Beginner's Guide to Be a Trucking Owner Operator

The recent global pandemic has shined a spotlight on the importance of the commercial trucking industry. Perhaps you are thinking of entering the commercial trucking industry to capitalize on the heightened demand for truck drivers. If you are an experienced truck driver, you may be looking for ways to further your career. The following guide will help you jump-start your research on how you can become a trucking owner-operator.

An owner-operator is a term that describes a truck driver who owns his or her own commercial trucking equipment. If you decide to become an owner-operator, you must also decide whether you would like to work under your own authority or if you would prefer to lease your equipment to a larger trucking company.

Here is information on some of the major issues that can determine your decision about becoming an owner-operator.

• Finding freight
• Transporting the freight
• Performing accounting duties
• Performing administrative duties
• Maintaining safety protocols

Owner-operators who work under their own authority are also responsible for purchasing and maintaining the required truck insurance coverages. Currently, the minimum required policy limit is $750,000 for most classes. However, most shippers and freight brokers require trucking companies to carry a larger policy with a $1,000,000 limit. Cargo, Physical Damage, and General Liability are among the other types of insurance coverage owner-operators are recommended to carry.

If you choose to lease your equipment to a larger trucking company, the trucking company will handle most of the administrative work. The company will also likely handle dispatching. In exchange, they will charge you a flat fee or a small percentage. When leasing equipment to another trucking company, the owner-operator is typically covered by the trucking company's respective insurance policies.

Driving for a company and becoming an owner-operator are two different paths, each of which has its own set of pros and cons. If you want all the freedom and the major responsibilities that go along with company ownership and being your own boss, becoming an owner-operator may be the preferable option for you. Pros of becoming an owner-operator include:

• Owning your own truck
• Choosing the truck you want
• Creating your own schedule
• Determining your own routes
• Choosing clientele and vendors
• Keeping the profits and using them however you see fit

The disadvantages of being an owner-operator can mostly be summarized as increases in financial expenses and responsibility. Some of the major cons are:

• High startup costs
• Finding and booking your own clients and loads
• Handling the administrative side of the business
• Managing all of the business's finances
• Paying for and managing vehicle maintenance and repairs
• Ensuring all equipment always meets industry requirements

If you prefer to limit your responsibilities to driving your truck and collecting your payment, you may prefer to drive for a reputable trucking company. Pros of having employment as a company driver include

• Working in a clearly defined role
• Leveraging the abundance of job openings during the current truck driver shortage
• Having a more limited role in maintaining compliance

Working as a company driver may come with certain challenges. The following are the cons of being employed by a company as a truck driver:

• New drivers may be last in line to receive the best schedules and routes.
• Earning potential is not as high when you do not own the company.
• Drivers are limited to the equipment provided by the company unless they invest in their own upgrades.
• Employees have no say in choosing the third parties with whom they are required to work.

Becoming an owner-operator is not a decision you will make overnight. For further reading, check out Should I Become An Owner Operator, which is designed to help you decide which option may be right for you.

Once you get past weighing the pros and cons of becoming an owner-operator, the next step is to begin the process. The following steps summarize the procedure you will likely need to follow.

Whether you want to be an owner-operator or if you want to drive for an established company, the first thing you will need is a commercial driver's license (CDL). If you do not already have a CDL, you will first have to follow your state's procedure for obtaining a commercial learner's permit (CPL). The CPL allows a driver to practice driving a commercial truck prior to obtaining a CDL.

States generally require CDL candidates to be at least 21 years of age. You can apply at your local DMV, where you will be required to score a passing grade on a written test and on a driving test.

The CDL license is divided into three classes: A, B, and C. You can apply for a CDL in each class, depending on the type of truck you would like to be authorized to drive. To learn about each weight class in greater detail, visit our resource Commercial Drivers License: CDLs and Weight Class Guide.

A Class A license allows drivers to operate vehicles weighing 26,001 pounds or more and haul trailers weighing 10,000 pounds or more. Class A includes big rigs, tanker vehicles, flatbeds, and most Class B and C vehicles.

