Updated: Sep 19, 2022
Near the end of 2020, we published an article “Run Hard Now” that attempted to portray the need for independent contractors to take advantage of the hot freight market while it lasted. At the beginning of the pandemic, and with the last election, there was much uncertainty as to how long things would stay good in trucking.
At the start of the year, most in the industry predicted that the good times for trucking would continue through 2022. Life is full of twists and turns and the surge in fuel prices has changed the perceptions of many owner-operators in the last few months. Rates are still very high historically, but perceptions can shape reality. At ATBS we firmly believe an owner-operator who makes smart business conditions can still be incredibly successful.
The times of very easy money may be past us, but if we take a look at running more efficiently we can dampen or eliminate the decreased rates. Just like in 2020, we want our drivers to run hard now as there is still good money to be had in trucking, however, now is a good time to take a step back and see what steps can be taken to ensure your business and personal finances are set up for success.
When times are good it is easy to lose sight of the basics. That’s why we’re going to list five “Business Checks” to perform to make sure you don’t lose sight of the little things that will ensure your business is running smoothly and will help you be prepared for economic downturns.
Are you an owner-operator that needs help with your bookkeeping, accounting, or 2021 taxes? Click here!
Create a Budget
At ATBS we call this our Profit Plan and it is something we believe is absolutely critical for any new business owner. It is going to take a look at all your fixed and variable expenses for your business as well as all home obligations. Pay rates may have decreased for you recently, and your costs have probably increased as well, so it is a good idea to refresh your budget plan. The result of a good budget is that you know exactly how many miles you need to run or revenue to generate to be profitable. Talk to your accountant about your expenses and see if there is anything you can eliminate or reduce. It is easy to lose track of rising expenses when income is simultaneously increasing. Focusing on reducing controllable expenses is critical to weathering income reductions that are out of your control.
Eliminate Bad Debt
Now is a great time to pay off high-interest credit cards or other bad debt. It not only takes a huge load off your shoulders, but you won’t be throwing away money at lenders. When it comes to debt, a huge problem for independent contractors is tax debt. If you have been putting off filing or paying back taxes, now is the time to get caught up and explore tax resolution services with someone who has a stellar reputation and knows trucking. If you are up to date in taxes, but typically avoid paying taxes until the deadline, now might be a good time to start paying quarterly estimates. If you get in the habit of paying taxes every quarter based on your actual income (not safe harbor estimates) you can avoid year-end penalties, and tax time will become a breeze for you.
Plan for Your Truck
We previously talked about managing the rising maintenance costs here. Since that article was written, maintenance costs have continued to go up. Look at what you have been spending over the last 6-12 months and talk with your accountant to make sure you are saving appropriately based on the age of your truck. Also, if you are like most drivers, your truck isn’t getting any newer and eventually, it will need to be replaced. In addition to keeping an appropriate amount of cash saved for breakdowns and repairs, consider setting aside an additional amount to pay for a down payment on a new truck in the future. Ideally, you get the most life out of your existing equipment, but while there is cash to be made get ahead of the game on your next big truck purchase.
Establish an Emergency Fund
While not trying to be pessimistic, think of the different things that could go wrong and see if you are prepared to meet an unexpected obstacle. Whether it’s losing your job, medical expenses, or home repairs, it is good to have a plan in place and a nest egg set aside so that a lack of finances does not add to an already stressful situation. Think of the drivers who immediately were ready to turn in their truck as diesel prices surged recently. While none of us plan perfectly, better cash planning helps you to handle those types of situations when they arise. It is important to talk to your accountant and/or a financial advisor to see what is appropriate for your unique situation.
Plan for Your Future
Many Americans are woefully unprepared for retirement. Some might think retirement will never happen, and they will work until their death. Let’s go with the assumption that you do want to retire someday and start taking the steps to make that dream a reality. Open a Traditional or Roth IRA and get a plan in place to funnel money aside every week or month. If you already have a head start on retirement savings, see if you can max out your contributions. If you have kids, consider setting up a 529 plan to save for your children’s education. This is by no means the limit to investment vehicles to plan for your family's future, but they are quick and easy ways to provide financial security. Always remember, if you don’t know where to start, it is worth your time and money to seek out a financial advisor!
Don’t get overwhelmed with our advice. Do what you can and don’t feel like everything must be done immediately. Just like a diet plan, it's best to take it slow and steady. Your cash flow may be slightly leaner right now than it was in 2021, but there is still room to make good money and plan effectively for your future. We did not touch on managing your fuel in this article, but check out our fuel series here for more insights into improving that aspect of your business. Now more than ever it is important to prepare yourself for the unexpected and put yourself in a position to weather economic storms. Run smart now so you can run straight through the good and the bad that life and trucking will throw at you.
Over 150,000 owner-operators have made the choice to hire ATBS over the past 20 years. We offer a variety of services including accounting, bookkeeping, and tax preparation. We also offer unlimited business consulting for our RumbleStrip Professional clients. A dedicated business consultant will help you keep your business “between the lines,” just like rumble strips on the highway. If you’d like to learn more about ATBS services or want to get started today, give us a call at 866-920-2827.