December 1, 2021
There has been a truck driver shortage for years, but it has never been quite so apparent as it has been in late 2021. CNN recently reported that there is a need for 80,000 truck drivers to help solve the supply chain issues. This has caused many drivers to consider the idea of starting their own trucking company. In this article I want to show you exactly how you can start a trucking company that can generate over $400,000 in revenue per year and earn a $100,000 profit.
We have created a trucking income and expense excel spreadsheet that is perfect for owner operated or single truck, trucking companies. I have created a demo video that walks through what to put in each section of the spreadsheet in order to have realistic, industry standard projections that you can include in a trucking business plan, or SBA loan application. Check out the demo below:
Now I want to address some of the most common questions new trucking business owners have, highlight some key assumptions that we made when developing the projections, and show you how it is possible to generate $400,000 in annual revenue with a net profit of over $100,000 for your new trucking business.
When to Start a Trucking Business?
Before I dive too deep into how to start your trucking business, you have to watch my video on why I think a recession could be a good time to start a trucking business. The short of it is that starting a trucking business during a recession can allow you to get better deals on trucks because truck prices tend to come down significantly during a recession, and if you can take out less debt to purchase a truck because prices came down, you are setting yourself up for longer term success when compared to other trucking companies that launch at the height of the trucking market and pay top dollar for their trucks. The trucking industry is cyclical, so having a little extra cash flow wiggle room with a cheaper truck can go a long way when things get tight. Ok with that out of the way, let’s dive into it.
Startup costs and considerations for a trucking business
How much does it cost to start a trucking business?
It will cost between $12,000 and $20,000 to start a trucking company if you are leasing a truck.
It will cost between $40,000 and $250,000 to start a trucking business if you are buying a truck.
Of course this answer can vary greatly depending on what kind of truck you buy, the age of the truck, the make and model, etc. In addition to the cost of the truck you will have a few other startup expenses like:
- Insurance - $3,000+ per truck
- Plates - $1,500+ per truck depending on the state
- Taxes & Fees - $1,000+ per truck depending on the state
Is it better to lease or buy a semi truck?
Your largest startup expense will be your truck. Deciding whether you want to buy or lease a truck is a big decision. According to TBS Factoring, a semi truck can cost between $30,000 and $200,000 depending on whether you buy used or new.
According to CDL.com the cost to lease a semi truck can range from $1,600 to $2,500 per month.
So your decision to own or lease may often come down to how much cash you have available to buy a truck and whether or not you can get approved for a loan to purchase a truck.
People often ask how to fund startup costs for a trucking business, which then leads to a couple more questions.
- What if you don’t have enough money for a down payment for a truck? If you don’t have enough cash saved up for a solid 20% down payment on your truck, then you may have a tough time finding a lender. Most lenders are going to require some down payment. If you don’t have the down payment saved, you are probably going to be forced into leasing a truck while you save up a down payment to purchase a truck in the future. .
- How should you start a trucking business if you have bad credit? If you have a bad credit score (less than 640), you are probably going to have a tough time getting a loan to purchase a truck. So this is probably going to lead you to leasing a truck as well.
If you are leasing a truck you are still likely going to need to pay a few months in advance or place a deposit down in order to get the truck. So in total you can expect:
- Total startup costs for a trucking company when purchasing a truck = $40,000 to $250,000
- Total startup costs for a trucking company when leasing a truck = $12,000 to $20,000
How to get Funding for a Trucking Business Startup
If you are looking to take out a business loan to help fund your trucking startup, I always recommend the SBA Microloan program. If you are able to lease a truck and you need $50,000 or less for working capital to cover your initial expenses, the SBA Microloan program is a great fit. Learn how to get approved for an SBA Microloan. I spent 10 years as the Executive Director of an SBA Microlender and we funded more trucking startups than any other type of business, so I know it is possible!
Operating costs for a trucking company with one truck
The next thing to consider is what your operating costs for one semi truck will be. You will have some fixed expenses that will be the same each month whether you drive a single mile or not. The most common fixed expenses for a trucking company would be:
- Collision Insurance
- Deadhead Insurance
- Cargo Insurance
- Health Insurance
- Workman’s Comp Insurance
- License Plates
- Storage lot or facility rent
In our model we expect a single truck to spend about $2,000 per month in fixed expenses regardless of whether you are driving or not.
