If you’re thinking of a new business venture, it’s tempting to think that your best chances of success are starting a tech startup. However, your chances of success are probably higher if you look for a more traditional business that is in high demand.
One such business is starting a new trucking company venture. The logistics business is booming worldwide. Freight carriers can find plenty of lucrative customers in the import-export business or delivering freight from manufacturers to giant retailers.
In order to minimize your risks with a new trucking venture, you need to establish positive cash flow, buy the right equipment, hire the right people, and only work with reliable customers. After you get these things right, you should be able to quickly scale up your business by increasing the size of customer orders and getting new customers.
Establish Positive Cash Flow
You have to create a positive cash flow. This may be the most challenging aspect of running your business. In fact, many businesses fail because they can’t get this part right. Cash flow in the trucking business is a little trickier than in most businesses.
After you invoice a client, you don’t get paid immediately. Instead, on average, customers expect you to offer them a 30 or 60 day credit. If you refuse to extend this credit, they will simply go to another provider.
Although your customers can pay at a later date, you don’t have the same luxury.
Here are some expenses you will need to pay to run your business:
·You have to meet payroll for your truckers and office personnel.
·You have to pay for title, tags, and insurance for your trucks.
·You have to pay fuel and repair costs for your trucks.
·You have to give your drivers an advance for their long trips.
This imbalance between when you have to pay your expenses and when customers will pay you is one of the biggest hurdles you will face when you start your business.
Theoretically, you can get a bank loan large enough to cover operating expenses, but, in reality, a bank is probably only willing to only give you enough money to set up the business.
Although this looks like a barrier too high to cross, you can overcome it with factoring.
TBS transportation factoring explains how this works: “Factoring is a financing tool that provides your company with capital. Factoring is not a business loan. Rather, factoring involves selling your invoices at a discount for immediate cash. The factoring company waits to get paid, while you get immediate use of your funds.”
It’s normal for a factoring company to advance you as much as 97 percent of your customer’s invoice. A reserve is kept in case the customer does not honor the invoice. This is not a fixed rule, with some companies not using a reserve if the customer has an excellent credit rating or if the motor carrier is willing to take on the risk for non-payment.
The payment is often on the same day, with the funds deposited electronically.
Qualification is minimal. If you have creditworthy customers or work with a reliable freight broker, you will probably be eligible. The only reason you may not be eligible is if your trucking business has tax problems or some other issue that would cause it to be a financial risk.
Costs are calculated on a number of factors, so it can range from 1.5 percent to 3.5 percent.
Buy the Right Equipment
Buy the right equipment without getting ripped off by lease operators who end up charging you too much for a truck. However, before figuring out finances, it’s essential to research exactly what type of equipment you need for the type of customers you are planning to work for.
Hire the Right People
Hire the right team of drivers and office personnel. While the drivers will take care of freight, your office personnel will handle marketing, sales, and working with customer orders.
Only Work With Reliable Customers
You will need a carefully selected group of regular customers to be successful in the long run. While it might be necessary to use a trucking load board to generate your first few clients, you have to think long term. You need to develop a lead generation system to build a reliable client base.
You don’t just want any clients. You want clients who pay their invoices when they are due. While it will be necessary to offer clients a 30 or 60 day credit, you don’t want clients who go past the due date.
A few bad clients—clients who delay payments or don’t pay at all—can ruin your business by causing severe cash flow problems.
A Challenging But Profitable Business
You can make money with a new trucking venture if you use things like factoring and if you do things like buying the right equipment at the right price, hiring the right people to help your business grow, and only working with reliable customers.