Drivers who have a Class B license are permitted to operate vehicles that weigh 26,001 pounds or more. Class B drivers can tow trailers that weigh less than 10,000 pounds. Vehicles in Class B include large buses, box trucks, tractor-trailers, segmented buses, and dump trucks with smaller trailers.

A Class C CDL authorizes drivers to operate vehicles that seat up to 16 people, including the driver. A Class C license also enables the license holder to use small vehicles to transport hazardous materials. Class C drivers may also operate passenger vans, combination vehicles, and other vehicles that do not fall within Classes A and B.

It is possible to become an owner-operator with no previous experience in the trucking industry. However, it is highly advisable that you gain experience first. Working for a trucking company as a driver will certainly provide valuable insight into a side of the business inexperienced owner-operators may not otherwise see.

The best way to understand life as a truck driver is to experience it for yourself. Driving for another company will also allow you to gain valuable time on the road in a variety of conditions without the pressure of running an entire business. As an employee, you are free to focus on becoming the best driver you can be without having concerns about equipment maintenance, maintaining the company's books, and managing third-party relationships.

Beyond having the desire to be an owner-operator, you should evaluate your personal life and your financial health. Buying or leasing a commercial truck is a hefty investment. Making a substantial down payment on your truck will keep your equipment payments lower and may even help you secure the equipment loan. If you would prefer to put less money down, your payments will be higher.

You will also need cash for working capital to cover insurance, oil changes, repairs, meals, and insurance. Having a backup reserve will be helpful in the event of downtime when your truck needs repairs or maintenance. Having good credit and little to no personal debt will also help you get a better rate on your loan.

There are finance companies that work with prospective owner-operators who have bad credit. However, becoming an owner-operator while having bad credit can greatly increase the risk of the individual falling behind on payments during a low revenue period and ultimately losing his or her truck.

Visit our resource on owner-operator expenses to learn more about how you can plan your finances before becoming an owner-operator.

Most owner-operators will need to work with a lawyer, an accountant, or another type of financial or business advisor. No two owner-operators are exactly alike. Hiring business and financial professionals to provide expert advice can empower you to save money and avoid unnecessary headaches while you focus on providing day-to-day trucking service.

In addition to being prepared financially, you will need to consider how becoming an owner-operator may affect your personal life. Driving a truck will require you to be on the road for days at a time. Today's increased demand for truck drivers means you will likely work an intense schedule.

Frequent travel may mean more time away from a spouse or romantic partner, children, and elderly family members who may require additional care and attention. If you are a co-parent, you may have to plan a very busy work schedule around your custody and visitation arrangement.

Setting realistic expectations and having discussions with the people closest to you may help you and your loved ones get on the same page when it comes to your plans of becoming a long-haul trucker.

Your health is another important consideration when determining whether driving a truck is right for you. Long road trips may not be suitable for people who have major health issues. Driving a truck is physically demanding work. If a truck owner becomes ill, being an owner-operator does not provide the same insurance and benefits truckers are more likely to receive as employees.

Owner-operators must still generate income to pay their bills even if they are ill. Traveling long distances may also mean not always being near a major medical center in the event of a health crisis. Regulatory agencies are also more inclined to revoke the licenses of drivers who have certain health conditions, including sleep apnea and diabetes.

Once you have determined you are financially, personally, and physically fit to become an owner-operator in addition to having a strong level of interest and commitment, the next step is to create your business. A trucking business may seem straightforward, but writing a business plan will help you focus on the most important parts of your company. In your business plan, you should include:

• The reason for founding your company
• The capital required to start
• Business strategies
• An illustration of your projected costs vs. profits

After creating your business plan, register your business according to the requirements of your state and local governments. Finally, decide which business entity will best suit your needs, and file to organize your business. Most owner-operators choose to file as a single-member LLC, a limited liability partnership, or a corporation. Each entity provides a different level of protection for the business owner's personal assets.

