As the owner-operator, you have a lot of responsibility for your trucking business, and there can be a big upside if you manage everything correctly. However, becoming an owner-operator can be challenging, especially with so many of business expenses These expenses, if not controlled, can outdo the amount you’re making instead of what you’re supposed to be spending.
Being a business owner requires you to fully analyze and understand your owner-operator expenses. Making a profit in the trucking business is a game of arbitrage, with the challenge of keeping income above ever-changing expenses. Anyone who has been in the trucking business for a long time knows keeping a well-balanced book isn’t always as easy as it sounds.
Fuel prices go up and down, maintenance expenses pop up out of nowhere, and you need to be sure to have the right insurance in place. The price of independence is often a lowered ability to benefit from scale. There are ways to get expenses under control, however, boosting your bottom line. Here are some ways to help manage your owner-operator expenses so that the reward matches the hard work you’ve put into your business.
Saving on fuel expenses
Fuel costs are usually the largest single expense for owner-operators. In most businesses, however, anything that can be measured can be improved, and fuel costs are a prime target for optimization. As fuel prices rise, fuel efficiency is one of the important factors in your trucking business. Knowing what your cost per mile is can greatly help you identify if fuel is one of your biggest expenses.
To calculate your truck’s fuel efficiency, you have to determine your truck’s miles per gallon (MPG). Use the following formula:
MPG = (Mileage B – Mileage A)/ Gallons
To calculate your MPG, you need to fill up your fuel tank. Yes, this may hurt your budget a little bit, but doing this will give you a precise reading. Before driving away, record the current number of miles. This will be your Mileage A.
Drive normally. Fill up the tank again when the gas level is nearly empty. Take note of the number of gallons it took to fill up the tank. This will be your Gallons. Again, before driving away, record the number of miles, which will now be your Mileage B.
Now, subtract Mileage A from Mileage B to get the number of miles you drove since you last filled up, and then divide the difference by the number of gallons. The answer to this will be your truck’s MPG.
Figure out your truck’s “sweet spot.” The so-called “sweet spot” is your vehicle’s best RPM to run the engine for better fuel efficiency. Every vehicle has its sweet spot depending on the size, weight, and aerodynamic design. Bigger vehicles with less aerodynamics such as trucks get the best gas mileage and reach their sweet spot at a lower speed. Be easy on the pedal. Rapid acceleration and abruptly stepping on brake require more energy, burning more fuel. Having proper tire pressure helps distribute the weight of your truck evenly over your tire’s tread pattern. If your tire pressure is lower than recommended, it would increase the rolling resistance of your truck. And when that happens, it would require more energy to be able to overcome the rolling resistance, and would greatly affect MPG as more fuel would be needed. Don’t idle longer than necessary. Most trucks only need to be idle for a period of time to warm up. And if you think that you’ll be waiting for more than a minute, turn off the ignition. Excessive idling doesn’t just burn more fuel, it may also damage your engine. Keep your truck well maintained, for example, by checking on spark plugs to reduce fuel consumption. Good spark plugs burn fuel efficiently, while faulty spark plugs cause the engine to misfire, which in effect negatively affect your gas mileage.
Managing the cost of your truck
Your truck is your ticket to independence, but just like other types of vehicle, it also has ongoing costs. These costs range from truck payments to routine maintenance — and occasionally, not-so-routine maintenance. The cost comes into play here.
It’s important to build a business savings fund that anticipates future maintenance needs. Without a sufficient amount in savings, you may be forced to use credit to pay for wear on items like tires and brakes. Average interest rates on credit cards are above 15% now, adding a significant cost to your routine expenses. Aside from having sufficient savings, just regularly checking your truck’s condition will help you avoid the biggest expenses. Simply knowing when you should change engine oils and fluids, adjusting the belts, brake pads, drive belts, timing belts and hoses, and regularly checking your suspension system save money. Remember, it’s more costly to spend on repairs costs than identifying which parts need replacement as early on as possible.
Aside from the monthly truck payment, you also have to consider other expenses such as renewing your permits and licenses and your continuous toll expenses. Don’t let your permits and licenses expire, as late payment and late registration generally costs more. Toll fees, on the other hand, are unavoidable as long as you use toll roads. You can lessen these, though, by knowing your route options.
