I have written about why hotshot businesses fail many times before but lately I have seen a trend of savvy operators getting out of the business. I, myself, have caught myself questioning whether it was feasible to run a profitable business in the current economic climate.
I see firsthand on my Facebook Hotshot and Gooseneck Trailer groups the lack of available trucks and trailers. Prices are up and parts are scarce and expensive if available. Look at what brake assemblies for electric brakes cost now. For my trailer alone, I used to pay around $200 and now they are $500 as of a couple months ago. A 40-foot Gooseneck now sells used for what I paid for mine brand new if you can even find one. A Ram Dually used to sell new for $52k and now are $68k plus, and you have to wait on them.
There are many reasons hotshot businesses fail
We are all seeing that hotshot rates have not gone up enough to match the rise in costs to operate. I don’t care who you are but you are not making the money you used to and this is why hotshot businesses fail.
Then, there is the fuel prices issue. You can blame who you want and make it political or blame the boogie man, but it is a real issue that we are facing. What I see as the real danger or threat is letting this overwhelm you as a business. What do I mean by that? I am one of the most financially disciplined individuals I know. I save and pay my bills on time or in advance and employ a lot of little techniques to save money with credit cards, getting 3-5% back for fuel purchases, filling up my tanks and auxiliary tanks at lower prices, etc.
However, I am seeing a real problem that we are now charging up substantial amounts of bills with these new prices. What used to amount to a bill of a couple thousand dollars is now coming in at three times that amount. Some could be caught off guard and they could mushroom very quickly. A couple bad weeks of business or repairs and you spend your savings. Not having the money to pay your fuel bill could be devastating.
I know there are plenty of drivers who are paying cash and are making all the money they need. It is important to bring attention to the need to reevaluate you’re budgeting and operation. I coach a lot of newer drivers, and I tell them, it is not the best time to jump in. Most are following their dreams and I can’t discourage that. They will have to learn on their own as many of us did. My saying- A bad day of Hotshot trucking is still better than a week of punching the clock. At least you can fight on your feet and run your own destiny.
Run your business, like a business.
I am reprinting an article I wrote for my book and reprinted courtesy of Diesel Hounds.
One of the main concerns for starting and running a Hotshot Trucking business is having sufficient capital to survive. You have truck payments, trailer, insurance, equipment, and fuel money just to operate. However there are going to be times when you can’t work, your truck breaks down, taxes, illness, family emergencies, etc. During the holidays businesses shut down. There are many reasons a lot of Hotshot operations shut down.
There is no turning back once you start. Hotshot Trucking isn’t just a career, it’s a way of life.
Why do hotshot owner-operators fail?
This includes those who have their own authority and also those who have leased on to companies. Why do hotshot businesses fail within their first year? By analyzing the causes of failure, you can then take the opposite, more proactive approach and increase your chances of becoming successful.
1. THEY DON’T HAVE CASH TO COVER EMERGENCIES
Some hotshotters have started in this business by buying brand new trucks and brand new trailers but have zero dollars left in their account. That’s a big mistake. You need to be prepared for emergencies because you never know what will strike you. There are going to be times when you will need extra cash, especially for maintenance. What if you go out there without any money and two of your tires blow out? Now you’re out of commission, and you can’t make any money because you don’t have the money to replace those tires.
Do yourself a favor. When you start up your business or lease on to a company, have at least $5,000-$10,000 in cash reserves in your account. That money will provide you some cushion to ride out the tough times when bad stuff happens. You’ll be able to fix the problem and continue moving down the road so you could continue dropping off your loads to make that money back.
Believe me, three weeks ago I drove two days and my Cummins engine blew and I had to spend $6k to have it replaced. This is has put me out of business for almost a month. The only thing that saved me is I always planned in case this ever happened. Without a savings or good credit a lot of others may not have made it.
2. THEY’RE NOT OUT ON THE ROAD LONG ENOUGH
Some hotshotters want to go home every weekend. That’s fine and good if you want to make enough. But if you want to make big money that strategy’s not going to work. You will need to be out on the road for maybe at least 3-4 weeks at a time. You might know some people who could go home every week, but that percentage is tiny. It is important to be flexible so you can go where the money takes you. You might be in New York one day, you might be in Texas the next day, and then the next day you might be down in Alabama somewhere. This would make it extremely difficult to go home every weekend so prepare for this ahead of time. You can start with two solid weeks. But don’t try to go home every weekend in this business. It’s not going to work.
3. THEY PICK THE WRONG FREIGHT (CHEAP LOADS)
Some hotshot truckers run loads for just $1.20 to $1.30 a mile. They think that’s OK since they can still make a little profit. If you want to survive and even thrive in this business, you have to stop running loads for so low. Try to shoot for $2.00, $2.50, or $3.00 per mile. Whatever your amount is, it’s best to stay over $2.00. So stop picking up cheap freight out here. Don’t run loads for as little as $1.20 a mile if you can. You just have to figure it out and get linked in with some consistent brokers out there. There’s a lot of great brokers out there who move the same freight every day and as long as you can stick with them, you’re going to be making money.
4. THEY DON’T TRACK AND CONTROL THEIR SPENDING
If you don’t control your finances you’ll find yourself out of business real fast. You have to know what’s coming in and what’s going out of your business. This is probably the number one reason why hotshot businesses fail including hot shot trucking. Many truckers are going to go out of business within their first year because they don’t know how to control their finances.
It’s really simple, but you have to be disciplined and consistent in controlling your finances.
AWARENESS BEGINS WITH RECORDING INCOME AND EXPENSES
Write down your cash flow — what’s coming in and what’s going out. Suppose your average monthly revenue is $16,000. You average about $4,000 a week per truck. So after writing down your monthly income… write down how much you’re paying for insurance. Let’s say your insurance is about $960 a month. Then, write down your truck payment. Let’s say your truck payment is $680. Now, write down your trailer payment, say $240. Then we’re going to include fuel. This usually varies depending on the state and the time of year (in the winter months, the trucks have to idle more for heat.) So let’s say about $800 a week for fuel. Add the ELD of about $20 a month. Then, add the factoring service. They typically charge around five percent, so that’s $800.
So after writing down all your expenses, subtract that from your monthly revenue. So after subtracting the insurance payment, truck payment, trailer payment, fuel expenses, ELD expenses, and factoring fee, you’ll come up with $10,100 for your net. After that, you’ll want to put 30% back for taxes in a savings account. Get a good CPA who can help you save money so you can do a whole lot of write-offs. But say if we did take 30 percent of that $10,100, that would be $3,030.
It’s also a good idea to take 10% every month and put it towards a maintenance account, so when stuff happens, you already have the money set aside for maintenance. So $10,100 times 10% is $1,010.00 — that’s how much you need to put into your maintenance account. So at the end of the month, after all expenses and putting money back for taxes and your maintenance account, you should have $6,060. That’s your net pay.
THE BOTTOM LINE
A lot of hotshot businesses fail because they haven’t set aside enough cash reserves in the bank to cover emergencies. They fail (or are not as successful) because they are not willing to stay out on the road for several weeks at a time. Hotshot businesses fail when they consistently pick cheap freight. Finally, they fail because they don’t know what’s coming in and what’s going out. Don’t fall into these pitfalls and you’ll be successful. We want to see everybody succeed in this business.
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