Know Your Business

Being an Independent Operator is more than driving your own truck. It’s about understanding the business model, focusing on what is successful and keeping away from what is not. There are two very different business models in owning your own truck: Lease Operators and Owner Operators.

The term Lease Operators has NOTHING to do with how a truck is financed… it is referring to how a truck is PAID. Lease Operators get paid cents per mile, loaded or empty; the contracts are as varied as the number of carriers providing the opportunity. Serving this industry for 25+ years I’ve read hundreds of carrier contracts. 25 years ago, carriers didn’t even have a fuel subsidy category, never mind a rate. The industry took nearly 10 years to have a standard entry in their contracts. Even then, the calculations and consistency were anything but stable. As the industry changed, so did contracts, but today we almost take fuel subsidies for granted.

Owner Operators are those who get paid a percentage of the freight invoice. This business model is VERY different from Lease Operators. Where Lease Operators focus on “miles, miles, miles”, Owner Operators consider net rate per mile over time (usually in days). The net rate per mile considers empty miles in the calculations. An Owner Operator will often wait around for a day or two to be able to pick up a much better paying load, while a Lease Operator “LOOSES MONEY WHEN THEY ARE NOT MOVING”. The two business models are light years apart.

Similar to their focus being different, the information they view as their KPI’s (Key Performance Indicators) are also very different. An Owner Operator needs to know their gross fuel costs per mile from their income statements provided by their calculations or accountant. The fuel surcharge added onto their freight invoice is irrelevant to the KPI’s they focus on. It is all calculated as revenue. Even separating it from their income statement is useless. Since they have no control over it, they should not track it. Additionally, less than 100% of freight separate fuel surcharge and freight rates, so tracking any portion produces numbers that are useless to managing your truck… even if you got 100% of all freight invoices displaying fuel surcharges, separating it all would produce no usable information. You would be comparing your fuel costs with something only the carrier negotiates with… a rate that you have no control over. Why track that? So separating freight revenue and fuel surcharge revenue at best is a waste of time… at worst confusing.

However, as a Lease Operator, putting a fuel subsidy as a negative fuel cost alongside your gross fuel cost will produce your NET FUEL COSTS, which may be valuable to you. It is useful in monitoring and comparing carrier contracts. You can track net fuel costs from month to month, showing the ups and downs of costs and subsidies. Does the carrier increase rates appropriately to provide you with a stable net fuel cost? Some do; others don’t. I’ve seen contracts where Lease Operators would have to get 14 miles per gallon in order to keep the net fuel costs stable (sucky contract).

Comparing contracts using accurate income statement data is just one feature required for success. Probably one of the biggest is Non-Taxable Benefits that will save you about $12,000 per year in taxes. It may require you to rethink how you do things, but the net benefit is one of the seven wonders of the Canadian Trucking Industry.

There are several issues important to Independent Operator success. My team and I will have a booth at the Truck World 2024 event in Toronto April
18-20th. Come on down and let’s talk for a while. Contact our office and we can get you into the show with a free pass.

If you can’t make it, contact my office. I’d love to talk to you about creating after tax wealth in your life and career.

About the Author:
Robert D. Scheper is a leading Accountant and Consultant exclusively serving 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 second book “Choosing a Trucking company” is the most in-depth analysis of the independent operator industry 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 at www.makingyourmilescount.com or 1-877-987-9787.