How to Start a Trucking Company
Sick of driving for big companies? Start your own trucking company instead.
- August 6, 2020
- Starting Your Business
- 22 min read
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Are you sick of driving for an average truck driver salary? Running your own trucking company can be a lucrative business. To be a success, though, you’ll need knowledge of the industry, skill in building out a business, and perhaps most importantly, access to capital. And depending on if you want to be an owner-operator or solely an owner, you’ll need the skills to drive or hire qualified rivers. With truck driver shortages being the norm over the last few years, according to the American Trucking Associations, your service as a driver or owner is in demand, and demand can drive major revenue and profits.
Knowing there’s a business opportunity in trucking and creating a successful new company are two different things. There are a series of steps you’ll need to take to get from the drawing board to profitability. The good news is there are a number of companies and associations that can help you along your way, with everything from regulatory requirements to startup business funding. The key is to not overlook any of the important stepping stones along the way to success.
While there’s no one path to success for you to follow — part of your success has to come from having a knack for business and an eye for detail — there are some basic steps that all trucking owner-operators can take to ensure their trucking business is positioned for a positive outcome.
Related: Best Truck Loans of 2020
Another trucking company comes in the form of an owner-operator. An owner-operator is someone who owns a small business and also runs the company’s day-to-day operations. The term owner-operator is used in many industries, but it often refers to trucking.
Becoming an owner-operator in the trucking industry is a way to use your knowledge of trucking, without having to necessarily be behind the wheel, though that’s still an option. It can come with autonomy and freedom, but it also requires more responsibility and business skills.
Here are the steps you can take to start a trucking company:
Honest self-assessment is an important first step when opening any business, including trucking. Ideally, if you’re starting your own trucking company, you’ve already got first-hand experience in how the business operates, either as a driver or other type of employee. However, inexperience doesn’t necessarily mean you can’t succeed in the trucking industry; you’ve just got to realize that it’s more of a drawback than a strength. For example, if you don’t know the difference between a tractor and a trailer, this might not be the industry for you, even if you can smell the opportunity in the business.
Ultimately, you’ll want to identify your strengths and weaknesses when it comes to running your own trucking company so that you patch the holes where you may fall short. For example, if you’ve got 10 years of driving experience, you likely understand many of the shortfalls of the trucking industry, including the potential of a lonely or unhealthy lifestyle for your drivers. This can help make you a more empathetic boss. If you don’t have this type of first-hand experience, you might need to employ some drivers or other personnel that can explain this side of the business to you.
If you have no driving or trucking industry experience yourself, you can still be ahead of the game if you’re a master at the financial side of starting and running a business. Although you’ll still need to learn the specific requirements and unique demands of the trucking industry, understanding how credit, insurance, licensing and other aspects of running a business will come into play can help set you up for success.
With time and effort, you can learn aspects of the trucking business that you might not have first-hand experience with. But before you can do that, take an honest look at your talents and capabilities to see if you have what it takes to create a trucking business out of nothing.
Whether you’ve got years of experience driving for a trucking company or you are just looking to open a new business in this growing field, take a step back to evaluate your decision. Ask yourself why you want to enter this field and if you are prepared to become a business owner.
On the financial side, you’ll have to decide if you really understand the ins-and-outs of the trucking business. There are many important aspects of the business you’ll need to understand, such as truck leasing, truck insurance, industry regulations and developing a long-term maintenance plan.
These are all things that you can learn or manage if you put in some time and effort. But it’s a good idea to sit down and take an honest assessment of where you stand before you take the next step to become an owner-operator.
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Owner-operator trucking jobs are unique in that they can essentially be created out of thin air. If you’re an independent truck driver thinking of starting a trucking business, you probably already have some of the skills you need to succeed. With some equipment financing and commercial truck financing, you’ll be on your way to becoming an independent owner-operator. But it’s not for everyone. You may prefer the desk work instead.
Right off the bat you should decide if you’ll be driving or hiring drivers as this one decision will impact how you run your business entirely. You may need to run some numbers to decide which is more cost effective and has the potential to bring in more revenue. You also need to evaluate your own desire (or lack thereof) to drive.
No matter which path you take on your quest to start a trucking company, you’ll need a combination of working capital, fleet management skills and an understanding of your legal liability. It’s no help if you know what an MC number is but can’t turn gross revenue into net profit; similarly, understanding your finance interest rate and your cost per mile won’t do you much good if you don’t comprehend how a big rig operates and what kind of truck and trailer maintenance you’ll need to perform.
