Dollars & Sense

Kevin Rutherford | May 01, 2012

Ownership risks and rewards

There is more than one way to be a business owner in trucking. As the degree of independent increases, so do the potential risks and rewards.

LEASE-PURCHASE OPERATOR. This means you have signed a lease or a lease/purchase agreement to get your truck through a carrier or a third-party leasing company.

PROS. This is the easiest way to get into business. It requires little or no down payment, credit rating or business experience. You might be able to find a simple, walk-away lease that will let you test the waters without a lot of risk.

CONS. Because there are so few requirements, many people sign the deal long before they’re truly ready, saddled with equipment that’s too expensive and lacking the financial skills to manage maintenance costs. They end up losing a lot of money.

Many lease-purchase deals restrict your decision-making ability when it comes to equipment, such as the freedom to add wide single tires or an oil bypass filtration system. Your two largest costs – fuel and maintenance – can be lowered by such modifications.

Another problem with many lease-purchases is that you are leasing from the same entity that also controls 100 percent of your income. Most contracts prohibit or make it very difficult for you to take the equipment elsewhere. This puts you at risk if things go wrong with the carrier.

Almost anything can be written into the agreement. You need somebody on your side who can interpret what that legalese means.

LEASED OWNER-OPERATOR. This means you buy your equipment – outright or with a loan – and lease it to a carrier. You run under the operating authority of the carrier.

PROS. You have unlimited selection of equipment as a leased operator instead of the small selection of a lease-purchase deal. You also have almost total control over the modification and maintenance of the equipment. You can decide who you will lease to.

Adding trucks to your operation is a sure way to generate more income, but your success still depends on how well you manage the fleet.

CONS. Unlike many lease-purchases, there are no walk-away options. Once you sign to buy, you are committed. If you borrow for the equipment, you are committed for the entire loan plus interest, with severe financial consequences if you default. Believe it or not, you would even owe income tax on the money you failed to pay back.

CARRIER. If you get your own operating authority, you become a motor carrier, even if you own only one truck.

OverdriveOnline.com strives to maintain an open forum for reader opinions. Click here to read our comment policy.