The trucking industry has long been used to track whether the economy is on the right road too, according to a report on MSNBC. Experts figure you can tell whether consumers are purchasing and if factories are producing at capacity by the amount of goods hauled by truck across the nation. But right now, it doesn’t look as if the recession is leaving any time soon. Demand for shipping is still very soft, and Donald Broughton, analyst with Avondale Partners, which is an investment bank, says there are still too many trucks competing for the comparative handful of shipping contracts. While seven out of every hundred trucks disappeared from the road in 2008, Broughton says even more trucking companies will have to close their doors before the ones remaining in the industry can command higher prices from shippers. This is because the number of trucks and the capacity available will be substantially less than the sheer volume of goods to be hauled.  Tavio Headley, an ATA economist, figures trucking will pick up a little by next quarter, but factors like the housing bust still determine the pace of the economy as a whole. Traditionally, trucking has picked up anywhere from 3 months to a full year before the rest of the economy followed suit.

With the lower rate pressures being placed on most segments of the trucking industry and the constant possibility of being just a turn away from closing the doors on your last delivery, what are some last-ditch efforts small business truckers can take to try and keep their business afloat? (A little different version of the definition of insanity is, if you’re still doing things the same way as you were a year or two ago, expecting the same revenue, you will be sadly disappointed. Trucking has changed for the present and it requires a different mindset on how you approach the business.)

If you don’t know your Break-Even Point including an Owner Draw, or don’t want to spend the time to learn it, then you are going to fail. Some say, “If you’re an entrepreneur, you don’t need to pay yourself a salary because you get to keep the leftovers.” Well, in this economy, that approach will put you out of business. That’s  pretty direct, but let’s say you, the trucker, know your Break-Even Point, and try to pay yourself a draw or salary, but you’re still not hitting the revenue required to sustain the operation. What now?

It becomes imperative you have a dedicated, continuous, well-paying load that far exceeds your breakeven point. This load should not go out any further than it takes to afford to run back empty for the next load.  Or you can mix up low-paying or empty miles and good paying loads over a period of a month to have a positive cash flow (revenue that exceeds your BEP).

What other strategies should you be implementing?

You must make every attempt to fill every cubic foot of the trailer or be running as close to gross weight as possible. You shouldn’t just haul full truck loads; look for partials or multiple partials to fill the truck. Even if you don’t succeed every time, the law of averages says you will produce more revenue over time by trying to fill every cubic inch of that trailer. If you have 10’ of space, it needs to be filled with a partial. If your load is sealed, then you should be paid as if the entire truck was filled to the max.

When is the best time to factor your receivables?

Factoring isn’t an emergency solution. It is something that is best incorporated into a complete business model. So shop around for a factoring company long before you need it. You need time to investigate and read through and understand the contracts and agreements that you’ll be signing. The purpose of factoring is to give you cash to operate with while waiting for completed shipment invoices to be paid. It won’t work if you aren’t producing the needed revenue in the beginning.

The whole idea here is to be sure that at the end of the month and quarter you are showing revenue that exceeds your break-even point. You may not be making a profit on each round, but you need to show a positive cash flow (more revenue than your break-even point) when all loads and rounds revenue is combined at the end of each month and each quarter.

Exit Strategies

With that said, there might be a time where you are just beating your head against the asphalt. You are unable to set up the needed revenue-producing loads with the tiniest of profits or just breaking even. What are some exit strategies you, as a trucker, can take without losing your shirt? 

Having an exit strategy is a plan to do something different if events and circumstances show that a new direction is required. This can be anything from an injury that makes it impossible to continue doing what you’ve been doing, to tragedies like divorce, death, or other personal events. It can include the loss of business, a change of market, or a bad economy.  It’s best if it is thought out in advance as to worst-case scenario, rather than as a knee-jerk reaction to events.

So start thinking about: 
Is the business sellable?

1. What’s its value in equipment?
2. What is its debt load?
3. What are its contract values?
4. What would you realistically pay for it today?

If the business isn’t sellable, what other options do you have?

1. Take on a partner or investors who inject cash into the company.
2. Park the equipment, close down the office, reduce insurance to storage only and wait for the market to return by getting a local job to cover the cost of the one truck and insurance.
3. Sell the equipment and get out of the business--lock, stock and barrel.
4. Look for a different market to serve.
5. Partner with customers.

What are some of your exit strategies?  

Good loads and good roads, everyone.

Timothy Brady
©  2009