You are thinking that the time may have come to launch your own trucking business and become an owner-operator. Maybe you have driven for a company and are ready to venture out on your own or maybe you have already started on the pathway as an owner-operator and are looking to expand. No matter what motivation fuels your desire to start or expand your business, there are factors you need to understand that are specific to the trucking industry. Here are five things to consider:
Putting together and maintaining a business plan will help you focus your efforts, formalize goals, and determine a long-term plan for your business. Establishing an overview of your business and the services you provide will help you differentiate yourself from the competition and effectively market your business to ideal customers. You may have thought all these through in your head, but getting them down in writing can help you move forward and can also assist when dealing with financing, among other things. Additionally, you will need to establish an infrastructure, including having a system for taxes and a method for record-keeping. You may consider creating a separate entity (such as a limited liability company) to hold your assets and limit your personal liability. It would be worthwhile to connect with various professionals, including attorneys, accountants, and tax advisors to form a system, manage equipment, and obtain financing in a way that works best for you. It can also be important to firm up your current network in the industry and continue to develop relationships with people to reach out to if you have questions or need help.
In trucking, it is essential to have the right equipment for the type of freight you expect to haul. The type, weight, and size of the equipment will all dictate the type of work you can do. In the beginning, it may be difficult to justify a significant cost for a brand new truck or trailer but blindly investing in cheaper, used equipment with unknown maintenance histories may end up costing you more in the long run. Frequent maintenance can increase your costs and decrease your ability to generate revenue due to the downtime. You should fully examine any new or used piece of equipment, including having the equipment inspected by a qualified mechanic and reviewing its maintenance history. You will also want to avoid taking a “Band-Aid” approach to your equipment since equipment must be maintained in accordance with the Compliance, Safety, and Accountability (CSA) enforcement program of the Federal Motor Carrier Safety Administration (FMCSA). Overall, an owner-operator should focus on reliability and longevity as well as maintenance requirements with respect to equipment
Equipment financing as an owner-operator can make or break your business. First, it is important to assess your five “C’s” of credit – credit score, cash flow, capital, collateral, and character – to determine whether or not you may be approved for the amount of financing you need. You may benefit from building a relationship with a lender who is familiar with small ticket or small fleet equipment finance in trucking-related industries and is willing to work with you long-term to manage your growth and expansion. It may also be worth considering alternative financing methods, such as buying vs. leasing, alternative repayment methods, or providing additional collateral. These methods may help you avoid tying up your working capital or depleting revenues. If you are not in a position to obtain the financing you need, it may be time to learn how to improve your credit.
Owner-operators need to be aware of laws and rules on both the federal and state levels, and they vary based on whether you are acting as an independent motor carrier or under lease to a motor carrier. Owner-operators acting as independent motor carriers need to comply with, among other things, (a) obtaining interstate operating authority (an “MC Number”); (b) obtaining a U.S. Department of Transportation number; and (c) complying with the federal and state fuel use tax and vehicle licensing. For owner-operators leased to a carrier, there are truth-in-leasing regulations with respect to the lease agreement between a carrier and an owner-operator. The responsibility for certain credentials, such as IRP and IFTA, may belong to you or the carrier, depending upon what is specified in the lease agreement. As a result, it will be crucial that you understand all of your obligations under the lease agreement and negotiate them as necessary.
If you are considering leasing to a motor carrier, you should fully assess and analyze your needs and work habits as an owner-operator in relation to the carrier you would like to do business with. List in detail the opportunities and type of work you’re looking for with respect to (a) the type of equipment you will need to buy or lease, (b) the rates you expect to be paid, (c) the type of freight you want to haul, and (d) driving preferences for you or your drivers. You will also want to understand the requirements you will need to meet to be an owner-operator for such carriers, such as regulatory requirements, insurance requirements, leasing options, driver requirements, and limits on driving hours. You do not want to invest significant time and resources into a relationship with a carrier to find out that they will not let you work.
If you are looking at becoming an owner-operator or have questions about the management of your business as an owner-operator, FMJ’s Transportation & Logistics practice group can assist you. We can also assist with other legal questions or concerns you may have, including legal issues related to general business, finance, or employment. If you have any questions about being or becoming an owner-operator, contact Kevin Johnson (kevin.johnson@fmjlaw.com).
