Why start a trucking company?
Trucking companies are the lifeblood of America. If you’ve ever thought about starting a transportation business, a trucking company is a great one to start. There is a national shortage of drivers according to the American Journal of Transportation, and it’s a fairly easy business to get started in. You can make a solid living, and it is relatively recession-proof: even in poor economic times, goods need to be transported throughout the country.
For those who like being their own boss, starting a trucking company is a savvy move. You have plenty of independence and flexibility, and there is a good profit margin for owner-operators.
However, there are long hours, and you’ll be away from home a lot while you are on the road. With a lot of inactivity sitting in your truck, you will need to take care of your health and manage your fatigue by getting enough sleep.
Types of trucking companies
More than 50% of trucking companies in the US are locally based, operating in a 100-mile area from their home base. These are some of the trucking company types that small businesses operate:
- Owner-operated companies are small businesses operating a single truck. Usually, the truck is owned or leased by the owner and they independently complete contracts transporting goods.
- Interstate trucking companies transport cargo long distances between states and cross state borders. Trucks tend to be bigger, and you need more paperwork to operate across state borders.
- Moving companies can operate interstate or locally, assisting companies to move offices or warehouses and families to move houses.
- Tow truck companies do recovery towing, towing vehicles following an accident or breakdown, or trailer towing. They most commonly use flatbed trucks.
- Freight hauler companies transport goods between locations. The goods transported can be any kind of freight that needs transporting, for example, livestock, fresh produce, and farm goods.
- Dump truck companies transport materials used on construction sites, such as gravel.
- Long-haul truck companies operate large 18-wheeler trucks across America. They drive long distances, carrying freight. A lot of rules and regulations apply for these companies.
- Franchises tend to operate in the logistics business. Small businesses can buy a franchise and operate within the overall franchise network. Examples include Unishippers Global Logistics LLC, and Intercargo.
A step-by-step guide to starting a successful trucking company
Follow this guide to starting your own trucking company, to help ensure that it is done legally to meet all requirements:
1. Obtain a commercial driver’s license (CDL)
The first step is to successfully obtain a commercial driver’s license. This is essential for anyone driving a commercial truck. Requirements for the license vary from state to state.
If you need to learn or gain experience, you can attend a driving school for truck drivers. Some larger companies also have training programs so that drivers can update their skills or get their commercial license at a CDL school. Some state and local governments even offer free training classes. Several trucking companies do so as well, so they can train potential truckers for their company.
2. Prepare a business plan
Writing a business plan will help you figure out the details for your trucking business and help you establish it. As you prepare your business plan, identify and set your goals for the first few years of your small business. Your plan may be required if you need to apply for finance to start or grow your business.
- Executive summary: Summarize your overall business plan with the key points.
- Company overview: Explain what kind of trucking company you plan to run and the details of your business model.
- Industry analysis: Document your market research and results of your findings.
- Customer analysis: Provide the breakdown and details of your research into likely potential customers.
- Competitive analysis: Outline details about the small businesses you have defined as competitors. Note that these are businesses of a similar size and type to yours, not the large, traditional trucking companies that have fleets of trucks.
- Marketing plan: Explain your unique selling proposition (USP) and how you plan to advertise your business, including the types of promotions you plan, and platforms, such as social media you’ll use for marketing.
- Operations plan: Detail your likely staffing needs, suppliers and vendors, such as mechanics and truck part suppliers.
- Management team/your team: Describe the makeup of your team. It may just be you initially, but if you add staff, you can put them in this section.
- Financial plan: Detail how you’ll finance the startup phase of your business, as well as the next three years
3. Decide your business structure
There are three main business structures common to small business trucking companies. Choose the best one for your business.
- Sole proprietorship: This is the easiest business structure to set up. It’s operated by an individual, and any income or losses generated by the business are received by the owner. You file a personal tax return, and include your business income and expenses in it. Sole proprietors don’t have any protection from liabilities other than insurance, so their personal assets are at risk.
- Limited liability company (LLC): An LLC provides limited liability protection, making it a popular choice for trucking companies as it also provides some flexibility in management. In terms of tax, it offers pass-through tax benefits. To register for an LLC, apply via your state authorities. The requirements are different in each state so check your state website for details.
- Corporation: A corporation has shareholders, officers, and directors. The shareholders collectively own the corporation, and the corporation owns the business. A C corporation pays tax on its profits and doesn’t have as many restrictions on who can be shareholders as an S corporation, which is a pass-through tax entity. Personal assets are protected in both.
