Starting a new trucking company or becoming an owner-operator involves countless considerations, from business and profit management to DOT compliance.
Unfortunately, 90% of new small trucking companies are unable to succeed due to common mistakes made by inexperienced business owners.
In this article, we'll discuss the reasons trucking companies fail and how you can avoid making the same mistakes with your new business.
What is the Failure Rate of Trucking Companies?
The trucking industry is a highly competitive and unforgiving space. According to Tank Transport, 31,278 trucking companies either shut down or shifted their services to larger fleets within the first four months of 2023, due to falling freight rates and rising fuel costs.
On the bright side, with proper planning, research, and staying compliant with DOT regulations, aspiring owner-operators have the potential to become successful and profitable.
Six Reasons Why Owner-Operators and Small Trucking Companies Fail
Failing to create a solid business plan, poorly managing expenses, and missing important DOT compliance requirements can cause small trucking companies and owner-operators to shut down early on in their business ventures.
By understanding these common mistakes made by small trucking companies and owner-operators that lead them towards failure, aspiring business owners can take steps toward increasing their chances of success in this competitive industry.
Not having a business plan in place
A comprehensive business plan provides direction and serves as a roadmap for your business journey. It can help you make sound decisions about your operations and secure financing from potential investors to get things moving.
Creating a business plan can seem overwhelming, but there are many resources available to help, such as the Small Business Administration (SBA) and SCORE.
The SBA offers templates, advice on how to write a detailed business plan, and free online courses on how to start a small business. SCORE provides advice from mentors who have experience in the industry.
A well-thought-out plan should include market research on the current environment and potential customers, as well as a long-term vision and goal setting. Do you want to go over the road (OTR)? Or would you prefer to stay local? What kind of freight do you want to haul?
Without having a clear idea of where you want to go with your business, you may miss out on opportunities that could lead to long-term success.
Poor Management of Profits and Expenses
Tracking income and expenses is essential for trucking companies due to the high overhead costs associated with getting (and keeping) trucks on the road. Keeping track of your finances helps you make informed decisions about operations, budget for future outlays, and anticipate when cash flow might be tight.
Setting aside money for taxes is critical as well. Trucking companies are subject to both federal and state taxes, so it's important to have enough funds available at tax time. Foley highly recommends working with a reputable accountant for your financial and tax management needs.
Budgeting is another important element of managing your profits and expenses effectively. By outlining estimated expenses ahead of time, you can prevent overspending, which could quickly erode any profit margins you may have in place.
DOT Compliance Fines
Failing to comply with Federal Motor Carrier Safety Regulations (FMCSRs) can result in hefty fines or loss of operating authority, which can be detrimental to new trucking companies.
Some of the most common violations that lead to DOT fines involve hours of service, driver qualification files, and drug and alcohol testing. This Foley webinar highlights the top DOT violations of 2023, and how you can avoid them in 2024.
Learning the DOT compliance requirements you need to meet will help you operate a safe, financially stable business. And if you find yourself struggling to navigate all the complex federal regulations, Foley's experts are here to help.
Poorly Managed DOT Recordkeeping
Not only is it necessary for trucking companies to stay up to date on the latest DOT regulations, but they also need to maintain their DOT records.
The DOT requires trucking companies of all sizes to store and retain specific documents that may be requested during a DOT audit.
If you're not sure how to manage your DOT records, this checklist is a great place to start.
Not Saving Money for Unexpected Expenses or Downtime
Without a financial savings cushion, unexpected expenses can quickly put your business in financial trouble, and unexpected downtime can lead to lost revenue.
Budgeting for repairs and maintenance is one way to prepare for the costs of running a trucking company. Make sure you have plenty of funds set aside for regular upkeep, such as oil changes or new tires.
You also never know when inclement weather may strike, or the economy might take a downturn. Having a reserve for when operations may slow down due to unforeseen circumstances can help you continue operations and maintain a profitable business.
Lack of Experience
Running a successful trucking business involves many complex tasks that require specific industry knowledge and expertise. Understanding federal regulations, knowing how to maintain and repair commercial vehicles, and having relevant driving experience are all essential.
Owner-operators can stay informed on all regulations by taking advantage of free educational resources, such as guides, webinars, and blog articles.
Additionally, investing in reliable maintenance services can help keep vehicles compliant with DOT regulations and running safely on the road. It helps to have a community of professionals who are experienced in troubleshooting, diagnosing, and repairing commercial trucks to minimize equipment downtime.
Ways to Succeed in the Trucking Industry as an Owner-Operator
Making it as a trucking owner-operator isn't easy, but success is possible. Following these best practices can help ensure you boost your chances of growing a profitable business.
- Stay up-to-date with industry and economic news - subscribe to the Foley blog and keep an eye out for new webinars and guides to help you through your DOT compliance needs!
- Keep track of your profits and losses - Create and stick to a strict budget plan and work with a trusted accountant to set yourself up for financial stability.
- Work as a company driver before going solo - On average, owner-operators have more than 20 years of experience on the road. Even if you don't have two decades of experience behind the wheel, you may wish to hold off on starting a trucking company until you have driving experience under your belt.
- Invest in DOT compliance and record-keeping software - Ensuring compliance with federal regulations is one of the most important steps in running a successful trucking business. Working with a reliable compliance partner can help you avoid costly violations and fines that can shut down your business for good.
By avoiding common pitfalls and staying compliant with DOT regulations, small trucking companies can increase their chances for success.
Find out what steps you should be taking if you're wondering how to become an owner-operator in this Foley article.
If you're already paving the way for your new trucking company and need help getting started, talk to one of our compliance experts here at Foley or fill out the form below.
We're ready to help pave a smooth path toward success for your new business venture!
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