As we gradually head out of the economic doldrums, the recovery is providing a spur for many drivers who are seriously considering becoming owner-operators to make that all-important jump from employee to owner. With truck drivers in huge demand, fueled by the economic recovery and by the growing number of baby boomer drivers looking to retire out of the industry, the business demand for an owner-operator’s services is looking very healthy.
Now is a good time to look at what the opportunities are for establishing yourself as an owner-operator.
Here’s a checklist before you make the final leap.
Prepare a Business Plan
Half of all new businesses fail within the first 12 months. That is a fact of entrepreneurial life, but a common factor in business failure is a failure to properly plan. In fact, most businesses which do fail have no business plan at all!
A business plan is your route map to success and it is also a standard document that business partners and suppliers of loans and financing are going to be expecting. Preparing a business plan will force you to ask some searching, but very relevant questions – how much money do you need to make to simply pay the bills, how much profit can you expect to make, a harsh look at what your essential expenses are and a good look at who your customers will be.
Marketing & Customers
Customers are the lifeblood of any business – no customers, no business. In the run up to making the transition to owner-operator, you need to have cultivated your commercial contacts to see who you will be working for – who is going to be throwing you business. You can get around this in part by signing up as an owner-operator using a starter leasing package with an existing carrier, however there are considerable drawbacks to doing this – not least you may simply be changing the title “employee” to “owner-operator” without any substantial change in working conditions or financial reward, or indeed it may be much worse than staying as an employee driver.
A major part of your financial overhead is going to be financing your equipment – tractor units are not cheap, even a used semi trailer unit is going to set you back a substantial sum of money. You need to work out how much you can afford, take into account how much capital you have available for initial investment and what kind of leasing and finance deals you qualify for so you can accurately estimate the ongoing operating cost to put into your business plan.
Sensitivity Analysis & Break Even
If you haven’t gotten the hang of a computer spreadsheet, now is the time to learn! A spreadsheet will allow you to quickly input all your financial estimates for sales and costs, and to forecast them out on a monthly basis.
Your break even point can be viewed in two ways. The minimum amount of money you need to cover each month’s expenses before you can pay yourself, or you can also look at it as the point in time when your business starts making a profit, i.e.an excess of revenue s over costs. Break even is important because it represents the point when you are finally making money for you and not someone else.
Sensitivity analysis is the technique of changing individual elements within your financial spreadsheet. If you anticipate $10,000 per month in income, what happens if you are making more or less money and what is the impact on your bottom line? Play with the numbers so you see what the overall effect is on your finances, and this in turn will help you with gauging what reserves you need to have available should you hit a bump in the road.