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WHY DO CARRIERS FAIL?
98.3% of the carriers that start a business fail within the first 2 years. 65% of those fail within the first 6 months. Last year the logistic industry had 7,835 motor carrier hotshot that fail within the first year, this is a behavior that is repeated year after year and there are several reasons for that, most related on how you start your business. In this blog, I will give you the main 7 reasons why independent motor carriers fail.
1) Focus More on Truck Than in Trailer.
Contrary to belief trailer has more value than the truck and the reason why the trailer has more value than the truck is because this is going to dictate what you can load and unload, and what kind of rate you’re going to get.
for example, a dry van will always make less than a reefer, and a reefer will always make less than a removable gooseneck because the type of product that goes on that truck, so the trailer is going to dictate the rate that you’re going to get and is going to dictate the urgency of what the load is going, that is the key component of starting the trucking business,is understanding the actual trailer and not the truck, So invest heavily in a trailer that will distinguish you from what the rest of the marketplace is going to do.
2) Understand The Type of Equipment Regarding the Area You Live
Many carriers go into the trucking business and fail because they were based in an area that didn't support the type of equipment they bought.
If you are Hotshot and you want to start a hushed business, don't start a hushed business in Phoenix, there's nothing in Phoenix but technology. But if you want to start tracking business. And you base in Phoenix, go get a Drive Van or go get a Big truck or a Step-Deck
So, it’s necessary you understand the area of your business to have a starting point because the majority of the new owners-operators select the wrong equipment for the market they want to run.
3) Unrealistic Expectations
The third reason that new carriers fail is they have unrealistic expectations of their market. And this reflects a lack of understanding of different points of the business like:
Understand what it cost to run your business, which means: what's your cost per mile and what's your operating costs, not understanding that in the beginning is a recipe for failure.
4) Insurance Company
The fourth reason to go out of business within the first year or shortly after the first year is that the insurance companies could put you out of the business, and what I mean by that is: as carriers are running and operating in the first year, need to pull over in the weigh stations. And they get all small things on their CSA.
For example: Not having your fire extinguisher secure, not having your tablet hooked up to your ELD. Missing a BOL. And something very small on their CSA score or in their safety score.
CSA affects owner-operators, by identifying those with safety problems to prioritize them for interventions such as warning letters and investigations. CSA affects drivers because their safety performance and compliance impact their safety records and, while working for a carrier, will impact their carrier’s safety record.
So, when it comes time to renew the policy. When you were paying $12,000 annually. A company X, says “now you got to pay $30,000”
So effectively Company X just put you out of business because you can’t put $8,000 down and you can’t pay. Your insurance now is $3,200 a month and that’s too much for a new independent motor carrier.
So, in summary, is because of the rating, and the insurance company.
5) Be At Home All Times
The fifth reason that Owner-operators fail is “they got to be home”.
Many motors independent carriers can’t be gone 10 or 20 days because they got a wife, kids, dogs, cat, softball practice, they got all these different things they got to do. And they don’t want to miss any of those, so they must be home for the recital, but at the same time they need to run the business, something needs to be sacrificed, and if you start always cutting your business, just because you got to be at home, next thing you get is: Don't have enough money.
6) Organize The Situation in Your House, Keep Balance with Personal Life.
From a personal standpoint, you need to have an understanding of what's going on in your house, because there is a direct relationship between your business life and your personal life, particularly in the first three years, I always recommend having a sit-down with their people, this means if you are a driver and you're looking to transition from driving to being an owner-operator, you're going to be long time out of home. And if you got a wife, kids and some dogs or cats, you must have a strong network at home and the right communication with your family because you're always gone.
Keep in mind that nothing breaks up a business faster than a misunderstanding at home, because you can have a great business model, but if your wife Is feeling left out or feeling some kind of way about it, business is going to suffer.
In this business model, including the support of your family is necessary, the understanding of the seasonality of the business and the goals that you have with it, are pillars for success since your life changes as your business changes, so establish these foundations from the beginning largely determine how you end up; You started funked up, you're gonna end it funked up. But you must have a foundation and once you come up with a foundation and a plan, you can go for that.
7) Don’t Have A Backup Plan
The last and most important reason to fail is that carriers spend money like water, buddy “spend money model” does not work at all, think in this scenario: It's the end of the year, and there are 166,000 miles on any hotshot, winter came, and you're out of warranty, at this point, you need to do something with the transmission, you gotta do something with the Radiator, you gotta do something with the starter.
You gotta do something! Something needs to be fixed. And if it breaks and you have a breakdown in December? Christmas come, also you get New Year, you get the end of your taxes, you get the end of the year of portion plates, and you get insurance renewal. And it's December and You don't have a backup, and now your truck is in the shop for three weeks in December or maybe three weeks in January or three weeks in February and you're out of the road.
Ups! your truck just put you out of business?! you didn't see it coming and you didn't have enough money to do all three things, and now you don't have any backup or any redundancy plan, you don't have anything going on. So now you just sit down for three weeks with no cash flow coming in and no backup plan.
Buddy, as I told you in the beginning: All is related to how you start your business, and how you manage your equipment when you first start in the trucking industry.
That's when the planning trucking success starts before you get your first load. The plan for success starts with the mindset: "Hey, I wanna start a trucking company and I need to answer the questions that were asked in the blog:
CBRT Capital was founded in 2021 with the purpose of providing working capital solutions for Hotshot and Power-Only Motor Carriers in the transportation industry. We are a newly formed company specializing in funding solutions for the trucking industry through capital freight factoring. CBRT Capital is an invoice factoring company that serves small and mid-sized trucking companies throughout the United States. We provide a flexible, entrepreneur approach to the working capital needs that our clients truly seek.