STARTING AN OWNER–DRIVER TRUCKING BUSINESS

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STARTING AN OWNER–DRIVERTRUCKING BUSINESS

CONTENTSIntroduction3Setting up your business4Business structure4Business registration5Insurance5Taxation5Permits and licences6Getting finance7Rent-to-own7Chattel mortgage8Finance lease8Cash10Applying for funding10Choosing a truck11Price11New vs second-hand12Key features12Expert advice13Finding work14Hirers15The contract16Managing your finances17Keeping a cash book18Cash-flow budget18Staying in business20Customer service20Vehicle maintenance21Fuel economy22Recordkeeping23Conclusion24Business age 2gogetta – Starting an owner – driver trucking business

INTRODUCTIONThis e-book, Starting an owner–driver trucking business, aims to help would-be owner–drivers setup and run a trucking business. It provides a summary of some of the things you need to be awareof and do.You probably already know how to drive a truck. But as you’ve probably guessed, running abusiness is a lot different to being simply an employee.While the potential rewards — personal and financial — are greater, there are more challenges andrisks involved in running your own trucking business.This e-book — based on existing industry guides (see ‘References’ at the end of the document)and insights gathered from interviews with truck drivers, dealers and finance brokers — is intendedto help you make more informed decisions and improve your chances of success.There are numerous aspects to setting up and running a trucking business. We’ve identified thekey ones you need to consider, namely:Settingup yourbusinessStaying ng atruckFindingworkgogetta – Starting an owner – driver trucking businessPage 3

SETTING UP YOUR BUSINESSAccording to business.gov.au (2014), planning should always be the first step in developingyour business.A business plan is a document that describes your business, its objectives, strategies, targetmarket and financial forecasts.It gives your business direction and helps you prepare for the things you’ll need to do to securework, grow and prosper.Developing a business plan forces you to think through all the aspects of the business, includingits strengths, weaknesses, opportunities and threats (SWOT analysis).It will involve some research on your part, however the effort will be worth it as the plan will saveyou time and money in the long run.Bear in mind that your business will depend on the health of the businesses you serve. Forexample, a downturn in housing will affect the transportation of building supplies (this would formpart of your SWOT analysis — see ‘Business tools’ section below). An example SWOT analysis canbe found in the business tools section at the end of this ebook.So you’ll need to be on the look out for things that will affect your customers and plan accordingly.Review your business plan quarterly — as your business changes, your strategieswill need to evolve to ensure your business stays on track.BUSINESS STRUCTUREThe way you set up your business will affect how it is managed and the way you pay tax (WesternAustralian Department of Transport (WADoT) 2012).Most owner–drivers operate as sole traders, whereby they accept full responsibility for everyoperational and financial aspect of the business.However, while they have complete control and ownership and receive 100 per cent of the profits,they are personally exposed to all the commercial risk.Other business structures include partnerships and limited liability companies (see ‘Businesstools’ section below).Before deciding on the best business structure for your operation, talk to your accountantor other professional advisor, who will be able to explain the pros and cons of each.Page 4gogetta – Starting an owner – driver trucking business

BUSINESS REGISTRATIONWhen you have decided on a business structure, you can ask your lawyer or accountant to help youregister your business name.An Australian Business Number (ABN) is not compulsory, but the positives of having one faroutweigh the negatives.INSURANCEAccording to the WADoT (2012), it’s important to protect your assets, including your truck andtrailer, by taking out appropriate and adequate insurance cover.Insurance can be arranged through an insurance company, insurance agent (who acts for theinsurance company) or insurance broker (who acts for you).The broker’s job is to compare a range of policies and find the best one for you.Do not sign anything until you fully understand the terms and conditions of the insurance contract.There are several types of insurance, including comprehensive motor vehicle, public liability andincome protection. For more information, talk to your broker.Make sure you disclose all the facts that could influence the insurancecompany’s decision to accept the risk or in calculating the premium. If youdon’t, any future claim could be rejected.gogetta – Starting an owner – driver trucking businessPage 5

