Owner Not Operator: A Successful Business?

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Paul D.'s Comment
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Hello, I found this group in a random google search and I’m glad I did. I’m interested in running a small trucking business as just an owner (not operator). My goal would be to accumulate a few trucks (maybe trailers too). I have a new friend who became an owner operator about a year ago (used to drive at swift) and has been kind enough to answer some of my questions. He says he can do about $5,000 a week in revenue(on average). I’m not sure how accurate that number is but it sure sounds good. I do know that maintenance/other expenses eat into that revenue quite a lot. But how much? I’m very eager and excited about learning more and would truly appreciate any help/guidance. I have more specific questions about operating a business, acquiring competitive bids, fees/costs, etc. but I will save y’all the details for now until I become more acquainted with whoever’s interested in helping a newbie like myself.

Much appreciated, Paul deBruynKops

Owner Operator:

An owner-operator is a driver who either owns or leases the truck they are driving. A self-employed driver.

Robert B. (The Dragon) ye's Comment
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There’s an old saying about how do you become a millionaire in trucking? You start with 2 million. That statement is pretty darned accurate when it comes down to it because risk vs reward is worlds apart in today’s economy. Honestly, you really should be a driver and have several years of experience examining the industry before even considering it because of just how tight profit margins are and how stiff the competition is. I can think of a dozen other business ventures I’d invest in before I’d consider doing it in trucking.

Errol V.'s Comment
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I took 10 minutes out of my life to do some research.

A blog called Rate4me in June said,

According to a study compiled by New York University Stern’s School of Business, the average American transportation business has a net income profit margin percentage of 3.88%.

If you buy some long term US government bonds (considered a low risk investment), over the long term you'll get back an average 5-6% interest per year.

Long term, buying bonds in US companies (loaning them money), you'll get back 4% historically.

What's your best return on your investment? You decide.

Paul D.'s Comment
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I took 10 minutes out of my life to do some research.

A blog called Rate4me in June said,

double-quotes-start.png

According to a study compiled by New York University Stern’s School of Business, the average American transportation business has a net income profit margin percentage of 3.88%.

double-quotes-end.png

If you buy some long term US government bonds (considered a low risk investment), over the long term you'll get back an average 5-6% interest per year.

Long term, buying bonds in US companies (loaning them money), you'll get back 4% historically.

What's your best return on your investment? You decide.

Thanks for this data! I don't want to be asking too much of you Errol, but what you say one truck brings in for revenue on the west coast (I'm in Southern California)? I have been investing in stocks for about 8 years, but want to diversify my income streams so I have been analyzing trucking (among other businesses like real estate). I have crunched just a few numbers, so a decent used truck seems to sell for about 45-60K. I have a great credit score but would put down ~20% (so on a 50k truck I would put down 10k). I looked it up, and if one truck brings in 200k in revenue and the net income profit margin is 4% then you would bank 8k. So then I take that 10k down payment and add the other start-up costs like DOT number, registration, insurance, fees/permits, etc. So let's say the initial startup cost would be around 17k. By my calculations that is roughly a 45% return on investment(8k/17k=45%). I'm sure my math is off, but if someone could let me know if/how far off I am I would much appreciate that. My thinking is that even though margins are low, as long as my cost to start is also low then a small fleet could be highly profitable. I would really appreciate any input on my analysis or simply someone to help me obtain the correct numbers. Thank you!

DOT:

Department Of Transportation

A department of the federal executive branch responsible for the national highways and for railroad and airline safety. It also manages Amtrak, the national railroad system, and the Coast Guard.

State and Federal DOT Officers are responsible for commercial vehicle enforcement. "The truck police" you could call them.

Robert B. (The Dragon) ye's Comment
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I’ll break down the numbers a bit further when I get a chance but let me throw two quick ones at you and they’re big ones. Say the truck turns 200k as you mentioned. Just in fuel and driver pay, you can deduct 150,000 off the top. That’s not including any sort of maintenance, tires, breakdown costs, your monthly truck payments, putting money aside for IFTA or anything else. A blown tire on the side of the road will run anywhere from $500-$1200. Need a tow? $500 just for them to Show up. Something simple like a starter will cost $1.000 to replace, turbo can run up to around 3k, fuel injectors and head gasket will set you back around $4500 and if you lose an engine, it’ll start at $25,000. Then you have a driver you’re putting up in a hotel while it’s down and you’re paying them to sit. Heck, I spent $17,000 in 6 months on repairs when I was doing a lease and needless to say, I walked away while I could.