4. Register your business
Apply for your business license with your state authority. The location for registering depends on the type of business entity you have. It’s likely you’ll have to register in each state that you do business in. This Forbes article on how to get a business license may help.
If you operate under a trade or brand name, you may also need to register for a DBA (doing business as) certificate.
On your application for a business license, you will need to provide some basic info about you and your company:
- Your business name
- Your business address
- Details of the owners, business structure, and directors if you have them
5. Complete legal requirements
The trucking industry is highly regulated with a lot of legal requirements to comply with, although these vary depending on the type of trucking business you form. Here are steps you need to take:
- Apply for a USDot number from the US Department of Transportation. This unique number can be used for inspections and accident investigations.
- Register with the Federal Motor Carrier Safety Administration (FMCSA). This gives you trucking authority for working across state lines. You may also need to install FMCSA-compliant tracking devices.
- Register for a unified carrier registration (UCR) permit.
- Get an international fuel tax agreement (IFTA) license and stickers. You need these when driving in multiple states for filing fuel tax reports each quarter.
- Get a SCAC (standard carrier alpha code) from the National Motor Freight Traffic Association.
6. Choose a process agent
You’ll need a process agent for each state that you operate in. This is a FMCSA legal requirement. The process agent acts as a representative for your business when there is a legal issue and court papers are served.
There are companies in each state, many operating in multiple states that act as process agents. They must complete Form-BOC-3 to register with FMCSA.
7. Set up a business bank account
Choose a bank to establish a business bank account. Separate your personal and business finances to help establish credibility and professionalism. It will also help you to track your business income and expenses, as well as prepare your taxes. If your bank connects to online accounting software like Xero, you can get automatic feeds of bank transactions into your accounts.
When you open a business bank account, your bank will require your EIN (or SSN) and the legal documents as proof of business registration. Bank services vary, but most businesses need a business credit card and checking account. Online mobile platforms can also be useful, especially if a bank branch is not located nearby.
8. Get insurance
Business insurance is essential for a trucking business. It’s a requirement for some licenses and permits. Some types of insurance coverage for trucking businesses:
- Primary liability insurance: You’ll need a minimum of $750,000 coverage for damage or injury causes, and some brokers will require $1 million.
- Trucking insurance: This is a combined primary liability and cargo insurance policy. You need to file a BOC-3 to get this policy.
- Cargo insurance: This offers protection for your cargo.
- Physical damage insurance: This covers damage to your truck in no-fault accidents.
- Worker’s compensation insurance: If you have employees, you will be required to pay into this insurance.
9. Arrange startup financing
It can be expensive when setting up a trucking company. You will need to put in place a clear financial plan to know what your costs will be. You will also need to arrange financing.
You will need to take into account some of the following startup and operating expenses:
- Registration, permits, and licenses
- Maintenance fees, spare parts
- Purchase or lease of a commercial truck
- Office expenses, and software such as Xero online accounting software
- Fuel costs
Getting hold of startup finance is also something you will need to consider. Some possible options can include:
- A loan from the SBA or a bank
- Personal savings
- Investment capital from an investor, entrepreneur, or family and friends
- An equipment financing loan
- Credit card financing
Once your business is established, it is important to manage cash flow and establish strong business operations to avoid quiet periods.
10. Get a commercial truck
Getting a commercial truck is a major investment. In making your decision, keep in mind the type of trucking business you plan to operate. Some considerations to think about include:.
- Main purpose: What will you use your truck for? Are you likely to operate locally or in long haulage? The size of the truck will change depending on the main purpose of your truck.
- Buy or lease? Trucks are expensive, so leasing is a possibility. Various types of lease are available, depending on the type of business. Common ones include a full lease, a TRAC (terminal rental adjustment clause), or a lease purchase plan.
- Price: This is often the defining consideration; how much finance you can get may determine how much you can spend.
- New or used truck: A cheaper way of buying a truck could be to purchase a reconditioned, used truck. Check its condition carefully and make sure all the paperwork is up-to-date.
- Weight limits: Think about the type of business you will operate. If it’s cargo, there are weight limitations for some trucks. You’ll need to consider the size of the truck and then what additional expenses you’ll have to get licenses and permits.
- Cab design: Will you be driving long distances and likely to sleep in your cab? How much sleeping space do you need? How does this impact the weight and design of your truck?
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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