Dejanh

I have read and agreed with many of your post on here. I feel you know what your talking about and respect you opinions. I do appreicate you taking the time and posting to help those like my self who are looking into going O/O and getting back into Trucking like myself.

But this time I do not agree nor can I disagree 100% for I will have to get a loan to get started, but I have had a Very Wiseman tell me one day.

He Said "Son, Let me tell you what. If you go into Business, Avoid at all cost having to get a Loan. For once you get that Loan, you are no longer the Owner of that Business, the Bank is. Till you get it paid off, they can come and take it away."

This Wiseman is A friend of my Father, and now a friend of mine. He runs his own business, and a Farm. He is now also a Politican you may say, a County Commissioner.

I did tease him when he was running, I asked him was he going to get a White Suit and a White Catie and become Boss Albertson as in Boss Hogg?

Well me personally I don't like using my own money but I manage to get other people's money for free (banks or credit card companies, I don't mean people) but I would like to offer one comment though it may smack of ignorance as I'm new to the trucking industry and it's been commented that the trucking industry is different from others.

I have noticed that companies like Heartland and I believe Crete are debt free so I assume to say that trucking is different and you should carry debt I don't think holds water. Again this may be an ignorant observation and if so, please excuse my ignorance.

Crete, Heartland and Werner are i think only trucking companies that are debt free but they are small outfits in comperison with Schneider or JB Hunt which all carry debt including all other trucking firms.
I made about 107,000 last year including 6 months of being a company driver and about 4 months as a O/Op since i took off before purchasing my rig and got a refund check of 1100 from my federal, 920 i payed to my state, i did pay 2 quaters totaling 3500$ last year but i think i did very well since i pay my taxes at the end of the year, because even my company didnt withold anything when i drove for them. My truck kept this tax bill low and this goes to prove my point about having a payment. Every single buisiness out there deals with banks and i dont care how big they are, our government is the biggest debtor to the third world countries because they use other people money to finance their goals including this war, which is financed through deficit spending and they will have to pay interest on it....

Trucking is much more riskier than all other buisinesses out there, you got fuel, breakdowns, slowdowns like the one we are expiriencing at the momment and i feel much more confident in my well being if i have 100,000 stacked up in the bank somewhere than not, and have my investment sit there collecting dust....

Well not to interject myself too far into this discussion Dejanh, but I don't think anyone is saying to use ALL of your cash. Yes it is smart that you have money set aside but even GMAN, and if I'm wrong please correct me, who advocates buying a truck for cash, always says to make sure you have emergency cash on hand.

Like I said, I prefer to use other people's money too, though like I said, I like to get it for free, so I do lose the tax benefit that you get of making payments.

Why not use the interest from the money in the bank to make the payments.

If you're truck rich and cash poor you won't be able to buy that 379 or 900 for .50 cents on the dollar when some O/O goes broke.

Another thing to consider is if your truck gets wrecked and the insurance is jerking you around you have the bank to step in and protect their collateral.

Here’s a way to rephrase the question….suppose you have $100K and you want to become an O/O or Carrier. Is it better to borrow and keep your money in the bank earning interest or use it better to pay cash for your equipment and then operate debt free? What are the pros and cons? Let’s assume you have additional funds set aside to get the business up and running (2-4 months operating expenses). Let’s also assume you are buying $100K worth of equipment (1-2 yr old tractor).

I can see benefits to both….

Debt free:
1) You owe nothing so there is no monthly payment needed so if your miles are low due to the economy or health then you can weather that storm easily.
2) You are writing off 100% of the cost of the equipment over a (approx) 5 yr period which lowers your taxable income greatly.
3) You are keeping the money you would have paid for the banks/leasors to make their profits (interest/lease charges). Your yearly income is that much higher.

Finance (bank or capital leasing company):
1) You keep your $100K invested and earning 6%-10%. That will help offset the finance charges you are paying the bank/leasor.
2) You get the tax advantage of lowering taxable income by the amount of the lease or loan payment.
3) You have the money in the bank to cover any stretches of low miles.

I can see benefits to both….