The bottom line is this: Your best chance to succeed as an owner-operator is to understand both the business side of the trucking industry and the day-to-day realities of driving and maintaining a trucking fleet.
You can’t just “wing it” as a trucking owner-operator. You need to know how to write a trucking business plan that shows where you want your business to go and how you’ll get there. For starters, you’ll need a concrete document showing the financing and equipment you’ll need to reach your revenue and profit goals.
Creating a business plan is an essential step in setting up any type of business, including a trucking company. Although many entrepreneurs fly by the seat of their pants when it comes to setting up a new company, those without a written road map are more likely to fail. Knowing how to write a business plan, however, does require some inside industry knowledge.
A business plan doesn’t need to be an intimidating, 1,000-page document that specifies each individual step you’re going to take for the next 20 years. Rather, it’s helpful to think of a business plan as a simple guideline to help you get where you want to go — and to help you stay the course when things get rough. Even the best-run companies have growing pains, and when times turn difficult, it’s essential to have your path already laid out for you.
A good business plan can help you in multiple areas. One of the most important is that it can help you when you apply for commercial truck financing. A well-written executive summary alone may be enough to explain why finance companies should extend you a loan. Beyond the broad strokes, a good business plan will detail how your business is going to operate, from sales and marketing to pricing, business operations, fleet management and other considerations.
More than anything, the very act of writing a business plan can help you articulate exactly what type of trucking company you want to operate. For example, will your business be a sole proprietorship, an S-corp, a C-corp or a limited liability company? Do you plan to focus on long-haul or short-haul trucking? Should you buy trucks, or acquire them via an operating lease? Will you be an owner-operator? Do you have future expansion plans? Have you budgeted for ancillary costs? What are your financial projections? These questions, among many others, should be resolved as you go through the process of formalizing your business plan.
On top of your business plan, you’ll need something in writing for when things don’t go exactly as planned. As the boxer Mike Tyson once famously quipped, “Everyone has a plan until they get punched in the mouth.” When you’re running a business, it’s important to be prepared for the inevitable “punches in the mouth” that threaten to derail your business.
The trucking industry is highly regulated. Before you can even get rolling, you’ll need to understand and acquire the necessary licenses, truck permits and other documentation to operate a trucking company. Some of these required documents include:
- A commercial driver’s license (CDL)
- A USDOT number
- A Motor Carrier number
Getting a CDL is a bit more involved than getting a simple driver’s license, if you don’t already have one. In addition to choosing a specific type of vehicle and kind of driving you want to do, you’ll have to pass a three-part skills test.
Your USDOT number is unique to your company and helps the U.S. Department of Transportation create a safety file on your business. This information is used during inspections, compliance audits and crash investigations. Any trucking business involved in interstate commerce/transport needs a USDOT number, as do intrastate companies that carry hazardous materials. A total of 37 states also require trucking companies to get a USDOT number regardless of their type of business, even if it’s completely intrastate, so it’s essentially a requirement for nearly any type of trucking company.
Technically, not all trucking companies need a Motor Carrier number, but in reality, most do. According to the Federal Motor Carrier Safety Administration (FMCSA), you’ll need an MC number if you operate as a for-hire carrier, if you transport passengers in interstate commerce, or if you transport federally regulated commodities in interstate commerce. Unlike a USDOT number, which is unique and applies to an entire business, you might need to file for more than one MC number, depending on your business. Interstate companies must also file for an MC number with the Federal Motor Carrier Safety Administration (FMCSA). An MC number gives a company an interstate Operating Authority for a specific type of trucking. Depending on your business, you might need to obtain more than one MC number.
Before you can start operating your fleet, you’ll also need to install electronic logging devices, or ELDs, by congressional mandate. These devices sync with a vehicle to automatically record driving time and other data points to help promote a safe driving environment for drivers.
Truck insurance is a necessity so that should be one of the initial steps in setting up your business. The FMCSA also requires certain types of insurance, such as liability and cargo insurance, before it will issue an operating authority.
Beyond the demands of the FMCSA and your finance company, however, you should want to get insurance. Trucks are high-mileage vehicles that often have demanding schedules. This results in inevitable maintenance issues from time to time. If you’re a startup owner-operator, having a disabled truck could end your company before it ever really gets going.
