11 Key Steps to Becoming an Owner-Operator Looking Down the Road!
I suspect most truckers think about becoming an owner-operator once they’ve gotten their career going.
Being an owner-operator has many advantages, as I’m sure you learned at your CDL Training School, in Tacoma or elsewhere. The key advantages to being an owner-operator are:
- Controlling your own schedule
- Owning your own truck
- Controlling your fuel costs
- Running your own business
- Making your own profit
Whether you lease your truck to a company or act under your own authority, being an owner-operator gives you the maximum independence and profit.
But you need to plan ahead to become an owner-operator. Here are 11 things to do before you take that step.
1. Make sure you’re ready for being an owner-operator of a truck
During your first year of independence, you’ll probably have to pay cash for a lot of items which the company used to pay for. Even when you’ll be getting reimbursed, you’ll still have to have money up front to make the trips happen.
Build up a cash reserve during the year or two before you make the jump. Once you’ve established yourself as your own business, you’ll be able to find other ways to pay for trips.
2. Manage credit wisely before becoming an independent trucker
Credit may be really important as you operate. Therefore, you will have to ensure you have good credit in the year or two before you make the change.
You’ll probably be leasing your truck, or buying it with a loan. Your ability to make either happy depends on your credit. Good credit also makes sure you can pay for trips without significant hits to your cash flow.
3. You are a professional -- talk with other professionals when you set up your own trucking business
As you begin the process to become an owner-operator, consult with attorneys and accountants about the legal and financial steps you have to take to run your own business.
Depending on state law, you can be a sole proprietor, a limited liability company (LLC), or a corporation. Sole proprietorship is easiest, but you also will probably be personally liable for any damages you cause--and that means they can go after your house.
The LLC and corporation both will probably protect your personal assets, but require more work to set up and manage on an ongoing basis.
4. Make a solid connection with a good freight factoring company.
One way to help your cash flow is using a freight factor. A freight factor will, in essence, turn your invoice on delivery into cash -- most within 24 hours. The factor then bills your customer and has to wait for payment. The factor takes a small percentage of the invoiced amount as their fee.
As with any business, there are horror stories about freight factors. Don’t get into an arrangement with one without reading and understanding the contract. Focus on one which works largely or exclusively with the trucking industry.
Research the options. Your customers and brokers may be the best source for information on reliable (and disreputable) factors.
5. Consider getting your own trucking authority -- down the road
An “authority” is simply a permission from the Federal Motor Carriers Safety Administration (FMCSA). With an authority you will be able to contact shippers/receives directly, without a broker.
It requires more work -- because you’re doing what you paid others to do in the past, but you will increase your per-mile rate with the authority.
You can apply to be either a contract or common carrier. As a contract carrier, you will be hauling loads for companies you have a contract with. Common carriers, on the other hand, can work for anyone who wants to ship something. You will have to have liability insurance for both kinds, and common carriers will also need cargo insurance.
A married owner-operator with their own authority might be able to hire their spouse to manage the bookings from home.
6. Make sure you’ve covered the benefits you’re losing by leaving a company
Your company may have health coverage, retirement, disability and other benefits which you will have to make up for when you go independent. In addition, because it’s all on you, you may have an added level of stress because the guaranteed paycheck and guidance isn’t available.
As an owner operator, you will now be responsible for those items. Work with your state health exchange (or the federal one) to find the best health insurance policy for you. Set up a retirement plan and make your contributions weekly or monthly.
7. Maintain your truck like it’s your own (because it is)
Every professional keeps the tools of their trade in top notch condition. Your tool is your truck.
Drive carefully. You don’t need to get the most miles in every day. You can drive at a pace which does not over-work your truck--especially the brakes. Change the oil every month, and get grease jobs done weekly.
Know how to maintain your truck. That doesn’t mean you have to do the work, but knowing how will prevent all sorts of problems with mechanics. Understand what they’re doing, and get a written estimate for all work they’ll be doing.
8. Take care of your health while on the road
This tip applies, of course, to all truckers, but especially to owner-operators. Because you’re on your own, you will be tempted to cut corners and maximize work time at the expense of your own health.
You’ll probably be on the road for three weeks at a time -- but that’s part of the job. While you’re on those three weeks, make sure you eat well and move as much as you can. Think about parking as far away from the truckstop building as you can, for example. During your 30 minute mandatory break, move instead of napping.
Moving around more can increase your energy level -- and it’s good for you.
9. Work on your relationships while on the road
You will need to think through all relationships before you hit the road as an owner-operator. Being away for 3-4 weeks at a stretch can strain any relationship, both with spouses, significant others, children, family, and friends.
Openly and honestly discuss these issues with those close to you. And make sure that you have daily contact with them. Skype and Zoom are free video systems to stay in touch, and a data plan with your cell phone will probably be worth the investment.
Relationships can survive the long-distance life. But they require more work.
10. Watch every penny
When you are your own boss, every penny spent is a penny less in your pocket.
While some expenses are unavoidable -- diesel fuel being just one -- maximize your fuel economy. Tractor trailer mileage ranges between 4.51 and 6.47 mpg, and many can do better.
Raising the average mileage to over 7 mpg could save over $4,600 per year per truck. That could cover almost half your cargo insurance payments for the year. You can improve mileage by:
- Drive at set, fuel-efficient speeds whenever you can.
- Reduce the weight in the truck to the minimum you need
- Keep your tires inflated properly
- Minimize your idling -- your truck can be turned off most of the time for your 30 minute break
11. If you lease your truck to a company, plan carefully
Especially in your first years of being an owner-operator, leasing your truck to a company is probably a good idea. You’ll have reliable runs, and the company may cover many of your expenses. You can use this time to think about getting your own authority.
You probably want to avoid a lease-purchase plan -- most don’t really work out well for the owner-operator. In many lease-to-own plans you will have to bear all the expenses of the truck, and thus will cut into any profit margin you might have.
Avoiding ‘forced dispatch’ companies is also a good idea. Forced trips which might lead to unsafe conditions -- such as if you are ill -- are against the law. But companies which force you to take a load and miss a birthday are not treating you well.
Being an owner-operator of your own truck can fulfill the dream you had when you began your CDL training in Tacoma. But it will take awhile before you’re ready for this big step in the adventure that is your trucking career.
Think through these 11 factors -- and other idea that come to you -- carefully before you take the plunge. When you’re ready to run your own business, you will know -- but don’t rush it.