Most owner-operators will need a USDOT number. Motor carriers that travel across state lines are required to register for a USDOT number if they:

• Operate vehicles that weigh 10,000 pounds or more
• Transport at least nine, but not more than 15 people, including the driver, for compensation
• Transport 16 or more people without the intent to receive compensation
• Transport hazardous materials

The application to obtain a USDOT number is generally straightforward. You will need to provide the following information:

• Company operation
• Cargo classification
• Operation classification
• Number of vehicles
• Type of vehicles
• Terms of vehicle ownership
• Whether your driver travels interstate or intrastate
• The number of CDL drivers you have
• Hazard materials classification (if applicable)

There are three different forms: MCS-150, MCS-150B, and MCS-150C. Each form corresponds to the type of equipment you use and whether you plan to transport hazardous materials.

You can download the USDOT application form and return it via postal mail or complete the form online. Online submissions are processed instantly, and you will receive your USDOT number immediately unless your application is rejected. If you submit your completed form via postal mail, the turnaround time is four to six weeks.

After you receive your USDOT number, the next step is to get your trucking authority, also known as an MC number. The Federal Motor Carrier Safety Administration requires companies to have an MC number in addition to a USDOT number if they transport passengers in interstate commerce or if they transport federally regulated commodities owned by others or arrange for their transport.

This is because the trucking authority dictates the nature of business a company may conduct and the type of cargo the company may transport. Therefore, a company may be required to have more than one MC number if the company wishes to conduct multiple types of business. For more information about obtaining a trucking authority, visit our resource here.

Currently, the filing fee for a permanent authority is $300. Companies may apply online or send an application with a check or credit card for the filing fee via postal mail.

Perhaps the most obvious asset you will need as an owner-operator is your truck. Owner-operators can choose to either buy or lease their truck. Both options have pros and cons.

Buying a truck pros and cons

• Building equity in the truck with each monthly payment
• No longer having to make monthly payments once the truck is paid off
• Being able to trade in the truck you own when it's time to purchase a newer truck
• Having lower insurance rates compared to the rates for leased trucks
• Possibly not being required to put money down if you have good cash flow and good credit

The purchase route is not for everyone. Some cons associated with purchasing a commercial truck include:

• Being responsible for insurance and repair bill
• Insurance companies may require a certain amount of coverage
• A large down payment may be required
• Strong financials may be necessary to get the best loan terms

Leasing a truck pros and cons

For some aspiring owner-operators, leasing is clearly the best option. Leasing a commercial truck has the following pros:

• More affordable upfront than purchasing
• No depreciation costs
• Typically no down payment
• 24/7 roadside assistance

One of the main draws for owner-operators who lease their trucks is affordability. Most leasing companies do not require a down payment; therefore, owner-operators have more cash available for operational and unexpected expenses.

Ongoing lease payments may also be lower. Conventional lease agreements call for the leasing company to repair the truck if it becomes damaged or if the truck has a mechanical failure. If the owner-operator eventually has an interest in buying the truck, the leasing company may sell the truck at a reduced price.

Leasing may seem like a dream come true for owner-operators who are on a tight budget. Nevertheless, there are some cons associated with leasing. Some examples are:

• Some leasing companies require their trucks to be serviced by their service technicians only.
• Owner-operators may need the leasing company's authorization to make upgrades to a leased truck.
• The truck never belongs to the owner-operator unless he or she is in an agreement that includes a purchase option.
• Under lease buy agreements, the leasing company may take the truck back if the owner-operator does not run enough cargo to cover the monthly payments.

You will not be permitted to put your truck out on the road without the required insurance coverage. Before you receive your USDOT and MC numbers, you will have to obtain proof of liability insurance coverage. Liability insurance is required in every state. In addition to needing proof of insurance to obtain USDOT and MC numbers, your customers will demand to see proof that you have insurance that provides the required minimum coverage.

Owner-operators and large trucking companies need to have adequate insurance in place before they are allowed to do business. Check here what are the truck insurance requirements for owner-operators

The process of becoming an owner-operator may seem daunting due to the numerous required steps. Get an early start by thoroughly researching all options for your business and by improving your financial and personal health and well-being. Investing time and effort into starting the process off on solid footing will ultimately set your business up for success once you have all licensing and authorizations in place.