Many couples have sat in my office asking about purchasing a highway tractor so that they can be an independent operator. Their concerns are well-founded as a significant number have found the experience costly. There may be a great many operators who have credited the independent operator industry for securing a strong financial future, but not everyone has that story. Many feel they do not have any control of their future.
When consulting with first-time operators I am forced to simplify the procedure and circumstances for their success. It can be condensed into four or five primary keys.
First, what is the cost of the truck? Purchasing a truck will always have some bottom-line cost per year. It does not matter if it’s leased or owned, there is always a liability carried by the operator. For a great video on understanding the difference between leasing and owning, as well as some associated costs of a truck, visit our website and watch the “Lease versus Own” video (30 minutes and 15 seconds) (https://makingyourmilescount.com/podcasts/).
Second is fuel consumption. The highest variable cost of operating a truck is paying for the fuel. If you notice that I stated fuel consumption and not fuel price you know that my position on consumption is that it is more important than the price of fuel. Consumption is something every operator has direct control over. They cannot eliminate it, but they sure can minimize it. It starts with purchasing a truck with the right specs and continues all the way to proper acceleration practices from a stop sign. An operator controls consumption. There is nobody to blame but the guy behind the wheel. Good operators master the art of minimal consumption.
Third is maintenance. Maintenance on a highway tractor is critical to success. An operator needs proper purchasing choices and must also treat the truck with respect. Purchasing a truck with minimal or no unnatural pollution control risks is paramount. I have seen too many very fine operators run $30-40k a year in pollution control maintenance. These costs do not increase the value of the asset; it only keeps the truck operating. Minimizing this minefield through smart purchasing can save years of wasted miles. It is a tricky part of the business. I once polled over a thousand operators and found that 70% of them ran pre-emission trucks (in a time when pre-emission trucks were all over 5 years old). Operators do not risk being the guinea pigs when their own money is on the line. They let someone else test the new technology. Operators must understand their equipment maintenance issues.
Fourth is the sale price of the truck. See ownership (Lease/Own video). At the end of the life of your truck, what will it be worth? How long can you keep the truck rolling after it has been paid for? In my 2015 book “Choosing a Trucking Company”, I compared carrier contracts from 1996 against those of 2012. I found that operators made the most return on investment AFTER it was paid for… no matter what century they were operating in. This means that the longer you hold onto a truck, the higher the return on investment will be (on average). Every operator must think through the probable value of the truck at the end when they will be selling/disposing of it. The higher its residual value over the cash flow it brings in reveals its worth to you. Here is another example. I know a guy who bought a truck for $6,500 and drove it for just over two years. It was then sold for parts ($1500). The cost to run that truck was $2,500 for the year. He got average fuel and maintenance cost and it contributed $15,000 annually above his wages. This represents a fantastic annual return on his investment… 600%, even though he only got $1500 from the scrap guy. The sale price is only important as a ratio of the original purchase price. Business-minded operators think purchase and sale price over the life of the truck. Buying for the right price is usually more in the control of the operator than selling for the right price… however, combined, both are extremely important.
Finally, it is taxes. Too many operators still think that they have little to no control over taxes. They think the more you make, the more you will pay. Though true in a broad sense, it makes a HUGE difference in which SYSTEM of tax reporting you use. My first book (2007) was all about this topic “Making Your Miles Count: taxes, taxes taxes”. Using non-taxable benefits versus the TL2 simplified method produces a 40-65% reduction in taxes. If your accountant still asks you for your logbooks at year-end… you are using the TL2… you are NOT using NTB. Chances are your accountant does not know the difference. It is unfortunate that after 12+ years of my book being available, those who prepare taxes still have not read it. My guess is if they have not used it until now… they probably won’t in the future. Shop around, find a tax preparation expert that does – it’s not a scam… it may seem more complicated at first but a $12,000 a year tax reduction brings significant value to your annual after-tax wealth building. This too is in your control.
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 email@example.com.
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.