Insurance is the tradeoff of a small, certain loss in exchange for protection against the possibility of a large loss. You make regular premium payments — your small, certain “loss” — so that the insurance company bears the risk of calamity, such as all of your trucks breaking down. Since a single disaster is often enough to send a startup company into bankruptcy, you’re going to need many kinds of insurance for your new trucking business.
One of the most important truck insurance policies you’ll want to take out is one that covers damage to your vehicles. As your company will only make money when your trucks are out on the road, you’ll actually want your vehicles to rack up mileage. Of course, the more mileage a truck has, the more likely it will break down. Even with preventive maintenance, you should expect to encounter some periods when a truck is out of service. In some cases, you might even be faced with a total loss of a truck. Without insurance, the loss of your source of revenue is a sure path to insolvency, so you’ll definitely need coverage on every single one of your trucks.
Liability insurance is another requirement for your business. If one of your truckers runs someone off the road, your business will be liable. Just like the breakdown of your trucks can spell financial disaster, so can a lawsuit. Insurance can help you avoid the risk of paying out a large settlement should something happen. Beyond that, it’s the law. According to FMCSA regulations, you’ll need somewhere between $750,000 and $5,000,000 of liability insurance alone, at a minimum.
A final critical reason to get insurance for your trucking company is that you’re unlikely to obtain truck financing without it. No lender is going to give you money for your business knowing that they’ll face a total loss in the face of an accident.
Financing is the lifeblood of any trucking company, more so than many other businesses. The reason is that trucking is by definition reliant on equipment. In addition to all of the general business expenses that any company needs, such as office supplies and payroll, a trucking company needs vehicles, which can average around $80,000 per truck. Whether you lease or finance your trucks, you’re going to need to get truck financing. Beyond that, you’ll need funding for a multitude of other items critical to the daily success of your business, such as maintenance, insurance, legal fees and benefits for employees.
When looking for financing, try to match yourself with a company that understands your needs as a startup owner-operator. Many larger banks won’t bother to finance new or startup companies, and some smaller operators might not have the expertise in dealing with the needs of new trucking companies. The reason it can be harder to get a loan as a new operator is that more well-known banks commonly require two or more years of operating history before they will even look at a loan application so your application may be dead on arrival before anyone even looks at it.
While some risk-averse entrepreneurs may not want to take out a big loan, your business simply cannot thrive unless you have tons of money to fund the business yourself (and if that’s the case — what are you doing? Go to Hawaii instead!) Without financing, your business simply can’t operate, no matter how much documentation you might have. So, once you’ve set up the foundation of your business, your top priority should be to acquire truck loans to run it. Even a small trucking business can get expensive fast.
The good news is that some finance companies have emerged that offer both convenience and the ability to finance small or startup companies. Rather than spinning your wheels trying to get startup financing from an international bank, search for a reputable online lender that specializes in companies like yours. In some cases, these types of companies might be the only answer to question of how to start a trucking company with no money. What you might find is that in addition to getting financing, you might find that these smaller companies, such as Seek Capital, have expertise in meeting the needs of startups.
You can’t run a trucking company without trucks, so once you’ve got your financing secure, you’ll need to buy your fleet, whether that’s a single truck or 100. Your rig is the key to your whole business as an owner-operator. Of course you’ll need financing and insurance and all of the other necessities to operate your business, but without one or more trucks, you have no source of revenue.
Your trucks are quite literally the drivers of your company’s revenue, so you’ll need to be astute in the types of vehicles you acquire. Are you running a long-haul business or will your routes be strictly short-haul? What type of cargo are you planning to handle? Do you need trucks with refrigeration? Do you want cheaper, high-mileage vehicles — which might require more maintenance — or more expensive, low-mileage vehicles? You’ll have to search the truck market for a fleet that’s an exact match for the routes and cargo you intend to carry. The more efficiently you can match your trucks to your business, the greater your chances for success.
In addition to matching your fleet to your business plan, you should understand how your choice of vehicles could affect your financing. For example, since high-mileage trucks intended for long-haul trips are more likely to break down, your lender might require a higher down payment or charge a higher interest rate on your loan. In some cases, you might not be able to find any financing at all on a very old vehicle. Some lenders won’t offer a loan on a truck that is too old, for example. You might also get a better financing deal on a truck that’s only intended for shorter hops. Long-haul freight trucking racks up mileage faster, and trucks tend to break down more often as a consequence so it’s critical you choose the right truck from the get-go.
