Five Things Operators Do Wrong

Having watched, for 25 plus years, how some independent operators come into the industry, and then watch how others leave, I thought I might share a five-point observation on how many of these entrepreneurs do it wrong (rather than how to do it right). I thought I’d invert success to expose how NOT to do it rather than how TO do it. These are the five major things operators do WRONG when they start.

1. Not Enough Cash Reserves 

Nearly every operator begins undercapitalized. They have no cash reserves for maintenance, downtime, or unforeseen twists in operation. I used to say operators should always have $10,000 cash in reserves, and when it gets below that… PANIC. In today’s environment, I now recommend at least $15,000 and only say ‘enough’ at $25,000. Trucks are too complex, and the industry is too vulnerable and diverse to run reserves smaller than $15,000. 

2. Reactive Maintenance Rather than Proactive 

Every great business person has their trusted advisors and mentors (or should). Having a trusted mechanic advise practical life expectancy of systems and parts is critical to long-term success. Of course, the most trusted advisor you will ever have is usually yourself. You must learn the basics of life expectancy and maintenance issues. Fixing things at the end of their life but before they break is usually the cheapest thing to do. For example, if an alternator’s life is three years… then replace it at three years… waiting for it to fry on the road in the middle of nowhere can lead to downtime and excessive costs. Different truck brands, models, engines etc. each have their own peculiar issues. It is your responsibility to know them and know where your truck is on the journey from new/excellent to falling apart. If you plan on owning a truck longer than a year you must become the expert on your own truck. For the issues that are beyond your abilities, you MUST embrace a trusted mechanic. The mechanic must intimately KNOW your truck and work on it multiple times as well as prove themselves to be trustworthy. Only telling you what needs to be fixed does not constitute trustworthiness… he must show himself concerned for your bottom line (not just his). He should show you what does NOT need fixing too. Finding a trusted mechanic saves money long-term, always. Even if you find one, it doesn’t give you the freedom to stop looking and thinking for yourself. Too much delegation is just as costly as not enough.

3. Focusing Too Much on Revenue Rather than on Cost Reduction 

Being an independent operator means you have limited revenue potential. There will always be only 24 hours in a day. You can only move a limited amount of freight. Where most operators become successful is through cost reduction. It’s more important to conserve fuel consumption than virtually anything else, consumption first, fuel cost second. This means the operators who race across the country against the wind will have a disproportionately high fuel cost (and maintenance bill) with a corresponding lower bottom-line profit than those who operate carefully and consistently. Managing road time can also be highly profitable. Leaving earlier (or later) to avoid traffic can add hundreds of dollars a month (+) to your profits.

4. Assuming Costs are Universal (not shopping around)

Taking the first quote that returns your call can be very costly. Pricing out hauling back a downed truck versus excessive maintenance at a remote location is the obvious shopping around example. However, getting to understand the difference in tax systems is probably the easiest $10-12,000.00 annual savings you will find. Using non-taxable benefits versus the TL2 simplified method will save you that much… per driver, every year. It always confounds me that nearly 15 years after I write a book on the two tax systems, so many are still only using the TL2. If you tell your tax consultant how many days a year you drove (either through your ELD or manually counting) you are using the TL2 and are paying up to $12K too much in taxes every year (incorporated or not). It takes five to six minutes to understand the difference but too many operators still think it’s the bookkeeper who saves the taxes… not the system they use. Nearly all tax consultants use the TL2 because they either don’t know better, or they don’t want to do the extra work involved. Not all costs are universal… shop around.

5. Independent Operators Rarely Have Exit and/or Retirement Plans

Approximately 50% of all truck drivers would stop driving truck today if they could find a similar paying job off the road. If so many want to leave, how come they don’t? It’s because they don’t have a plan. They don’t prepare themselves for the alternatives. Nearly 80% of those who do leave the industry will return within two years. Their idea or plan failed because they were not prepared. Too many operators jump at the first chance they get to leave. They jump into a new job unqualified, underfunded, and unprepared for adjustments such as a 20% wage reduction. I always suggest that if someone truly wants to leave the industry, they must be prepared. It may take years to prepare your foundation for life after the road. I suggest getting completely out of debt… including your home mortgage. That’s one thing you have control of: the risk of hanging debt. Without a plan, exiting the industry is rarely successful.

The trucking industry is a stable long-term form of employment and earnings. Independent operators are just one part of the entire industry. They may need to be more committed than the average driver, but they also have more opportunities and potential. Navigating the operator industry requires a specific set of skills… missing one may greatly reduce the chances of success. Keep on learning.

About the Author:
Robert D. Scheper is a leading Accountant and Consultant to the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His firm exclusively serves Lease/Owner Operators across Canada. His second book “Choosing a Trucking company” is the most in-depth analysis of the operator industry available today. He has a Master’s degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him and his books at www.makingyourmilescount.com or 1-877-987-9787. You can also e-mail him at robert@thrconsulting.ca.