TAXATIONYou’ll need a tax file number for your business, otherwise you’ll be taxed at the highest marginaltax rate.Under Australian Tax Office (ATO) rules, businesses with a turnover of more than 50,000 per yearmust register for goods and services tax (GST).A GST-registered business must charge its customers GST on the taxable goods and servicesit provides.However, the business is entitled to a credit for any GST it has paid for its expenditures on thesegoods and services as well as capital purchases (called input tax credits).In addition, businesses that employ staff must register as a Pay As You Go (PAYG) withholdingpayer.You may also be liable for state taxes, including payroll tax, land tax and/or stamp duty.Ask your accountant to confirm what you must do to comply with allAustralian Tax Office (ATO) requirements, as non-compliance can lead tofinancially crippling penalties (WADoT 2012).PERMITS AND LICENCESAs you probably know, there are numerous regulations governing things like gross vehicle weight/combination masses, axle loadings and driving hours.Find out which government licences, permits, approvals, registrations, codes of practice, standardsand guidelines you need to know about to meet your compliance responsibilities.A good place to start would be your state’s transport department.Special permits are needed for the transportation of dangerous goods and vehicles that exceedregulation mass and/or size limits.Make sure you have the correct driver’s licence for the category of vehicleyou will be driving, otherwise you could be heavily fined and/or your vehiclecould be confiscated.Page 6gogetta – Starting an owner – driver trucking business

GETTING FINANCEVery few wannabe owner–drivers have the money to pay cash for a truck. Consequently, they haveto borrow the money from a lender.Even if you have enough cash to buy a truck outright, it may be wiser to get it financed through athird party. That way, you will have more cash on hand to meet your operating costs until you getpaid (see ‘Managing your finances’ section below).The best person to advise you about financing your business is your accountant or licensedfinance broker.They will be able to advise you on how different types of finance will affect your set-up and runningcosts and tax bill.If you’re unsure how to find a licensed broker, there are well-known broker associations, such asCAFBA, that can help you find one.RENT-TO-OWNThe finance company purchases the asset you require and then rents it to you.You then use the vehicle for an agreed time in return for regular, fixed rental payments.It means you avoid high upfront investment costs and improves your short-term cash flow.The rental payments are fully tax deductible. In addition, you may be entitled to claim an input taxcredit for the GST contained in your rental payments.At the end of the rental contract you have a number of choices, including continuing to rent thevehicle at an adjusted rental amount; buying it for the residual amount owing; or returning it if nolonger needed.Although rent-to-own may sound identical to a finance lease (see below), there are somefundamental differences.In contrast to a finance lease (and chattel mortgage - see below), rent-to-own: allows you to hand back the vehicle to the finance company at the end of the contract if it nolonger suits your needs — no questions asked allows you to pay for the vehicle in full at any stage of the contract without penalty is ‘off balance sheet’, which means your business equity — and capacity to borrow more money— is unaffected generally has a shorter duration — you’re not locked into a long-term contract.Rent-to-own is particularly suited to start-up businesses as the vehicle funder typically does notrequire a trading history or director guarantees.gogetta – Starting an owner – driver trucking businessPage 7