The bottom line is that to optimize your chances for success, you’ll have to find trucks that are an exact match for the type of company you intend to operate. The more successfully you can match your vehicles to your business plan, the more efficiently you can run your business.
No person is an island, and neither is a business. The further you can extend your reach as a company, the more likely you are to attract customers and generate revenue. If you’re starting a trucking business, one of the most critical moves you can make is to join the American Trucking Associations.
As a trade organization, the ATA’s whole reason for existence is to help companies like yours become more profitable while operating safely. In addition to keeping current with trucking industry regulations, trade organizations offer conferences and other business education and development opportunities that can be extremely helpful for companies, especially startups.
The whole purpose of the American Trucking Associations is to increase the productivity, profitability and safety of the trucking industry. As an owner-operator, it’s critical to have a trade association like this at your back. Each state has its own affiliated trucking association, and they all offer conferences and councils to talk about and help develop the industry. Depending on the nature of your business, you might want to join other specialized associations, such as the National Tank Truck Carriers Association or the Truckload Carriers Association.
Even if you have years of experience in the trucking industry with a spotless driving record, you can’t operate a trucking company completely by yourself … at least not for very long. Even if you decide to go the owner-operator route and drive your own truck, it can be nearly impossible to do all the heavy lifting and still have time to successfully man a home office at the same time. While this might work for a short time if you exclusively run short hauls, it’s not a winning formula for the long run.
To properly maintain and grow your business, you’re going to eventually need someone to answer the phones, book jobs and maintain your business records. You can certainly outsource some of these tasks, perhaps via a legal, financial or tax advisor, but you’ll ultimately need good employees to help your business grow. In most cases, even as an owner-operator, you’ll need to hire at least one additional driver, so that you can swap time off. If you’re not intending to man a rig yourself, one of your first hires will obviously have to be a driver.
Even if you choose to be a sole proprietor, you can’t run a successful trucking company entirely by yourself — though many try. Sooner or later, you’ll need someone to answer the phones, or keep the books or even drive your additional trucks. While you may or may not choose to have employees, you will need legal, tax and/or financial help along the way.
The people you choose to work with can be as critical to the success of your business as you are. For example, if you’re hiring a law firm, you’ll want to make sure that company understands how your business operates. Similar to when you obtain startup financing, look for a company with a solid Better Business Bureau rating that has experience funding and supporting startup companies.
Your truck fleet may be the revenue-generation machine of your company, but without customers, those vehicles will never be put to use. If you’re entering the trucking business, it’s likely you’ve already got at least one or two customers in mind that you intend to serve. If not — or if you plan on expanding right off the bat — you’ll need to market, network and advertise your business immediately.
Joining trucking associations can be a source of good leads and networking. In the digital age, having a good website and understanding how to market via social media are also essential steps. Although you may only have a small number of customers when you first start your business, your ultimate goal should be to diversify your client base via an effective sales strategy. If you rely too much on a single customer, variations in order flow could seriously disrupt your business.
Once your business starts rolling, you’ll have to keep a close eye on your finances if you want to run a profitable organization. Generally speaking, you’ll always need more capital than you think you do. When you first start a trucking business, your operating expenses will often exceed your income until you start generating more business. This is why you should always aim to raise money in excess of what you think you’ll need for your initial operating capital.
Remember that many businesses, especially trucking, are cyclical. When the economy is booming, everyone needs truckers to get their goods from point A to point B. But when the economy contracts, such as during a recession, demand for goods declines. You’ll need excess capital — the business version of an emergency fund — to make it through the leaner times. In fact, you may not even be able to get initial funding from a bank unless you can demonstrate that you already have cash reserves, as a company with inadequate funding is a riskier venture from the perspective of a lender.
Once you’ve got your funding, be sure to protect it. Always make your loan payments on time so that you can keep a good credit history. Just like you need good credit to get your initial round of financing, you’ll need to keep it to get additional financing in the future at reasonable rates.
As an owner-operator, you’ll need to be even more diligent with your finances. Spell out in black and white exactly how much you need to earn from your owner-operator business. Factor in all possible expenses, from operating expenses and professional fees to emergencies and down time. Be realistic with your need for time off and the number of hours you can honestly work in a given day. You could benefit from sitting down with an accountant to help you run through the numbers.