In addition to your fixed expenses, you will also have variable expenses that will depend on how many miles or days you are driving. The variable expenses for a single truck trucking company include:
- Fuel - .75 cents per mile
- Telephone - .02 cents per mile
- Tolls - .05 cents per mile
- Tires - .06 cents per mile
- Maintenance - .07 cents per mile
- Repairs - .10 cents per mile
- Broker Fees - .25 cents per mile
- Factoring - .10 cents per mile
- Miscellaneous - .10 cents per mile
We estimated some variable costs per mile, but these can vary depending on where you are driving, what kind of truck, what kind of route, as well as inflation. Based on our default estimates, we expect a trucking company with one truck to have up to $1.50 per mile in variable expenses before paying a driver.
Our trucking expenses spreadsheet can help you prepare a financial plan to determine how much it will cost to operate your trucking business, and you can add expenses as a fixed expense, a percentage of revenue or a cost per truck basis as seen below:
Revenue, profit and cash flow projections for a trucking company with a single truck
Now that we have identified the startup costs and operating costs associated with a trucking company, let’s talk about revenue, profit and cash flow.
Trucking Business Revenue
The average trucking business can generate over $400,000 per year in revenue.
How did we calculate this?
Let’s assume you can find a dedicated route that is 550 miles per day, 5 days per week, and pays $3 per mile. This will allow you to generate $434,000 in annual revenue.
Now of course a consistent route like this might be hard to come by, you might also not be able to run the route 5 days a week all year because your truck might by in the shop for repairs or maintenance, you might go on vacation, you might get sick, the weather might be bad, etc, etc.
In our trucking spreadsheet template you can easily change any of these assumptions. Maybe you think you can average 4.5 days of driving per week throughout the year. This adjustment would bring your annual revenue to just under $400,000.
Trucking Business Profitability
The average owner operator trucking business can generate $103,000 in annual profit.
Example Trucking Business P&L
You can see an example trucking business profit and loss forecast below which will show what we assumed for revenue and expenses for our trucking business.
Trucking Business Cash Flow Forecasting
The trucking business is very cash intensive. So now let’s look at your cash flow projections. It is common for a trucking business to not get paid for 30 or 45 days after providing the delivery service. This means that you need to have at least 45 days of operating expenses cash on hand when you get started to be able to pay your bills like fuel, insurance, payroll, and lodging while you wait to get paid by your customer. Our template assumes that you will get paid 30 days after invoicing the customer.
This is one reason why factoring receivables is a common occurrence in the trucking industry.
So in our example, the Year 1 profit was projected to be $103,000, but you would only receive roughly $70,000 in free cash flow in year 1. The challenge will be hardest in the first couple of months. In our example, the business would have a cash outflow of nearly $16,000 in month 1 and would not receive any cash from sales yet because it would be waiting for customers to pay for at least 30 days.
So the key takeaway here is that when you start a trucking business you should not only have enough funding for initial startup costs, but you should also have at least a couple of months worth of expenses as cash in the bank to help you float the first couple of months while you wait to get paid.
How Much Does An Owner Operator Truck Driver Make?
The average owner operator truck driver salary is $240,000 per year according to Ziprecruiter.
We think this is a bit misleading though. Clearly the average owner operator is not taking home $240,000 per year after all expenses which is why we need to work through some financial projections to make sure we are including expenses as well.
Based on our example, we project that a single owner operator could make $103,000 per year in profit. Or course, results can vary depending on a number of assumptions including fuel prices, current industry demand, and your geographic location among other factors.
How Much do Fleet Owners Make per Truck?
The average fleet owner can generate roughly $70,000 in profit per truck.
You might be wondering how much you could make if you owned a fleet of trucks and you might be tempted to assume that if one truck can generate $103,000 in profit that 10 trucks ought to be able to generate $1,030,000 in profit ($103,000 x 10), but you would be wrong!
As you add more trucks to your fleet you will have additional expenses. If you have 10 trucks in your fleet, I would expect that you need the following staff positions:
Controller - someone to handle the accounting for the business
Dispatcher - with 10 trucks you will probably want a full time dispatcher to support the drivers
HR Director - you will need someone to help recruit drivers and compete against other trucking companies by providing competitive pay and benefits.
I would estimate that these 3 positions could cost you roughly $300,000 per year with all expenses included. When you split that $300,000 between 10 trucks you can expect to reduce the profitability of each truck by $30,000 per year. So perhaps it would be more reasonable to assume a fleet of 10 trucks could generate roughly $700,000 in annual profit based on the assumptions we have made in this article.
Again if you want to see exactly how the numbers all work together, take a few minutes to watch this demo video that will walk you through our trucking financial projections example. You will get to see a 5 year trucking income statement, balance sheet and cash flow forecast.
If you have any questions, please feel free to reach out at email@example.com