CHATTEL MORTGAGEOne of the most common forms of truck finance is a chattel mortgage — a mortgage on amoveable item of property.The purchaser borrows funds for the purchase of the new or used truck (the chattel). The lender,for example a bank, then secures the loan with a mortgage over the truck.Regular payments are structured according to your requirements, typically over a one- to five-yearterm.The repayments vary according to the size of your deposit and the final lump sum payment, if any,due at the end of the finance term — known as the residual value, or ‘balloon’, payment.Although legal ownership of the truck is transferred to you the moment you purchase the truck, itis only after you have repaid the loan that the mortgage is removed.In your next Business Activity Statement, immediately after purchasing the truck, you may beentitled to claim an input tax credit for all the GST contained in the purchase price of the truck.You may also be eligible for tax deductions, including interest charges on the loan and depreciationon the vehicle.If you have a ‘balloon’ payment still owing at the end of the loan term, you must either pay it in full,refinance it for an additional term, or upgrade/replace the vehicle and enter into a new agreement.(Be aware that some banks will only consider loan applicants with a trading history and/or asizeable deposit.)FINANCE LEASEAnother popular form of finance in the trucking industry is a finance lease.The finance company purchases the vehicle you require and then leases it to you. You then use thevehicle for an agreed time in return for regular, fixed lease payments.The interest component of the lease payments is fully tax deductible, as is the depreciation onthe vehicle. You may also be entitled to claim an input tax credit for GST contained in your leasepayments.Page 8gogetta – Starting an owner – driver trucking business

At the end of the lease you have the option to purchase the asset at a pre-agreed price.If for whatever reason you cease trading before the lease ends, you will remain liable for thebalance of your lease payments, including any residual, or ‘balloon’, payment.(Be aware that some finance companies will require new entrants to the trucking industry to have anear-perfect credit history to obtain finance.)GOGETTA THE FLEXIBLE CHOICEGoGetta, which specialises in start-up businesses, funds all trucks and trailers,new or second-hand, with no age restrictions. It offers a 12-month rent-to-ownagreement with four options:1. Purchase — At any point in the contract you can pay for the truck in full without penalty. Ifyou pay in full within the first 12 months, you’ll receive a 75 per cent net rental rebate on thepurchase price.2. Return — If, after the first 12 months, the truck is no longer suitable or your businesshasn’t worked out as planned, you can give it back to GoGetta without penalty; all you willhave ‘lost’ is 12 months’ rent.3. Continue renting — After the first 12 months, you can simply continue renting. Duringthis time you will still have the option to purchase the truck and receive a generous rentalrebate or give the equipment back to GoGetta without penalty.4. go.Own.plus — After the first 12 months, you can switch to a three-year go.Own.plusagreement, whereby you continue to rent the truck for up to 30 per cent less per week. At theend of the agreement, you have a number of options, including owning the truck outright.gogetta – Starting an owner – driver trucking businessPage 9

CASHIf you have enough cash, your natural inclination will be to pay for a truck outright, thus avoidingthe interest on a chattel mortgage or finance lease, for example.But if that means you would be left with no money to pay for your running costs and livingexpenses, you might want to think again.It may be several months before your first accounts are settled, during which time the bills will stillhave to be paid (see ‘Managing your finances’ section below).Comparison of cost and flexibility of finance options*High FlexibilityRent-to-ownCashFinance LeaseChattel MortgageLow FlexibilityHigh CostLow Cost*This is a general guide only; for expert advice on the best finance option for you, speak to your accountant or finance broker.APPLYING FOR FUNDINGThe funding application process will differ from lender to lender, however they will all requireinformation on which to base their assessment of your application.The stricter the lending criteria, the more detail you will be expected to provide.This personal and financial information may include: driving skills and experience trading history (if applicable) borrowing history, including any other commitments you already have projected income, including any written contracts projected expenditure, including truck finance payments, personal finance repayments(e.g. motor car, credit cards, monthly bills), mortgage repayments, fuel, tyres, andmaintenance and repairs.Page 10gogetta – Starting an owner – driver trucking business

CHOOSING A TRUCKBefore buying a truck, you must decide on what sort of work you want to do and the sort of truckyou’ll need to get the job don

Page 4 ggetta – Starting an owner – driver trucking business SETTING UP YOUR BUSINESS According to business.gov.au (2014), planning should always be the first step in developing your business. A business plan is a document that describes your business, its objectives, strategies, target market and financial forecasts. It gives your business direction and helps you prepare for the things .