Fuel for Thought

E=MC²

No, this will not be an article about Einstein’s Theory of Special Relativity.

Equipment = Money X Commitment².

Which truck should you buy? How much can you afford? How long do you expect to keep it? How long do you expect to stay in the trucking business?

Equipment: Which truck should you buy? Should you buy at all, what about lease options? What’s the difference?

Buying will either consist of you having the cash on hand to buy a truck, or acquiring a loan to purchase the truck. Leasing, or lease/purchase, works much the same as a loan, but with different tax implications, can be easier to qualify and usually can not be paid off early.

A traditional loan for financing a truck will involve depreciation at tax time to offset the payments you made throughout the year. A lease/purchase will not have depreciation, but you can deduct the amount of the payments. Which one is better? Consult your tax advisor to see which is the most beneficial for your particular business model BEFORE making the signing on the dotted line.

Money: How much can you afford?

If you have saved the money to buy a truck, you know exactly how much you can afford to spend. If you are planning on financing a truck, you will need to know how much you truly can afford to avoid defaulting on the loan and possible repossession from your lender. Whichever route you choose, have an emergency fund in place. New or used, but especially used, any truck is a conglomeration of moving parts that are subject to break at any time. You will want to be prepared for it as much as possible.

Commitment: How long do you expect to keep it? How long do you expect to stay in the trucking business?

If you are just starting out in this business, perhaps a used truck will fit your needs to get started. With the lower initial cost, if you find this is not the career path for you, your losses will be minimal. If you are transitioning from driver to owner operator and are ready for your first truck, consider a new one, if you are financially able.

Once you are committed to buying a truck, also commit to be a successful owner operator =Commitment².

Buying a new truck for many will help insure success. When you commit to pay for a new truck, and you value your word, you will try harder to make it a success. For many, buying a used truck is like a half-hearted attempt. They figure if it doesn’t work out, they have not lost much. They have less incentive, less commitment and less to lose. When you have skin in the game, you are going to do all you can to save your skin, thus making your venture a success.

This is not to say that all used truck buyers are only giving 50% to make it work. For many, older trucks hold an advantage over new trucks, at least in their eyes. Mechanically inclined owners might enjoy turning wrenches on their truck, have an aversion to emission controls, would rather pay a mechanic than a lender or are nearing the end of their career and do not want the payments. Personally, I stopped buying used trucks many years ago. While I don’t mind doing some of the work on my truck myself, I prefer to not need the work done. When I go home, I don’t want to spend my hometime fixing the truck for the next trip. Emission controls have come a long way since their inception, with fewer problems such as those issues that plagued the first emissions trucks. If I pay a lender, I get to keep earning revenue, paying a mechanic means my truck is down(not earning revenue) and there will soon be a big bill to pay.

Whichever you decide to buy, Equipment = Money X Commitment², and your commitment could be the most important factor for your success or failure.

See you down the road,

Greg