Keep an eye on food costs
Just as there are ways to manage your truck’s fuel appetite, there are ways to keep your own food costs under control. The IRS allows a deduction per-diem (per day), which can reduce your food costs by up to 80% of your daily food expenses when out on the road. Per diem rate for this year is the same as last year’s, which is $63 for a full day within U.S. Borders, and $68 for a full day outside the United States. Are you qualified for per diem deduction as the owner-operator? The answer is yes. In the trucking industry, owner-operators who don’t receive a W-2 form from an employer can take advantage of this deduction if:
- You meet the IRS qualification overnight rule wherein your travel must be far enough that you would have to be on the road up to 14 hours.
- You have a place where you can park your truck when not in use.
- You can provide proof that you traveled for business on the day you claim the per diem deduction.
Keep in mind that per diem deduction is a reimbursement and not a wage. This does not count as part of your income and can never be used as payment for parking fees, lodging fees, and other travel fees, so it’s always better if you allow a budget for these other expenses.
Another way to save on owner-operator expenses is by signing up for a rewards card from the gas station you frequent to earn rewards and get a discount on food and drink prices. Also, consider buying food at grocery stores and keep your meals refrigerated in your truck. Not only is this less expensive, but you’ll spend less time planning your day around finding places to eat where you can park a truck. Most importantly, make a food budget — and stick to it.
Use a professional bookkeeping service
It may seem counterintuitive to encourage spending money on a service when you’re trying to save money, but here’s the logic: you’re a great truck driver. That doesn’t necessarily mean, though, that you’re a great accountant. Utilizing a bookkeeping service or an accountant can help keep your books in order and leave you with more time to do what you do best: drive.
Let’s face it, you don’t make money looking at a pile of receipts and invoices. You have an option from online bookkeeping services that can simplify income and expense recording, or you can choose a full-service provider that can assist with billing and help guide tax decisions as well.
A professional bookkeeping service will help you keep track of your micro expenses such as the toll fees and other small expenses. They will also be able to provide you with a financial report of how much your trucking business spends. These people are knowledgeable when it comes to taxes, which can be a complicated and daunting task for us non-accountants, so they can help you determine how much tax you have to pay based on what your state requires. And the good thing is, a professional bookkeeper knows tax breaks and other tax break opportunities you may have failed to notice. This means that getting their service may also be an opportunity for you to save money.
Keep insurance costs in check
Insuring a big rig isn’t like insuring the old GM or Ford or Dodge you have at home. Owner-operators who are operating under their own trucking authority have to carry a minimum of $750,000 in liability coverage for bodily injury and property damage liability. Added to the costs of insuring your truck as well other types of business insurance, and your insurance costs can add up quickly.
As the owner-operator of a small trucking company, expect that insurance costs won’t be cheap. However, the average cost for insurance varies depending on the following factors:
- The type of your truck – Commercial trucks come in different types and sizes, and your policy base rates will depend on the type and size of your truck.
- Your truck value – Part of the base rate will be determined by your truck’s value — meaning, how much its worth is. Any customization such as toolboxes, ladders, ramps, lift gates, paint jobs, and more will add to your total insurable value.
- Leased owner-operators or owner-operator with trucking authority – This affects policy cost, as leased owner-operators need only non-trucking liability to cover property damage or bodily injury to the third party, while owner-operators with authority are required to get commercial auto coverage based on FMCSA requirements.
- Owner-operator’s credit history – Having good credit history will give you a greater opportunity to pay less on policy cost as insurance companies use the owner’s credit history as their base for future insurance claims.
- Paying premium in full – It’s usually cheaper if you pay for your policy in full because you get to take advantage of any special discount programs that the insurance company offers.
Considering these factors that might affect your insurance cost, it’s wise to talk with one of CoverWallet’s experienced insurance agents and combine all necessary trucking insurance coverage into one easy-to-manage coverage package. This is designed to meet the insurance needs of your business, including industry-specific risks and liabilities your business is likely to face. With this support, you’re assured your business is protected from liabilities, fines, or penalties.
Owning and operating a trucking business often gives you more money compared to being a regular company driver. Truck expenses, however, might be pretty steep especially when maintenance and other running costs are factored in – not to mention the cost of accidents when they happen. That’s why part of running a successful trucking business is having the right insurance from the right company as nothing beats having the peace of mind of having the protection against financial devastation.