Trucking as a single truck or small venture is a bad, bad investment with no experience and will most likely wind up wiping you out with nothing to show for it.

Old School's Comment
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Paul, your numbers are way off. NOBODY is getting a 45% return in trucking. You can't count revenue numbers as a return. They are not that at all. They are simply cash flow. Returns are something you keep.

You say you are investing in the stock market. I am assuming you know how to analyze a good stock investment. Start doing some research on the big trucking companies. Take a look at KNX. They have about 20,000 trucks of their own and a good many subcontractors in addition to that. Take a look at the percentage of their returns. You will find it to be a single digit number. They run what most industry insiders consider a very well managed operation.

Sid V.'s Comment
member avatar

Hi Paul,

The good news is what you want to do is doable. There are some people that have their own authority, sit at home and lease people on and dispatch loads and never leave the house.

The bad news is these people are veterans of the industry, have years and years of experience both as a driver and in business because it is a complicated industry.

If this your goal, I would say it's probably a 5-7 year learning curve with starting as a company driver and after 4-5 years transitioning into being an o/o.

It's very hard to find what your looking for except for doing it first hand, unfortunately.

Old School's Comment
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Paul, I was actually hoping we would hear from Sid. He is an owner operator , and I respect his insight greatly. I love what he said, and I hope you will take it to heart. I don't want to see you hurt yourself in a trucking endeavor. I have known a lot of folks who have tried to jump into this business and completely bomb out. Some of them are very talented business people. I personally know a banker, a lawyer, and a real estate man who tried to do exactly what you are talking about. Each of them wishes to this day they had never attempted it. They lost money big time.

Sid made a lot of great points. This statement stands out as important to me...

it is a complicated industry.

I have said for years that trucking is one of the most misunderstood industries I've encountered. I've been a business man all my adult life. I have never seen so many people confused about their own profession as I see in trucking. This isn't just drivers. I've watched upper level managers wringing their hands trying to understand why their employees keep moving all around from one job to another, and never being able to pinpoint a reason or way to stop it from happening.

Because of the complicated nature of this business the other statements from Sid make a lot of sense. It is doable, but probably not for you. If you wanted to really make a long term commitment, and take a few different types of jobs within the industry, you might be able to make it work after you gain some valuable expertise. We all wish you the best success at any venture you choose, but we would caution you about starting a commodities business like trucking. It is a brutal business where you will be competing against companies that have all the advantages of economies of scale. The best price wins the bids in this business. You are going to be needing to get the highest prices you can for your work. A lot of folks will undercut your ability to move freight at a profitable level. They won't care that it affects you negatively. If they can do it cheaper they will.

Owner Operator:

An owner-operator is a driver who either owns or leases the truck they are driving. A self-employed driver.

OOS:

When a violation by either a driver or company is confirmed, an out-of-service order removes either the driver or the vehicle from the roadway until the violation is corrected.

Errol V.'s Comment
member avatar

Paul, i got the impression you are an armchair investor looking for a good deal. That's why I spoke in terms of return on investment. Old School has owned several trucks at one time, with hired drivers (I think). Notice he is working for a larger company himself. Not from busting his investment but because it's just easier and he's happy.

The idea of starting small and using the profits to build your company as you're describe is as old as the Arabian Nights. Not the famous ones like Aladdin or AliBaba, but in several of the minor stories.

If you look into the history of any established trucking company you will find their roots are in one or two founders that started out holding that steering wheel and replacing the clutch themselves.

I'll tell you a (not a) secret: trucking is cut throat competition, both in supplying a service and also in getting drivers to work for you.

Do not take our comments as negative "git outta here" vibes but as information from those whose hands are trucking dirty and want you to go into this investment with open eyes.

HOS:

Hours Of Service

HOS refers to the logbook hours of service regulations.
Bird-One's Comment
member avatar

Hi paul,

Robert B. Summed it up and probably will continue too later. I wish it was as easy as buy a few trucks, and put some drivers in em kick your feet up and watch the money roll in. Trailers? Good luck getting any right now. My company tried. Couldn’t find any till October the earliest. Now that was dry van. But when you say (maybe a few trailers) I’m assuming that’s what you were referring too. Flatbeds or tankers are probably available but that is a whole other set of obstacles and liabilities. A lot of things you have to consider. Yes you COULD find a decent truck for 45 to 60k but not a flawless one. How mechanical inclined are you? If your not that truck will nickel and dime you to death.

Dry Van:

A trailer or truck that that requires no special attention, such as refrigeration, that hauls regular palletted, boxed, or floor-loaded freight. The most common type of trailer in trucking.
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