By Howard Abrams, PBS Tax & Bookkeeping
If you are thinking about making the leap from company driver to owner-operator, no doubt you have a thousand questions. If you ask your accountant about it, here’s what you will hear.
Q. I am now a company driver but I’m thinking of becoming an owner-operator. How should I go about this?
A. There are many factors to consider before making a switch. The most important one to satisfy is the need to know how much money you will need to take out of your company for living expenses and how that compares with how much you are making as a company driver. And will you be able to match and exceed that amount?
Therefore, you must project how much money you are going to make as an owner-operator. Keep in mind the many benefits such as health care, vacations, 401(k), disability coverage, workers compensation, unemployment benefits and job security that is offered to employees is not available as a self-employed individual. You will need to provide your own benefits through individual policies that you pay for.
When making your financial and benefits comparisons, don’t forget to consider the effect of income taxes on your profit. Most taxes are taken out of your paycheck when you are a company driver, so you must be prepared to send in your own estimated tax payments. Remember, when making comparisons don’t forget to include all the issues.
When trying to make the decision of whether or not to go out on your own, you have to know the answers to some important questions. Here is a list of questions you need to consider before going into business.
ASK YOURSELF THIS
- Are you a responsible individual, organized and dedicated?
- Are you willing to take risks? You are taking a much bigger risk running your own business than being a company driver.
- Are you going to be able to make the tough decisions necessary in running a business?
- Are you willing to give up possible benefits of working as a company driver such as health care, 401(k), guaranteed vacations and sick pay?
- Are you willing to put in extra hours that go along with running your own business?
- Are you sales oriented? Will you be able to bring in the needed business when you are independent?
- Are you capable of handling paperwork and record keeping? If not, are you willing to hire someone to do it?
If you are new to trucking, consider starting out as a company driver. This will give you a feel for the work and what’s actually involved in the day-to-day routine from the driver’s perspective while not obligating you to the big investment of acquiring a truck. Once you’ve done that, if you still want to own your rig, a practical approach is to start out as an owner-operator leased on with a carrier.
This will give you experience handling your own business matters. Once you’re comfortable, you may feel ready to get out on your own and acquire your own authority. Just remember, when you have your own authority, you wear many hats. You’re not just a driver with a truck; you’re the sales team, the billing department and the collection manager.
Have a business plan
A business plan is a company statement that describes the company to customers, suppliers, bankers, and future employees. It is used by potential creditors such as bank and truck dealers for financing equipment. A business plan will also include financial information such as a budget showing your sales and expenses along with your projected net income. You will also need to have a cash flow statement so that the banks or financers can verify that you will be making sufficient money to pay back any loans you may incur. Your business plan should also include a description of your business, your product, and your hauls and why you feel your business will be profitable.
Next issue, we will discuss what you need to know to succeed on your own. LL
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 professional.
This article is written by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for more than a quarter-century. If you would like further information, please contact PBS at 800-697-5153 or visit their website at www.pbstax.com.