When running a business from the cab of a truck, it’s important to make sure you’re taking the proper steps in managing your business finances. A few simple precautions will help you maintain a good cash flow and minimize debt.
Keep It Separated
The first rule of money management to ensure your trucking business is successful is to diligently separate your personal finances from business income and expenses. All your income from your business needs to be deposited into a separate account, which makes analyzing your business expenses much easier for your accountant. This strategy pays off in the event of an IRS audit, which could cost you money if your personal finances are mixed in with business income and expenses.
To “pay” yourself, calculate your paycheck as determined by your budget, and transfer that amount from your business operating account each month to your or your family’s personal account.
Other monies that should be kept separate from your business operating account is your reserve account. While saving money is difficult at the best of times, you’re going to need maintenance and emergency funds, and you need to be saving money in direct proportion to the number of miles you run. The reserve account allows you to have funds available for big-ticket items that you would rather not pay for out of your operating account – insurance premiums, quarterly taxes, major maintenance, or other costly items that could quickly drain the cash in your business account without reserves.
Truck Maintenance Savings
Age of Truck Maintenance Savings
New 5 cents/mile
1 Year or 150,000 miles 6 cents/mile
2 Years or 300,000 miles 7 cents/mile
3 Years or 450,000 miles 8 cents/mile
4 Years or 600,000 miles 10 cents/mile
5 Years & older or 750,000+ miles 15 cents/mile
Cash Flow Considerations
The best way to maximize cash flow is by making good decisions and eliminating bad habits.
Cash advances – Sometimes drivers get into the habit of taking weekly cash advances to help with expenses. Once you’re an owner-operator, it’s easy to carry over that habit, spending the cash on unbudgeted expenses and clouding the true picture of your expenditures. Use your business account instead of cash advances to manage your cash flow.
Overdrafts – If your bank has a tiered fee structure for overdrafts, you may not know when the next bounced check will incur a higher fee. Record each transaction, including debits and monthly drafts. If your bank offers overdraft protection, link it to a well-funded savings account or a credit card. If linked to a credit card, pay it off before the charge incurs interest. Online account access allows you to stay on top of your finances through mobile banking.
Predatory lending – Merchant cash advances provide money to a business immediately but have high rates and excessive late payment penalties. A single default to an MCA can set off a chain of increased debt that not only threatens the business, but also the owner’s personal assets.
Factor – If you’re operating under your own authority, consider using a factoring company to enhance cash flow and help build up cash reserves. Although they do charge a fee, factors offer independents fast access to the cash tied up in their invoices. Factors also provide benefits such as collections, accounting services, and discounted fuel networks. Make sure you read the fine print to ensure the contract meets your needs.
Credit card debt – A business credit card is a helpful tool, but only if you pay off the balance at the end of each billing cycle. If you carry a balance, interest changes can pile up quickly. You’ll get the best interest rate on credit cards by maintaining a high credit rating, so keep a close watch on it. (You can obtain a free credit report once a year simply by requesting a copy.) If possible, research credit card offers carefully and select a card with a rewards program.
Strategies and Solutions
In tight financial times, a struggling business may need to consider additional measures or debt relief to stay afloat. Here are some options:
- U.S. Small Business Administration loans – SBA loans, particularly the SBA 7(a) loan, offer better terms than a traditional bank loan.
- Term loans and bank lines of credit – Usually requiring repayment within five years, these are common for small businesses.
- Retirement savings – You can tap into Individual Retirement Accounts of 401(k) accounts from previous jobs, but you will likely pay a tax penalty.
- Debt consolidation and forgiveness – Consolidating multiple loans into a single payment lengthens the repayment period, but the downside is that the terms can be onerous. Debt forgiveness means hiring a lawyer to negotiate reduced debt; however, you will take a substantial hit to your credit rating.
- Bankruptcy – Filing for Chapter 11, which reorganizes debt while allowing a business to continue to operate, is normally used by large businesses. Chapter 7 liquidates assets to pay debts. Chapter 11 allows for a greater period to work out the arrangements – 180 days – but it’s a more expensive process.
The best plan for managing money is to actually have a plan in place and execute it. Often, costly mistakes can end up multiplying in the long run, so create good habits and stick with them.