I had a client in my office today who was in a deep financial mess. Their $24k engine job that was done two months ago missed some issues and now it will cost an additional $40-75k (their quote not mine). I ran through their issues one step at a time and helped them evaluate what they should do. This is the part of my job I don’t feel adequate to advise… and I don’t think anyone is qualified, because perseverance through a difficult situation is much more a personal issue than a simple numerical business choice. Often the stress of debt impacts choices and paths. Too often, before they even enter my office for advice, they have already pushed the “enough is enough” button. If the plug is pulled, sometimes it can take years to recoup the losses.
Mechanical issues are just one part of the overall choice to shut down or power through. The carrier contract is another major consideration. A very simple judge to find out if the carrier margin is sufficient is a simple litmus test. After fuel and carrier charges (not including maintenance and truck payment, see last month’s article), is the amount deposited in your bank more or less than $1.00 per mile? For example: if you drove 11,000 miles in a month, what was the amount deposited? Was it more or less than $11,000? Though this figure can make numerous operators cringe (either too high or too low), it represents a figure that nationally reflects survival. One client was getting $8,500 deposited on 9000 miles traveled ($.94 CPM).
I had another operator who got $7,500 on 6000 miles ($1.25 CPM). As far as national averages go, $.94 CPM is a little low, but $1.25 CPM is not. However, the volume of miles is now more of the issue – not the rate. Long distance drivers operate on 10,500-12,500 miles as a national average, so both of the above illustrations would have difficulty surviving with a new truck payment… but not necessarily with a fully paid for truck. When the industry starts to show overcapacity, the first thing to drop is the available miles per month. If it drops too much, even with acceptable margins, survival becomes an issue.
After the fuel economy, carrier contract, volume of miles and truck payment the next major cash flow issue is the tax method used. Does the operator utilize Non-Taxable Benefits? As I wrote about this issue in my first book “Making Your Miles Count: taxes, taxes, taxes”, it makes a very significant impact on after-tax cash flow. Currently, the spread is $1000 per month. National averages have operators paying taxes of between $12-20,000 using the TL2 simplified method. The NTB method averages $2-8,000 (all else being equal). If your tax preparer asks you how many days you were on the road last year… you are using the TL2 simplified method. If your tax preparer asks you to hand in meal receipts as part of your tax paperwork… you are using the TL2 simplified method. If you want to save $12,000 per year in taxes you should learn how to use Non-Taxable Benefits. Since we started keeping track (2006), our firm has saved clients a collective $70 million in taxes. It is not that difficult to calculate the savings if you use the technology available. If your tax preparer doesn’t have the technology, contact our firm. Beginning in April 2024, we will be licensing out our system to operators so your tax preparer can help you fully benefit from the best system for operators in Canada.
Without a doubt, these times are difficult for some operators. Every penny counts to build after-tax wealth. Sometimes you can’t survive, and if so, you should sell your truck, and sometimes all you need is a little tweak to make it work. If you are looking for more operational and industry advice, look up our PODCAST “Making Your Miles Count”. Our long-form podcast can assist in your business.
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.
Robert D Scheper operates an accounting and consulting firm in Steinbach, Manitoba. He has a Masters Degree in Business Administration and is the author of the Book “Making Your Miles Count: taxes, taxes, taxes” (now available on CD). You can find him at www.thrconsulting.ca and thrconsulting.blogspot.com or at 1-877-987-9787. You can e-mail him at: firstname.lastname@example.org.