$7000 in ~6 months. Good info. Thanks for posting.

 

That's not $7,000 in 6 months, it's money I've been putting aside for a rebuild and it's $12,800 as of last night when I tallied it up.

I as soon as I hit $15,000 I'm going to stop putting that money aside.

 

I'm not sure how you got one from the other. Saying that a $2000 payment over 10,000 miles means an additional .20/mile implies that Steve has no equipment expense. At the very least, Steve has an equipment expense of $800+ ($35000/3.5 years) and that's not factoring in the cost of money. So the difference between his break even point and someone with a $2000 payment is a maximum of $.12/mile, not $.20/mile.

But if GMAN says that what you're saying is what he meant, then that's good enough for me 8)

 

I agree that Steve (our crash test dummy for this finance class... ) has equipment expense. But it is the cost of the equipment that he is financing that determines the profitability of his business.

He could have gone out and purchased a brand new truck and had a $2500/mo payment...or.....financed it himself with a (on paper payable to the Bank 'O Stevo) $690/mo payment. With freight rates being steady,, which operation will be more profitable?
Variables to add in: repairs on older equipment, larger depreciatoin on the newer truck, reserve for new(er) equpent....?

 

no_worries,

Are you forgetting to include your ROI in your budgeting calculations for operational expenses? Even if the OO pays cash for the equipment he/she should be getting a return from that investment. That should be calculated in your operational expenses and should be part of that figure that determines profit/loss. This should be happening regardless if you have a $0 payment or a $2000 a mth payment, and adds to the overall operational expenses regardless of the cash buyer or the new truck driver.

Cost of money is relative. If I borrow it from Mr. Banker it costs me more than if I "borrow" it from myself. If I borrow it from myself what would that rate of return been? Depends on which pool of money I borrow it from and the rate of return I was getting... By the time you throw in depreciation and the real cost of that investment there are clear winners and losers as far as investment strategies. For the purposes of this conversation I doubt we really want to go off into opportunity cost, depreciation, and tax implications of the various business strategies.

That said, If I didn't think I could at the very least meet or beat that rate of return by starting my business then I should just leave my money sitting in the bank(or whatever investment vehicle it was in) and go find a job flipping burgers or something else that will pay the bills.

The next point is the point of relative cost and competitive advantage. If I borrow that money from myself and pay for the truck with cash my actual operational costs are in fact lower by not paying that truck payment(on top of my ROI/truck replacement costs escrow). If my cost of ownership and operational costs are lower than the guy with the $1000 a mth payment, or the $2000 a month payment then that is in fact a competitive advantage. The OO in this position has more options than the OO who is carrying those payments. There is opportunity cost that can be a factor. So the new OO buys his truck for say $25k, but then spends another $10k in repairs that sounds straight forward, but there is also the 2 weeks of down time(for the sake of conversation) that the OO ate while in the shop, on the side of the road, or in a truck stop waiting on repairs. What did that cost the OO? Will the overall cost of the additional repairs, and downtime be enough to erase the advantage this year compared to the OO with a new truck and that $2k payment who possibly didn't have this opportunity cost?

The point about who or what makes an OO profitable is all relative to those operational costs, and how that OO is budgeting for those expenses. One OO can show big numbers that look like they are very cash flow positive, but in reality they are taking the money from another category/neglecting another category. They might be able to get away with it, or they might not. As an OO, why would anyone want to leave these things to chance? It is all about freedom and choices and how you manage that cash reserve, plan for the maintenance, and replacement costs, and anticipate the lean times as well as the prosperous ones. Also how risk adverse are you? That may drive how you manage your numbers, leverage, and risk.

I would agree completely that your assessment is spot on regarding a lot of newbies looking at launching a business and not really knowing the numbers. The numbers are the formula for success. I applaud your efforts and interest in pressing this topic to raise awareness. We have all had more than our share of conversations on this forum with fleeced operators that insist they are making good money. If they knew the formula(numbers) they would know otherwise. For some I think it is willful neglect, and with others I think it is possibly beyond their skill set. If this conversation has left some considering getting into this business scratching their heads, then maybe they should get a financial planner, attorney, and accountant to boil it down to the cold hard facts and not just take a leap of faith. Oh, and if you don't have the cash for that kind of professional help then you most likely don't have the funds needed to launch a successful trucking business. Just because you can drive doesn't mean you can run a business.

I personally think Steve has done an awesome job and I applaud is courage, and aggressive take no prisoners drive into this business. I love his posts and his story. Steve makes no bones about the fact that he went into this with the funds to get this off the ground, endure some hardship, and weather some storms(literal and figurative). If the prospective OO has done their homework they should know what kind of cash reserves they should have before pressing forward. People need to know what those numbers are, and they done they need to figure it out before running off to buy that truck.

I know it frustrates new folks to the forum to ask the question how much do they need to make per mile to be profitable. Then forum members say "it depends". It isn't a cop out, it is not a straight forward answer and has many variables. Start by going to the tools section on the OOIDA website and get your hands on the spreadsheets there and start plugging in some numbers. If you don't know what something is going to cost you then come back and ask around. You will get some round numbers to plug into the tools and get your real cost per mile to run a truck, and all of the other parts of the operation. You should get a good idea what it is really going to cost per mile and what you need to do to be profitable. How can you have a successful business if you don't know the numbers? BOL

Longsnowsm

 

I got fixed expenses too, and it decides whether I'm profitable.

$2500 truck payment
$440 workmans comp
% of linehaul for truck/trailer ins (0$ when parked )

Lately I've been running "freighthauler" miles (3000+)


I had to sit 6 days in CA for my trip out at $3.80/mi, and reloading for another 3000 miles at $4.25. My nich requires sitting, then hurrying up and getting there. If you think flat/van freight has seasonal flows, try HHG :lol:

 

I've got a load paying about $8.00 a mile to THE TRUCK. That does not include the money I'll make for packing the shipments, and any accessorials/fuel surcharge.

It'll have me tied up for about 10 days.

Guess I should add in it's going about 1200 miles, and that statement was directed at Bandit's Cousin, and not anybody else.

$480.00 a month for insurance, and $230.00 a month for workman's comp. No truck payment, and probably $1k in labor and another $1k in fuel.

 

Longsnowsm,

Since ROI is not an expense, I'm not sure where you're coming from. ROI for an O/O is essentially profit. I think maybe you're speaking of ROI from the perspective of a lender. I suppose you could look at it that way but it seems to needlessly complicate things. If you're talking about ROI as the return earned on the money you borrowed from yourself, well that's essentially the cost of money. The rate of return you would have earned had you not bought a truck. I think we're talking about the same thing, just from a slightly different angle.

I don't disagree with you on your point about competitive advantage. My point was that most guys think their costs are lower than they really are and therefore operate as if they have a bigger advantage than they really do.

Everything else, I think we're pretty much in agreement on :lol:

Geoman,

I don't disagree with anything you said either...but that's not what the post said that I was referencing.

 

Double

 

O-tay...and I'll kick my soapbox back under the table...