One of the biggest mistakes small trucking companies make is failing to create a cash flow plan. Paying the bills and pocketing the rest of the money seems like a good idea to some. So it’s no surprise that many of these guys don’t succeed in the trucking industry. Without a solid cash flow plan, unexpected expenses can lead to disaster.
Let’s look at the five most common cash flow problems in trucking management and how to avoid them. This information should help you become the successful driver or owner/operator you’ve dreamed of becoming. Living paycheck to paycheck is a recipe for failure, so here’s how you can take control of the money you earn.
5 Cash Flow Errors You Don’t Want to Make
No matter what we do in life, it usually involves money. We know how to spend it and how to make more, but few people make a budget and stick to it. Most of the time, things work out and we don’t suffer too much. But, for truckers, this can be the wrong approach.
Think about it this way: if you can’t pay your drivers, you can’t deliver goods and won’t get paid. Without money for fuel, trucks are grounded. Of course, you already know all this, but are you doing something to avoid those scenarios or the ones below?
Common Cash Flow Errors You Should Avoid
- Clients that pay late – Your budget relies on clients that pay on time so you can plan your cash flow. Unless you have enough money to tide you over, those late payments can quickly put your company in jeopardy.
- Not tracking expenses – Many truckers focus on the most significant expenses such as vehicle payments and insurance, then deal with smaller ones when they can. This is a bad idea because, without a detailed, up-to-date, and accurate list of expenses, it’s impossible to know where your money is going and where you can pinch some pennies.
- Outdated or poor quality equipment – Your day-to-day operations rely on quality equipment to keep customers happy. Unexpected repairs or breakdowns cause late deliveries that can translate to lost revenue, or, worse yet, lost customers.
- Overpaying for insurance – Insurance is one of your most expensive fixed costs, especially at policy renewal time each year when a big down-payment comes due. Failing to plan ahead for this expense can affect your cash flow significantly.
- Unreliable drivers – Unreliable or dangerous drivers can be a liability to your company if third parties are hurt in an accident involving your driver. Furthermore, a driver who is consistently late with deliveries can destroy your reputation because those clients will find another company to haul their freight. This situation will put a huge dent in your cash flow.
Create a projected cash flow chart, and you’ll be amazed at the awesome power of a planned budget.
How to Manage Cash Flow Effectively
Now, you probably want to know how to fix those cash flow problems, right? If so, here are a few suggestions that may prove helpful:
- Try to find clients that pay “upon receipt” of the invoice.
- Don’t underbid jobs just to get the contract. Carefully determine what your costs for the load will be before quoting.
- Work with shippers directly rather than relying too heavily on load boards. In this way, you can have more control over the rate per mile that you are paid.
- Reduce insurance rates. Screen drivers carefully and regularly, as their driving history can negatively affect insurance rates.
- Use newer vehicles if possible. Fewer maintenance costs and repairs will improve cash flow.
- Do your best to build a cash reserve. The reserve should amount to at least 3 to 6 months worth of your total expenses. This will take time to build up, but it’s worth the effort.
- Don’t grow your company too fast. You may end up with missed deadlines, dissatisfied customers, frustrated drivers, and lost profits.
Of course, cash flow expenses are easier to manage when you use a TMS program such as TruckingOffice. Our TMS makes it easy to generate accurate reports and get a cash flow statement anytime you need to see exactly where your company stands financially.
TruckingOffice Helps Your Cash Flow with Our All-in-One TMS Program
Of course, we could offer dozens of suggestions for solving your cash flow errors, but the best solution is our comprehensive trucking management software (TMS) program. We track everything from mileage, fuel use, maintenance, invoices, dispatches, driver pay, and more. This information is vital for accurate reports and IFTA, DOT, and IRP compliance. Another great feature is that you can run reports that show your expenses and profits per mile.
Our trucking management software will help you save time, make money, and minimize paperwork so you can focus on being a driver rather than an accountant. Take it for a test run with this 30-day, no obligation, free trial today. You’ll be surprised at how much easier your job can be.