Bottom Line
Tax Tips
Profit does not have to be a guessing game

Howard Abrams
PBS Tax & Bookkeeping

In this, the third of three columns focusing on financial statements and their importance to your trucking business, we focus on using such documents to increase operating profitability and control cash flow.

Financial statements are important because they are used for tax projections and planning, obtaining loans, sale of your business and budgeting. They can also help you manage cash and control costs.

Today’s truckers must use every tool at their disposal to ensure they are operating as profitably as possible.

One of these tools is the ability to calculate both your revenue per mile and your cost per mile. To determine expense per mile for your overall operation, divide your total expenses by the total miles you have run. This should be calculated on a monthly and year-to-date basis to get the most accurate figure.

Once you determine your expense per mile to operate your truck, you can use that to determine when a particular trip or load is profitable.

Let’s assume the truck’s expense per mile is $1.01. Next, you’ll need to know how to calculate your revenue per mile. Take your total revenue – or income – and divide by your total miles. This calculation will give you the truck’s revenue per mile or, in other words, how much you make for every mile you run.

Let’s say the revenue per mile is $1.50. Now that you know both your revenue and cost per mile, you can calculate your profit per mile.

Take your revenue per mile of $1.50 and subtract your cost per mile of $1.01. That tells you your truck’s average profit per mile is 49 cents. And this does not include what you pay yourself.

With these calculations, you can always determine in advance the profitability of a load.

Take the total amount a job pays – this is your total revenue. Then divide by the number of miles the trip will take, and you will have your revenue per mile. Let’s say a load pays $2,500 and the trip is 2,350 miles; the revenue per mile is $1.06.

You already know it costs you an average of $1.01 per mile to run the truck. If you accept this job, you will make only 5 cents per mile. That’s not even close to what you need to match your average profit per mile of 49 cents.

When doing these calculations, be sure you include all the miles traveled, including deadhead. If you don’t include unpaid miles, you won’t have an accurate number.

The cost to operate your business is something you want to continually review. The more accurate your expense records, the more successfully you can manage your business. You must be able to project revenue vs. expenses.

Will you have enough cash flow?

Are you within budget?

Will you be able to qualify for a loan?

Is your cost per mile creeping up each month? Why?

The only way to increase your profit is by either cutting costs, increasing revenue or a little of both.

It is important to be able to identify all of your costs in relation to your operation. You should keep track of all business expenses, no matter how small, even though they may not be deductible for tax purposes.

For example, for meals on the road you may use the per diem allowance for tax purposes.

However, when calculating your cost per mile, you will need to keep track of your actual meal expenses.

You should break down your costs between fixed and variable costs. Fixed costs stay the same regardless of the miles you run. Examples of fixed costs would be equipment payments, some taxes, license, permits and insurance.

Variable costs are operating expenses, and these will vary month to month as equipment is used. Examples of variable costs would be: fuel, oil, repairs, maintenance, tires, etc.

Now that you know how to figure your revenue and costs, how do you use that information?

Aside from using your calculations to determine the profitability of loads, you can also use the numbers to predict future costs, analyze past performance and cost out equipment purchase comparisons. When it comes to being successful, you’ve got to operate smart and use all the tools available to you.

Organization, good record keeping and proper, realistic planning can and does make the difference between success and failure.

This article was written by PBS Tax & Bookkeeping Service. Contributions to this article were made by Shasta May, director of business development for PBS. If you would like further information, please call 1-800-697-5153 or visit www.pbstax.com.

Everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.

Aug/Sept Digital Edition