Partners in Business: Managing money

Operating and reserve accounts are critical to healthy cash flow.

THIS ARTICLE IS FROM the 2007 Partners in Business manual for owner-operators. The next Partners in Business seminar will be 2 to 4 p.m. Aug. 24 during the Great American Trucking Show in Dallas. The manual costs $14.95, including shipping; to order, call (800) 633-5953, Ext. 1301. Visit this site for more excerpts and program information. The seminars and the manual are brought to you by Overdrive, ATBS, Freightliner Trucks and Castrol.

In the event of an Internal Revenue Service audit, mingling personal finances with your business could cost you thousands of dollars. In addition, the confusion will make it impossible for you and your accountant to accurately analyze your business’ success or, more likely, failure rate. To properly manage your business, it’s best to set up two business-specific accounts.

OPERATING ACCOUNT. This is a bank account seperate from any personal accounts that will be used to manage the income and expenses of your business. All your income from your trucking business should be deposited into this account. In addition, trucking expenses should be paid from this account.

Every month you should write a “distribution check” out of your operating account to your personal checking account to cover your living expenses. The target amount can be determined by looking at your monthly personal and family cash requirements shown in your personal budget.

RESERVE ACCOUNT. The reserve account is a place to set aside money for large or unforeseen items that could put a substantial drain on your operating cash. Examples include major maintenance items, tires, quarterly estimated taxes and insurance deductibles. This money also can be used for a down payment on your next truck or improvements to your existing truck.

Any smart owner-operator operates with a reserve account. The best owner-operators have at least $5,000 in reserve before they ever go into business. The amount of money to maintain in reserve, as well as the rate at which you add to it, should be discussed with your business consultant. This will be based on your budget, the age of your truck and the nature of your operation.

CASH ADVANCES. One sure way to get into financial trouble as an owner-operator is to rely too heavily on cash advances. Most company drivers are trained to take a weekly advance for their expenses on the road. The amount can exceed $250 per week. With no cash management tools in place, this often means that come payday, their paycheck is drastically reduced.

Many drivers carry this habit forward when they become owner-operators. Unfortunately, the cash in their pocket often is wasted on unnecessary chrome, entertainment and other items that aren’t in the budget. Owner-operators who manage their cash this way are never satisfied with their paycheck and usually can’t figure out where their money is going. Cash advances can cost as much as 10 percent of the advance because of transaction fees.

The best owner-operators never take cash advances. Instead, they use their business operating account to manage cash flow.


FREE CHECKING
Banks increasingly are offering free checking, especially for accounts that return no interest. If you’re still paying for the privilege of writing checks, and the interest you receive isn’t making up the difference, look around for a better deal.

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