5 Important Things to Consider When Starting a Trucking Company
Applying for your Motor Carrier Authority and going into business for yourself are major steps in your life. Here is a list of 5 of the first things you need to consider as you begin your journey. You'll get another email from me in another couple of days with 5 more things to consider. These lists do not include everything you need to think about or be prepared for, but it will get you off on the right foot. Good luck!!
1. Major Startup
2. Expenses –
The biggest hurdle to starting your own business is coming up with the money to get started. It takes a lot to get going, but don’t let that discourage you. The long term benefit is worth it, as long as you do things right. If you are reading this, chances are you are going about getting started the right way.
• The Truck and Trailer - This will be by far your biggest expense. Most companies start out with used equipment. The easiest way for a new trucking company to get into a truck and trailer is usually through a lease to own option. The bad thing about a lease to own option for a new company is that you are limited to how much they will lend you. The good thing about this type of “loan” is, you usually don’t have to come up with a huge down payment because they are 100% financed. Often this is a new company’s only option. Because leases they are fully financed, you typically only have to come up with the first and last month’s payments. Since monthly payments tend to range between $2,000$ 2,500, your first payment will be around $5,000.
• Vehicle Registration Fees - This depends a lot on the state you are based out of and the states you are going to run in, but you can pretty safely plan on paying between $1,500$ 2,500 per year and you will usually have to pay the entire amount up front.
• Insurance - Your insurance cost will range between $8,000 and $15,000 per year. To start the policy, you will usually need to make a down payment of between $2,500 and $4,500. 2. How to structure your new business – Here are the three most common business structures. Your tax accountant or a lawyer can usually help you pick which is right for your situation:
• Limited Liability Company or LLC Probably - the most common business structure for new small businesses because it is the simplest to maintain and protects your personal assets under most circumstances.
• Corporation- Also protects your personal assets under most circumstances. This option is usually the best if you plan on growing into a very large company.
• Sole Proprietor - A sole proprietor is just you personally operating a business and is usually not a good option because your personal assets are at risk. In a lawsuit, you could potentially lose personal assets like your home or personal savings.
3. Insurance –
I have outlined the cost of insurance above, but you also need to keep in mind that most insurance carriers will not cover a new trucking
business that has drivers with less than 2 years experience and companies that plan on having more than one truck in their first year.
4. Pick The Best Tax Structure –
One of the big benefits of owning a business is the tax benefit. Many things you already use, like your cell phone, can
become business expenses and be paid for by your business before taxes are taken out of your income. Here are the most common tax structures? your accountant should be able to help you choose which will be best for your particular situation. Each has its own pros and cons.
• Disregarded entity - Most sole proprietors and single member LLC’s are taxed this way. It just means the business taxes will be part of your personal 1040 tax return reported on Schedule C.
• Partnership - By default, LLC’s with more than one member/owner are taxed as a partnership.
• S- Corporation - Many small businesses, whether an LLC or Corporation, elect to be taxed as an S Corporation because of its many benefits. The company itself does not pay any income tax. The tax liability flows through to the personal tax obligation of the owners. You have to formally request this tax structure through the IRS.
• C- Corporation - This is the default tax structure of a corporation. The company pays income tax on profits and then pays dividends to the owners, which can also be taxed.
5. Who is going to apply for your Motor Carrier Authority –
This doesn’t sound like an important step, but it probably is one of the most important. There are two types of companies out there who help new trucking companies apply for their motor carrier authority. The first type does nothing but get you your US DOT and MC Numbers and they are usually the cheapest. The second type of company is more full service. They will do everything the inexpensive guys
do and they will also help you through many of the other steps you must take before you are able to start hauling loads for hire. They charge a little more, but are worth the price because they will save you lots of headaches in the future. This is one of those cases where you definitely get what you pay for. As always, if you need extra help or have any questions I can answer for you, give me a call on my direct line (801) 6796490 or just reply to this email.
