Tracking progress, filing income taxes and maximizing your bottom line
Bookkeeping is one of the most important activities of successful owner-operators. The receipts and records you keep are used in a number of areas of your business – income tax reporting and minimization, warranty issues, maintenance information and monthly profitability, to name a few.
A business services provider can save you time with this task, but you should take an active role in collecting the information. The more organized and thorough you can be in your receipt gathering, the better.
You can simplify the bookkeeping task by following six simple practices that translate to higher profit with less hassle:
1 SAVE EVERY RECEIPT, NO MATTER HOW SMALL.
Why “tip” the taxman? It’s the job of your business services provider to help you deduct as many legitimate costs as possible. Place an envelope in your truck for collecting your receipts, or use dedicated folders on your computer or in the cloud for e-receipts. At the end of each month, send them to your business services provider, who can sort and tally them and provide you with a monthly profit-and-loss statement as well as accurate quarterly tax estimates. Whether you’re building spreadsheets on a laptop or using online software such as that available at mygauges.com (see “Simplifying recordkeeping”) or other vendors (see Chapter 14), the receipts are crucial in case you are audited. Scanned images of receipts are acceptable; keep the original paper copy for any big-ticket item for warranty purposes. ATBS will scan the contractor’s receipts and provide a CD with the data to the owner-operator at the end of the year. ATBS also allows owner-operators to view scanned receipts and financial documents online; this helps owner-operators track and manage paperwork easily when they are on the road and pull up key information, such as the receipt for the purchase of a battery that proves it is under warranty.
If you’re not sure if something is tax-deductible, save the receipt and check with your business services provider.
2 OPEN A SEPARATE CHECKING ACCOUNT FOR YOUR BUSINESS.
If you are the sole owner of the business, open an additional personal account and save yourself the extra fees that are associated with business accounts. Deposit your settlement checks and collected invoices in this account, and pay yourself for driving from these funds. The amount to pay yourself is determined by your budget.
Pay all business expenses from this account. A separate account also will give you easy access to needed information in case you are audited, and bank fees for this account are tax-deductible.
3 USE A SEPARATE CREDIT CARD FOR BUSINESS EXPENSES.
Likewise, it’s wise to keep business and personal credit card spending distinct. Find a credit card without an annual fee and with a low interest rate and, ideally, a generous rewards plan. Pay the balance in full every month.
4 SAVE YOUR LOGS.
Your log book and/or electronic log records are your best proof of your entitlement to per diem (daily) expenses, mainly meal costs. If you’re using electronic logs, now a requirement for most truckers, know how to save and access your history.
5 GET A NOTEBOOK TO CARRY WITH YOUR RECEIPT ENVELOPE.
Use this notebook — alternately, a document or spreadsheet record on your smartphone or computer — to record those expenses for which you cannot obtain a receipt, such as when you wash your truck at a pay facility, business use of your auto, etc. Give a monthly record of these expenses to your business services provider along with your other receipts. You must track the date, location, amount and reason for each expense to meet Internal Revenue Service regulations. Special circumstances include:
Entertainment. Expenses for yourself, such as movie rentals or books, are not deductible. However, if you entertain a business associate, such as a fleet manager or shipping clerk, the expense is deductible. Note the cost of the expense, the date, names of who was there and the meeting’s purpose.
Business gifts. If you make a gift to a business associate such as a dispatcher or a customer, record the cost, date, gift description, the recipient’s name and relationship to you.
Transportation. For use of a personal vehicle for business, include the date you started using it for business, mileage for each business use and annual total miles. Include your business destination and purpose of each trip.
6 SAVE YOUR RECORDS.
You must keep the records that were used to prepare your tax return — records that support income and deductions — for three years from the date you filed the return.
Other records to keep include IRS quarterly estimated tax payments; monthly profit-and-loss statements; insurance documentation; maintenance records and reports; warranty information, which should be available immediately to keep your truck on the road and minimize downtime and maintenance costs; required registration information; settlement statements from your carrier if you’re leased; and bank statements, business credit card statements and canceled checks.
All your records should be accumulated throughout the month and turned into a profit-and-loss statement, also called a financial statement or a statement of earnings. Gather settlement statements and receipts into like categories and total up at the end of the month. Then incorporate your operating information in a consistent format to make the profit-and-loss statement.
The statement should tell you how many miles you drove, your revenue, your costs and how much money you made during the month – your profit or loss.
Building a monthly P&L allows you to track progress month to month to see if you are improving. The statement should include ratios like cents per mile and percent of revenue so you can analyze your performance. You also will be able to compare your profit-and-loss statement to your budget to see if you are on track with your plan (see Chapter 1).
In addition, the statement should have a year-to-date (YTD) column that accumulates each month into a total for the whole year.
Successful owner-operators have to know how to adjust for changing conditions. If you don’t, profitability probably will decline. Are fuel prices low or high? What about insurance costs? Is the economy growing? What do industry analysts say about conditions in the months ahead?
Make it part of your routine to compare your P&L report with your budget and figure out changes you need to make to maximize profitability.
Compare yourself with other owner-operators. Comparisons help you understand changes under way in the trucking industry and what other drivers are doing to adapt. But be careful: Some comparisons are dangerous. Casually comparing settlement checks, for example, can mislead you into thinking you are doing better or worse than you are. It’s more effective to compare revenue and what other operators are doing to achieve revenue, and also what they are doing to reduce costs and minimize waste. If you are not doing as well in some areas as other operators, it is up to you to solve the problem.
A good way to compare is through benchmarking. This is the key to understanding the big picture – not just where you stand in relation to a few other operators, but to the industry as a whole. A good business services provider can provide key benchmarks, or averages, such as cost per mile for dry van haulers.
Such data can help you analyze where you’re performing well and where you need to make changes.