You could have the sharpest business acumen in the world, but if the government shuts you down for operating outside of the law, your company will still end up bankrupt. Familiarize yourself with FMCSA regulations, which appear in the U.S. Code of Federal Regulations. If you’re a member of the ATA — and you should be — you can also be regularly updated on regulations.
You don’t just need initial operating capital to run a trucking business, you need excess capital. In fact, if you’re just starting a business, it can be hard to get initial funding without demonstrating that you have a source of excess capital. Businesses ebb and flow, and during down times, you’ll need money to make it through to the next up cycle. You’ll also need funding for emergencies that aren’t covered by insurance. If your truck breaks down, for example, you might have insurance to get it repaired, but you can’t replace the revenue you lose while the truck is in the shop. To avoid a problem like this affecting payroll, for example, have a business emergency fund at all times.
As financing is the lifeblood of a new trucking business, credit is the lifeblood of financing. If you had a bad credit history when you were applying for your initial funding, you already understand how difficult and/or costly it can be to access capital. Once you’ve got your financing, be sure to never miss a payment. If your credit takes a hit, it could impact your ability to get any new financing going forward, and you might have to pay a higher interest rate on your existing loan. This can hurt your business more than you can imagine.
So you’ve successfully registered your business, financed your equipment, remained healthy, maintained a spotless credit history and planned the path forward for your business. What’s the next step? Careful expansion. If the demand for your business exceeds your capacity, you can potentially make your business even more profitable by adding more trucks or personnel.
Just remember that when you expand, you’ll have to go through the same process of personal and business review that you did before you opened your company originally. Understand the complexities of fleet management, have realistic expectations and assemble a good team around you to smooth the process.
No one person has all the answers in any business, particularly in the trucking industry. There are plenty of ways to make money as an owner-operator, so keep learning from your colleagues and industry organizations. Especially if you’re a startup, you can always learn something about operating more efficiently or exploring new markets, so remain humble and always be on the lookout for information about how to better succeed.
Starting and running a trucking business as an owner-operator isn’t all that different than if you were just running your business and not operating the trucks yourself. However, you’ll have to decide whether you’re going to lease your services out to an existing trucking company or find your own loads to haul. You’ll also have to consider how to run your home office while you’re out on the road, and how many additional drivers you intend to hire over time — if any. Figuring out if you want to be an owner-operator before you make a business plan or seek funding is critical as it will impact how much money you’ll need to borrow and how many trucks you’ll need to buy or lease.
Now that all your ducks are in a row, what is the amount of money you’ll need to start your business? The answer is, of course, “it depends.” The size, scale and scope of your company will make a huge difference in what the total cost of starting your company will be. However, here are a few of the definable costs that you should factor in:
- Registration and formation documents: $500+
- IRP plates: $298
- Heavy vehicle use taxes: $0 to $550
- Truck Driver salary: $43,680 on average
- Price of truck: $15,000 to $175,000
- US DOT number: $300
- Unified Carrier Registration: $76+
- Insurance: $10,000+
- CDL endorsements: $142.25
- Marketing and customer acquisition: $5,000+
Some of these costs are mere estimates that can vary wildly depending on your state, the enactment of recent legislation and your goals as a company. For startup fees alone, you should likely budget $10,000 to $20,000 and then add on the price of your truck(s), driver salaries, maintenance costs, ongoing insurance and office expenses.
There are two entirely different skill sets involved in learning how to start a trucking business and actually knowing how to run a successful trucking company. The former requires attention to detail, while the latter demands business acumen and an understanding of how supply and demand works in the trucking industry.
These steps to starting a business in the trucking industry offer the basics of what you’ll need to do to get your trucking company off the ground. For more in-depth support, you’ll likely want to work closely with a startup-oriented finance company like Seek Capital to both obtain capital for your business and to have a business partner that understands the needs of your new company.
Succeeding in any new business is a challenge, but trends in the trucking industry seem to indicate the potential for success for new owner-operators. Translating that potential into profitability requires a long string of successful steps, starting with getting the correct licensing and obtaining funding for your new venture. Don’t be discouraged if your credit score or your short operating history block funding options for you with larger banks. Instead, look into online or specialty finance companies, like Seek Capital, that are ready and willing to work with startups.
If you keep your eye on your business costs while continuing to learn and understand your market, you have every chance to succeed with the right business partners by your side.
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Photo credit: Dabarti CGI/Shutterstock.com
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