Dollars & Sense
Someone once said, "If you don't know where you've been, you won't know where you are going". Unless you have financial records of your past operations, you won't have the proper tools to move forward. You will be making financial decisions blindfolded.
You need a budget and a system for tracking income and expenses. Knowing your expenses is one of the first steps in determining your minimum operating costs. And you must budget so that you can set aside funds for preventative maintenance, breakdowns, spikes in fuel prices and for a general slow down in business.
To enable you to prepare a budget, you need a record keeping system that will accurately reflect your income and expenses currently and for the past. A record keeping system doesn't have to be complicated.
Bookkeeping is nothing more than grouping and summarizing all your income and expenses so that they can reflect, in an orderly manner, how you are doing. It can tell you how much you have collected, how much you have spent by category such as fuel, insurance, repairs, parts, etc.
It can tell you if you have been successful and highlights areas where your expenses should be examined. In short, it gets you to thinking about your business and what you can do to make it better. There are various bookkeeping methods available to you.
One method is to buy a record book specifically suited to truckers that allows the owner operator to record their expenses on a daily or monthly basis by type of expense. These books are readily available in truck stops throughout the country.
It may be more convenient to record your income and expenses monthly. An alternative approach would be to set up separate file folders for each type of expense (for example: fuel, parts, tires, repairs, supplies) and then total them at the end of each month.
Or, you can make up your own worksheet or use an accountant's pad available in any stationery or office supply store. Simply list each month across the top of your worksheet and your income and expenses down the left side. You can then total your expenses and subtract them from your income to arrive at your net income or profit.
We recommend using a computer, if possible. There are many good software programs available specifically designed for trucking or you can simply use a spreadsheet program such as Excel.
Once you have all your income and expense information in an organized format, you will be able to review that information to gain more insight into your business operation. Whether you are looking at a professionally prepared Profit & Loss Statement or a self generated one, you will have the information necessary to start managing cash flow and controlling costs.
Managing cash and controlling costs are important elements to building a successful trucking operation. Today's trucker must use every tool at his or her disposal to ensure they are operating as profitably as possible. One of these tools is the ability to calculate both your revenue per mile and your cost per mile.
Once you know your revenue and costs per mile, you can determine in advance the profitability of a load. When doing these calculations, be sure to include all the miles traveled including deadhead. If you don't include unpaid miles, you won't have an accurate number.
The cost to operate your business is something you want to continually review. The more accurate your expense records, the more successfully you can manage your business. You must be able to project needed revenue vs. expenses.
-Will you have enough cash flow?
-Are you within budget?
-Will you be able to qualify for a loan?
-Is your cost per mile creeping up each month?
Why? The only way to increase your profit is by either cutting costs, increasing revenue or a little of both. A few cents shaved off your cost per mile can mean a lot if you run 100,000 miles a year.
Now that you know what to do, how do you use it? Aside from using your calculations to determine the profitability of loads, you can also use the numbers to predict future costs, analyze past performance and cost out equipment purchase comparisons.
When it comes to being successful, you've got to operate smart and use all the tools available to you. Consult your tax advisor for more information.
This article has been presented by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. Contributions to this article were made by Shasta May, Director Business Development for PBS. If you would like further information, please contact us at 800-697-5153. See our Web Site at www.pbstax.com.
Please remember everyone's financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.