How to Create a Budget for a Trucking Business
The trucking business is an inviting prospect for a lot of people, especially those who have experience in the freight, trucking, and logistics industries. The increase in online shopping, plus the amazing deals available, has placed the trucking industry on the fast track for growth for the foreseeable future.
However, more than the simple idea of driving your own truck and building your own fleet of them, one obstacle seems to get in the way: budget. To keep your business robust and your operations smooth, an accurate budget is necessary. Not only will it keep your business processes growing, but it will also give you a clear picture of your company’s condition. It gives you a better grip on your financial condition and gives you an opportunity to assess your options, accelerating your growth and minimizing your losses.
In order to keep your finances in order, here’s how you can create a budget for your own trucking business.
Identify Your Total Income
Your total revenue refers to the total amount of money your trucking business made or pulled in for a specific period of time. This will serve as the foundation of your entire budget and is relatively easy to identify. Sum up all sources of income for your company, which in trucking is mostly the revenue from contracted work on behalf of a shipper or a logistics company. If you have a bookkeeper or an automated system that keeps track of all payments made to your business, you can easily pull this up from the profit and loss statement.
As the first step, your gross income will be the basis from which all expenses will be deducted later. If your revenue is greater than all your expenses, then your business is turning profit. Otherwise, your business is losing money. Also, your income for the past period – either monthly, quarterly, or annually – will help you generate a projection for the period ahead. Revenue projections are important when you’re planning to take out loans or to raise funds for your company. This is largely based on your historical data combined with industry projections created by experts. One tip for creating projections: stay on the conservative estimates. This way, your expectations are lowered and helps you prepare for the worst. In a volatile industry such as trucking, it’s better to unexpectedly earn more than to fall short of your projections.
for your expenses
In trucking, as in most businesses, there are two types of expenses: fixed and variable. Fixed expenses are those that are relatively consistent throughout different cycles. Insurance premiums, licenses and permits, truck loans, rent for your storage and parking properties, and utility bills are some of its examples.
Meanwhile, variable expenses change every so often and include those that vary too often or those that are proportionate with your business activities. In the trucking business, this mainly includes fuel and vehicle maintenance. It also includes load-specific expenses like tolls and scales. Depending on your arrangement with your employees, wages can also fall under variable employees. If they are paid by the hour or if you hire additional drivers during busy seasons, those are variable costs for your company.
It’s important to check your expenses and compare them with your previous records to see what has changed. It helps you understand the position of your company with regard to the economy. If the fuel prices continue rising and your overall mileage doesn’t move much, ask if it’s time to change your contract prices. Similarly, policy changes can affect the minimum wage mandated by the law or the insurance premiums for the workers on your payroll.
More importantly, this completes your profit and loss standing. Whether you’re due for an upgrade, a raise, or an expansion, or if you need to cut down on manpower or hours depends on how much expenses you’re incurring against your profit. To be additionally sure, you can consult your local trade association or even financial experts to see if your profit margin is still acceptable.
Now that you have an idea of your profit, you can start budgeting. When done correctly, you can make the most out of the money that you have. The easy part starts with the fixed costs because you know when they’re due and how much they’ll cost you. For the variable costs, you’ll have to make an estimate. For example, your fuel consumption can be computed from the average cost per mile based on previous expenses. This is then multiplied by your estimated mileage based on the trips booked for the next month, for example. You can also use apps like TruckSmart or Trucker Tools to help you optimize your route and find gas prices to save more with each trip.
Once you’ve set aside a part of your budget for your expenses, it’s time to allocate to other overhead you will need in your trucking business. To start with, plan for your regular maintenance. Preventive maintenance could be considered as a fixed expense, since it can be scheduled ahead of time and depends on the mileage and the time since the last check up. As a rule of thumb, save at least 10% of your funds for maintenance expenses. This is a good investment since keeping your fleet in good running condition reduces the risks of accidental breakdowns. Not only do these breakdowns cost you for repairs, it also creates downtime which will affect your output.
Another budgeting aspect you might want to look at is marketing. According to Small Business Marketing Tools, a range for businesses, in general, is at 12% to 18% for marketing. This depends on the type of your business as well as your marketing strategy. For trucking, you can spend it on ads for different media like newspapers or on websites or for your expenses for attending trade shows or industry conventions for trucking and supply chain management.
If you still have funds to spare, you can choose to save it or start investing it in something beneficial for the business. As a trucking business owner, priorities usually include expanding your fleet or investing in real estate properties such as warehouses and parking spaces. In the event that you have a surplus but it’s not nearly enough, you can use it as capital for equipment financing or a small business loan for a trucking company.
Budgeting is an acquired skill; it might take time for you to get your estimates spot on. However, with consistency and complete transparency in your financial records, you have all the tools you need to start building a budget. Through this practice, you’ll be in better control of the finances of your commercial trucking company. If you come up short, you can make prompt adjustments and if you turn more than enough profit, you can start planning your next step forward. A good budget ensures that you keep your company running, your employees are taken care of, and your customers continuing business with you.
(This article is contributed by SMB Compass, a business financing company in USA)