The start of the year is the perfect time to create a small business budget for your trucking, tow truck, or transportation company. Along with your business plan, a budget is one of your most important tools for managing your company. Comparing your expenses to your income will shed light on the health of your business and whether you’re operating at a profit or a loss.
You can use your budget to identify the revenue necessary to support the business and to make a realistic estimate of your expected profits. Furthermore, budgeting gives you a sense of control over your money, informing you on how to spend your revenue to maximize profits.
Though a budget takes effort and forethought, budgeting can ultimately boost your bottom line. Here’s how you can create a small business budget that drives your business forward.
Add Up Your Income
Start your budget by understanding your revenue and sales. You can pull this information from your profit and loss statement. Add up all your sources of income. This number should be the first line on your budget, and it serves as the cornerstone for everything else.
The best way to project your revenue for the year ahead is to base it on your figures from the previous year. If you’re just starting out, you can get an idea by talking to other trucking business owners or tapping into industry research. Though you want to be as accurate as possible, it helps to err on the conservative side. The effect of the pandemic on the economy has taught us all that things can change — and fast. It’s better to be pleasantly surprised by an overflow of cash than stressed by a shortfall.
Project Your Expenses
Next, list all of your costs. You’ll have two types of costs: fixed and variable. Fixed costs are expenses that are consistent each month. This type of expense would include your truck loans or lease payments, insurance premiums, permits, licenses and registration, rent, cellphone and internet service, and parking or storage fees. If you have employees, salaries will also be a fixed cost.
Variable costs, however, will vary with the level of activity in your business each month. These variables include fuel, tolls and maintenance. Labor may be a variable cost, depending on how you compensate your team. For instance, you might sporadically use independent drivers and pay them on an as-needed basis. While you may control some variable costs with your actions and decisions, some — such as an emergency truck repair — may arise unexpectedly.
Tallying your expenses for your annual budget gives you a chance to review the charges. For example, you should regularly reassess your insurance premiums to ensure you’re getting the best coverage from a reputable company for the lowest price.
Also, seeing the numbers in black and white can help you review your fee structure. You may discover that your fuel costs have increased, for example, but your rates have remained unchanged. A budget will give you an opportunity to gauge your profitability and decide if you need to increase rates.
Check with trade associations, accountants or lenders to make sure your profit margin is appropriate for your business. If not, you’ll want to adjust your budget to either increase revenue or decrease costs.
Once you understand your expenses, you can create a budget by allocating money for various areas. This helps you know how much money you need in your accounts to cover costs and generate positive cash flow, which is the lifeblood of any business.
Estimate your variable costs. With fuel, for example, project the expense by determining your truck’s average cost per mile and then multiplying it by the number of miles you expect to drive based on the work you have booked. Though fuel costs are a necessary part of the budget, you can help reduce the amount of money you spend by using an app like Truck Smart or Trucker Path to find the best prices while you’re on the road.
Make sure to plan for regular maintenance in your budget. Setting the money aside will encourage you to take the time to perform preventive tasks. Getting regular oil changes and tuneups can save you money in the long run and keep all your trucks in commission.
You should also reserve money for marketing. Small Business Marketing Tools recommends that established businesses reserve 12%–18% of their budget for marketing; the amount will vary depending on your business’s type. For example, trucking or transportation companies may need to set aside money to purchase advertisements in trade publications or to attend trade shows that cover their specific industry, such as supply chain logistics. Tow truck services may choose to focus marketing efforts on search engine optimization and online ads to reach the people who need their services unpredictably.
Plan for the Future
If your budget has a surplus, you may be tempted to increase your spending. It’s important, however, to save funds for one-time costs or emergencies. By reserving the money before it’s needed, trucking business owners can cover all their unexpected expenses.
Trucking company owners should allocate money for capital investments, such as expanding their fleet or purchasing real estate for parking or storage. Though keeping money in your business savings account is one way to support these business investments, you can also pursue additional funding through a small business loan for a trucking company or equipment lease.
When you create a small business budget for your trucking company, you take control of your money and improve the financial health of your business. A budget helps you improve efficiency by anticipating costs. Knowing your numbers will help ensure that your business is profitable and continues to provide a good living for you and your employees.