Dollars & Sense: Ownership's pluses, challenges
DOLLARS & SENSE
By Kevin Rutherford
Ownership risks and rewards
here is more than one way
to be a business owner in
trucking. As the degree of
independent increases, so do the
potential risks and rewards.
LEASE-PURCHASE OPERATOR. This
means you have signed a lease or a
lease/purchase agreement to get your
truck through a carrier or a thirdparty leasing company.
PROS. This is the easiest way to
get into business. It requires little
or no down payment, credit rating
or business experience. You might
be able to find a simple, walk-away
lease that will let you test the waters
without a lot of risk.
CONS. Because there are so few
requirements, many people sign the
deal long before they’re truly ready,
saddled with equipment that’s too
expensive and lacking the financial
skills to manage maintenance costs.
They end up losing a lot of money.
Many lease-purchase deals restrict
your decision-making ability when
it comes to equipment, such as the
freedom to add wide single tires
or an oil bypass filtration system.
Your two largest costs – fuel and
maintenance – can be lowered by
Another problem with many
lease-purchases is that you are
leasing from the same entity that
also controls 100 percent of your
income. Most contracts prohibit or
make it very difficult for you to take
Adding trucks to your
operation is a sure way
to generate more income,
but your success still
depends on how
well you manage
the equipment elsewhere. This puts
you at risk if things go wrong with
Almost anything can be written
into the agreement. You need
somebody on your side who can
interpret what that legalese means.
LEASED OWNER-OPERATOR. This
means you buy your equipment –
outright or with a loan – and lease
it to a carrier. You run under the
operating authority of the carrier.
PROS. You have unlimited
selection of equipment as a leased
operator instead of the small
selection of a lease-purchase
deal. You also have almost total
control over the modification and
maintenance of the equipment. You
can decide who you will lease to.
CONS. Unlike many leasepurchases, there are no walk-away
options. Once you sign to buy, you
are committed. If you borrow for
the equipment, you are committed
for the entire loan plus interest, with
severe financial consequences if you
default. Believe it or not, you would
even owe income tax on the money
you failed to pay back.
CARRIER. If you get your own
operating authority, you become a
motor carrier, even if you own only
PROS. The biggest advantage
for some owners is a higher profit
margin. There is no carrier taking
a piece of the action before you get
There is almost complete freedom
on how you run the business. You
decide what equipment to buy, what
freight to haul, and when to work.
CONS. That freedom also brings
more work and complexity. No
longer do you call dispatch for your
next load. Do you want to develop
your own customers, soliciting freight
directly from the shippers? Or do you
want to work through load boards or
brokers? The latter is easier, but also
means giving some revenue to the
In addition to finding and developing
customers, you will be responsible
for invoicing, collections, compliance,
safety, drug testing, hours of service,
licensing, permitting, fuel tax and
mileage tax. And the list goes on.
Possibly the biggest reason for failure
is cash flow. Many owner-operators are
used to being leased to a carrier that
pays every seven days and will advance
money. But when you are dealing
directly with shippers and brokers, you
may wait 30, 60, 90 or even 120 days
to get paid. Sometimes you may not get
paid at all.
SMALL FLEET. You can build a small
fleet while being leased to a carrier
or you can do it with your own
PROS. The biggest draw is that
more trucks can generate more
revenue. Managing a successful fleet
can enable you to spend less time on
the road, or even none at all if the
fleet grows enough.
CONS. By far the biggest risk and
responsibility is adding employees. You
will be competing with thousands of
fleets. Recruiting and hiring drivers
consumes a lot of time and money.
Cut too many corners and bad drivers
will break your business.
Growing a business is a lifetime
venture. It’s challenging and
potentially rewarding. The beauty is
that the choices are all yours.
Kevin Rutherford is an accountant, small-fleet owner and the host of “Trucking Business & Beyond,” which
airs on Sirius XM Radio’s Road Dog Trucking Radio. Contact Rutherford through his website, LetsTruck.com.
OVERDRIVE MAY 2012