By Timothy D. Brady ©2020
Becoming bankable needs to be the goal of every small business owner, and that includes trucking company owners.
Trucking is a risky business. The one who knows this better than anyone else is the owner of a small trucking company. Equipment is expensive to acquire and maintain, revenue is elusive, (here one day; gone to a cheaper hauler the next), and the liability risk is astronomical with one’s drivers constantly one vehicle away from a lawsuit eleven hours a day. Added to this, anyone with a CDL and a few thousand dollars can be trucking in just a few weeks, regardless of his knowledge of the business of trucking. So what separates the men from the boys, the women from the girls, when it comes to succeeding in trucking? The answer is another question: What is your strategy for becoming “Self-Capitalized?” In short, does your banker believe in you and your plan for success? Are you bankable?
Being bankable isn’t only what your credit rating is or what your company’s Dunn & Bradstreet® Report looks like. It has to do with what you know, how much revenue your company produces against your costs, what your accounts receivable look like, and also consider the quality and diversity of your customers. Being bankable is not robbing Peter to pay Paul, but managing all of your assets: cash, equipment, property, accounts receivable, customers, employees, and contractors, with a plan. This plan must include being prepared for the lean times, equipment breakdowns and replacement, and covering the daily cost of operations while waiting for customers to pay. This strategy must not let growth out-pace capacity, and above all, there needs to be a vision of building the company’s net worth.
- So know where your profit begins. The biggest mistake owners of newly-formed trucking companies make is allowing others to determine their hauling rates. Allowing your competition or your customers to tell you what you should be charging is the first step to business failure. Has a truck repair shop ever asked you what you’d like to pay them to fix your truck? Don’t do the one thing that causes more failures in trucking than any other—don’t let someone else set your hauling rates. And the only way to set profitable rates is knowing your break-even points.
- Be willing to listen. Top trucking company managers have an ear to the road. They always have their antennae out for new and innovative cost-savings ideas. They thrive on the input of their drivers, dispatchers, safety and salespeople. If you’re wearing all of these hats, keep searching for other experts, the ‘been there-done that’ crowd, for information which will help you become a leaner, tighter and more efficient hauling organization. Look for information outside the hauling side of the industry and stay on top of the trends and news from your shipper’s perspective—walk in your shipper’s shoes.
- Know your customers. Besides knowing what services they need and want, you must know the risk they represent to your revenue-producing capacity. What’s their credit rating? How’s their paying history? What are their projections for growth? What are their weaknesses? Are there problems on the horizon for this company or their industry? Labor troubles, foreign competition, recalls, product or patent lawsuits? In other words, anything that could interrupt your customer’s ability to provide you with loads. The idiom: “Don’t put all your eggs in one basket,” applies here. You shouldn’t let a single customer represent any more than 20% to 25% of your total revenue or accounts receivable. Shipping customers are the core of your business, so constantly develop relationships with companies and individuals who can provide you with new hauling opportunities. Growing your core business is your objective.
- Give credit only where credit is due. Operations people tend to be quick on the issuing credit trigger. This is understandable because their objective is to load the trucks and keep them rolling. Whenever you allow a shipper to pay on credit, you become a lender. If done with limits and controls, issuing credit can be an effective revenue enhancer. Done haphazardly, it can lead to a cash flow nightmare and put you in the hammer lane to business failure. People in the commercial lending industry look at what is called Days Sales Outstanding (DSO). This is how many days from when a shipment was dispatched or delivered to when the hauling invoice is paid in full. If you receive final payment on a delivered shipment that exceeds 50 days from dispatch or 40 days from delivery, you have a problem and the more accounts which fit this description, the bigger the crisis. The bottom line is, behave just like a banker; if you’re going to issue credit, make sure they have the ability to pay and pay in a timely manner.
- Do you own a company or does the company own you? A large majority of small trucking company owners, particularly single-pony operators (single truck owner/operators); earn less as company owners than they would as company drivers. The average owner/operator with his own authority today will either be driving as a lease driver or be in deep financial trouble within 14 months. The reason: he lacks the investment in his own company. What most of these owners do is unknowingly steal the cash from their trucking operation for their personal use. They’ve failed to include all their costs in determining their break-even point and hence into developing their hauling rates. Or, they don’t know their break-even point and are allowing others to determine their hauling rates. Either way, these trucking company owners are taking out of their business more cash than their operation’s performance and conditions will allow.
- Think like a banker. If you are going to establish a ‘creditable’ relationship (pun intended) with a banker, you must approach your business from a banker’s point of view. They don’t lend money without doing their homework. They’ll have articles from trucking industry publications and from banking resources like Journal of Commercial Lending or industry-specific studies from the Risk Management Association that will be in your file alongside your balance sheet, credit report, financial statement, Profit & Loss statement and your business plan. You need to acquire the same information so you’re up to speed on what’s going on in your industry. Do your homework, too.
Knowing your break-even point will help determine your daily and weekly cash flow needs. Knowing your DSO (Days Sales Outstanding) and your customers’ creditworthiness will help determine when to issue credit. Listening and researching how to improve your operation will increase efficiency, and investing in your company by leaving enough cash in the company’s coffers will make the worst of times your best of times. Becoming bankable will help you achieve self-capitalization, thus creating your Successful Trucking Company.