though, because my small ad would be lost among those of large carriers with huge ad budgets.

The drivers you hire will make or break your operation. Solicit a large number of applicants, interview them thoroughly and check references.

I can usually generate 50 to 75 phone calls with well-placed, well-written ads. From those, I have a phone interview ready and usually whittle the applicants to 10.

I schedule in-person interviews with the 10, looking to find three potential hires because I like to have backup candidates. Many times your first choice won’t work out and you don’t want to have to start the process over from the beginning.

Beware the horse before the cart

One of the biggest mistakes I see owner-operators make is adding a truck because they have a driver.

A friend or a cousin says, “If you buy a truck, I’ll drive it for you.” This is never a legitimate reason to expand your business. Nine times out of 10, that driver will not be with you in six months.