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 they fail within their first year? We’re going to give you four reasons. 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.
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 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. You need to be flexible so you can be out on the road for at least three to four weeks at a time 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. But 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 consistent 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. If you don’t control your expenses especially, you’re going to go underwater real fast. This is probably the number one reason why most 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. Then, write down your trailer payment, say $240. Now 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 could do a whole lot of write-offs. But say if we did take 30 percent off 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 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. They 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.