If there’s one truth to running a small- and micro-trucking business, it’s that there is, and will be, uncertainty. Meaning that with all the best-laid plans, there will be hiccups and events that require a re-evaluation of those arrangements. These can involve weather, mechanical breakdowns, canceled loads, lost customers, new customers, or economic downturns and upswings.
Trucking has the ups and downs of a cyclical business. Lean times can happen to any business any time, regardless of the economic environment. The economy for the country can be booming, but for the small- and micro-trucking business, one customer going sour, a series of unanticipated breakdowns, the loss of a valued driver, or a multitude of other unexpected events can create a crisis.
Many times we won’t know we’ve made it through the tough times until we can look back, see what we’ve been through, and look ahead to a clear road. There are too many variables. The business of trucking will continue, but even the best economists can’t predict the future. So the best plan is to prepare for the worst, while hoping for the best.
Here are seven things you can do to protect your small motor carrier’s financial stability.
1. Develop a Capital Reserve Plan
Be sure you include in your hauling rates an amount above your break-even point, which, within 36 to 60 months, will set aside at least 1½ times your annual fixed costs.
Here’s a simple formula. Multiply your annual fixed cost figure by 1½. Then divide by 156 weeks, or three years. The weekly number is the amount you need to put into your capital reserve. This is also called ‘capitalizing your business.’
2. Market constantly
When times are good (lots of tonnage), go for the gusto, take all the tonnage you can handle. However, before tonnage is lean, you need to be constantly searching for freight that not only will fill your trucks today, but also will be a source of long-term hauling contracts in the future. Take the time when business is humming along to cultivate future business. Every business has its good times and slow times. Establish long-term hauling relationships with shipping partners who will continue to work with you through thick and thin. Search for companies that are as interested in your bottom line as you are in theirs. Have a marketing strategy in place so that you’re constantly cultivating new business or re-evaluating current customers.
3. Track income and expenses
You’ll see a cycle develop over time. This will make it possible to anticipate and project your monthly income and expenses. As mentioned earlier, every business has its up and downs. Most fluctuations occur at about the same period every year or because of specific events. By tracking your income and expenses, you’ll begin to see certain events or times cause an increase or decrease in one or the other of these. Then you’ll see a pattern develop from which you can plan.
4. Make the best of slow times
By anticipating the lean periods, you can devise special efforts to attract loads. For extremely sluggish times, you might consider using these intervals for training, equipment repairs, or vacations for you and your personnel. Sometimes you just can’t ‘beat a dead horse.’
5. Create alternative revenue sources
Doing short or local hauls might be a way of generating the necessary income to keep moving. Volunteer your services to local charities when time permits; charitable goodwill is some of your best public relations and marketing. You never know what contacts can be made that may turn into a consistent hauling contract. Be creative. The idea is to add additional revenue sources to diversify the origin of your operating capital.
6. Upgrade your skills
Search out new techniques and technologies that can enhance and improve your company’s services; for example, special equipment that provides a higher level of service to your customers or new software that creates more efficiency in your operation. Review and improve existing techniques and equipment. Take courses in stress management, business management, and customer relations. Review your financial data with your tax adviser or accountant to see where improvement is needed. Review and revise your business plan. (Note: Review your business plan monthly and revise it as needed or at a minimum once a year.)
7. Network, network, network
Stay in touch with current and former shippers, brokers, drivers, dispatchers, insurance agents, and anyone else who has a direct effect on your business. Join an industry networking group that meets at least once a month. The discussions that ensue will help you focus on what’s happening in the industry.
Stay on top of trucking industry news and what is coming down the pike in new rules and regulations from local, state and national regulators. Track what’s happening in the industries of your customers; know the events that are going to affect what they ship or manufacture.
By consistently focusing on these seven activities—especially when times are good and things are running like a well-maintained truck—when the inevitable downturn occurs, you’ll be prepared to continue generating revenue and operating your company, guiding it towards greater profitability. Then the downturn becomes no more than a speed bump that slows you down but doesn’t stop your forward momentum.