What skews this view is that financing or leasing allows people to get in that don’t have the cash available and so they end up leveraging themselves to the hilt. That might work when economic times are good but can be devastating if your health or the economy turns against you.

For those people, to avoid going into debt up to your neck, another way that Gman advocates is buying an inexpensive truck and being proactive on the maintenance. The risk is that even with a detailed analysis at time of purchase, you will be rolling the dice on breakdowns and the money/loss of income that might happen. Sure the engine/tranny might last but all that nickel and dime stuff can fail will drop your mileage (seals, shocks, kingpins, etc) and you lose income while you stop to repair. But if you end up with a well maintained tho older truck, you can get in safely that way.

The best financial model for an O/O, gleaned from members on this board and financial advisors, is to save your money until you can pay cash for the truck and 3-6 months operating expenses (minus fuel). Then make payments to an interest bearing account for your next truck. In addtion, you should set aside .07 a mile for maintenance on the current truck. There is no better plan than this one unless someone gives you something for free and that never happens to me.

When you look at the financial health of a company, from an investment perspective, one of the first things you look at is the cash reserves and debt ratio. You want high cash reserves and a low debit ratio. A company with zero debit is in the best financial health a company can be in.

As for using someone else's money, I don't know how to do this. The debit from loans and credit cards belongs to me. The risk is the same unless you plan to shelter yourself with banrupsey. That won't work unless you hide your assests and you will get in big trouble for that (bankrupsey denied). You could form a corporation to protect your personal assets and get a coporate loan. Thats not going to happen unless the corporation has enough CASH. Also, first time buyers for trucks face interest rates in the double digits.

CASH, CASH, CASH ... Live debt free!! :wink:

We would all be better off living debt free. I am not suggesting that anyone put ALL of their available cash into a piece of equipment. Keeping debt low or getting rid of debt will put you in a much better financial position than having a high debt ratio. There are a lot of people in this country who live well beyond their means. They have all of the trappings but no cash. They are one paycheck away from losing everything. I can only share what has worked for me and what I have seen others do. To give you an example, I have a friend of mine who used to run his own authority with about 30 trucks. He had a lot of debt. Several years ago he decided to sell all of his trucks except 2 and now is virtually debt free. The trucks he now owns he drives himself. They are older but he just keeps repairing them as needed. He doesn't have the pressure of making big equipment payments. He doesn't owe anything on his equipment. He doesn't work as much because of taxes, but has a true net of about the same as if he had a lot of debt to service. He works when he want to and take time off as he wishes. With high debt, he could not afford to do that. The only way you can service high debt in this business is to run. High debt means that you will need to run hard, just to keep up. If you have health problems yourself or a family member, then you may not be able to work as hard. That means less income and the payments will remain the same whether you work or not. If your only reason for having debt is taxes, I suggest finding a good tax professional to help you shelter your income. When you pay cash you still have the tax deduction for the equipment, you just don't have the expense of debt service or interest. There was a time when I felt that unless I owed $1 million that I wasn't successful. True success is not having any debt. True success is not owing anyone. That doesn't mean that you never borrow money. There are times when you may need to borrow. If you have assets which are not tied up, you have something to secure a loan which could earn you a lower interest rate. If you don't have enough for a good cash reserve and don't want to wait until you can afford to pay cash for your truck, then you may need to finance all or part of your purchase. I don't recommend putting all of your available cash into equipment. You need to have a reserve for emergencies. Trucks will break down. It isn't whether they will break down, only when. It doesn't matter if the truck is used or new. They will break down.

I dont work as hard as one would think with a 1500 truck payment each month and 320 in insurance. If i combined all of my time on the road from the time when i signed on to now, i think i did about 8 months (or less but not more) worth of work OTR while i was home the rest, i managed to save 50K(including the money i am waiting for). I came home Thursday and will be sitting for at least a month.
It doesnt have to be all work, i said it before and ill do it yet again, it aint about how much money you make, its about how you manage what you MADE..

AMEN, or when you get to be my age its more like this ... "it ain't about how much money you make, it's about how much money you SAVE"