Newbies - Company Driver to Owner Operator
Financial Aspects and Things to Consider When Owning Or Leasing A Truck
As a first time truck owner you have two purchase options: a new truck or a used truck. If you have a large cash down payment, go for a new truck; however, most new owner-operators choose a used truck. With a large down payment you will have to borrow less or you can buy a nicer truck. A word of caution: if you are unable to save for a down payment on a truck, will you be able to manage your money as an owner-operator? You need to be in control of your finances if you want to own your own business.
What Can You Afford?
Although you may have an idea how much you can spend on your first truck, you must do your homework before checking out the truck lot. Visit with an accountant who specializes in trucking to determine what truck payments you can afford and the length of your loan (three years, five years or longer). Depreciation for a class eight tractor-trailer is considered three-year property. The IRS's Section 179 rule may allow for larger depreciation the first year. If you lease a truck, actual payments are deducted. However, when leasing you will not own a vehicle at trade-in when you need a new truck.
Next, check with your local bank for interest rates and how much money they will loan to you. Many banks consider truck loans too risky because, in the event of a loan default, equipment can be hard to sell, especially if it needs repairs. Your house or other property may be required as collateral. It's best to talk to several financial institutions for the optimum offer.
Choosing A Truck
Now that you know how much you can spend, consider what truck features you require and which you can live without. Your truck is the source of your income, so comfort and style shouldn't be your first priority. All that chrome on the outside will not increase your profit at the end of the week. However, features like larger cabs and sleepers are more desirable when it comes time to trade-in for a newer truck.
Find the newest truck with the fewest miles and have it thoroughly checked out by an independent mechanic. Ask for the vehicle's maintenance records and the name of the previous owner. Follow up by calling to verify information.
Buying From Your Carrier
Some carriers permit company drivers to purchase equipment from them and they will deduct the payment from your settlement. You can learn to be more independent as you make payments toward your own truck. Be very careful--many times the cost of the truck may end up being much more than it's worth. Read your agreement and be sure you understand every deduction. You may be responsible for your own fuel taxes, permits, plates, tolls and scale fees.
As an owner-operator, you will have to pay for major expenses as well as daily operating costs. Do you have cash set aside for a blown tire or major engine overhaul? What if you become too ill to drive or are needed at home for an emergency? Plan ahead and set aside a portion of your income. If you have budgeted well you should be able to determine your maintenance and repair costs and allocate a set amount per mile for these expenses. Be prepared and have funds available for inevitable setbacks.
Becoming an owner-operator is a big step. Be wise in your business planning and be prepared.