Budgeting is one of the most important things any Owner-Operator can do to ensure financial stability and freedom in their business. Without a budgeting program in place for your business and personal life is like driving your 80,000-pound rig down the highway at night with no lights on. It might be a straight shot to your destination, while vaguely seeing the white line on the shoulder of the road to keep you on track, but what about unforeseen obstacles, speed bumps, and construction zones? It’s the exact same idea when handling your business and personal cash flows. It’s time to get out of the “I’m living paycheck to paycheck” mentality and start budgeting for the future and the unexpected with a financial road map.
Budgeting for Your Small Business
You can only guess how viable the business will be if
you don’t put a budget in place. There are many factors to consider when calculating an operating budget. These include: How many miles a month will you run, pay per mile, fuel surcharge, miles per gallon, fuel cost per gallon, truck/trailer payments, insurances, escrow fund per mile, communications (cell phone, XM radio, internet, etc) and pre-passes/tolls. Here is a list of some budgeting do’s and don’ts.
Budgeting Do’s
- Set up a separate checking/savings account for your business and related expenses (taxes, repairs, etc.) This is also a reserve account that’s separate from your carrier’s escrow account.
- Know the difference between fixed and variable expenses. Determine all your fixed costs such as truck payment and insurances. Your fixed costs will incur whether the truck moves or not!
- When calculating your budget multiply weekly expenses (truck lease payment) by 4.33 weeks to compensate for months with 5 weeks.
- Always be conservative in your calculations. For example, budget miles per gallon based on heavier loads and not based on when you’re bobtailing.
- Establish yourself a salary, pay yourself a set percentage of each check so you can save for taxes and build that business reserve account.
Budgeting Don’ts
- Do not take cash advances, limit them if you must. If you haven’t heard it before I guarantee you’ll hear it again, and often. It’s not much different than a credit card except you don’t have an option to pay smaller monthly minimum payments. It gets taken out of your next check!
- Don’t wait to pay your tax bill at the end of the year if you are an Owner/Operator. Uncle Sam wants his cut four times a year. It’s almost guaranteed that you will have trouble paying your tax bill in full at the end of the year, not to mention penalties and interest that will be assessed.
- Don’t live in the “paycheck to paycheck” cash flow. Life will happen; there will be setbacks and unforeseen expenses inevitably. More times than not these situations will put drivers out of business. Have an emergency fund in your reserve account to cover fixed expenses when the truck is down. Preferably 4-6 weeks worth of fixed costs.
Personal Budgeting
In addition to budgeting and monitoring business operations, drivers need to formulate a personal budget as well to eliminate the need for cash advances and the urge to dip into the business account for personal uses. A simple and effective way drivers can implement a personal budget is by following the 50-30-20 rule.
- 50% - Bills and monthly obligations
- 30% - Disposable income (Sanity Money – always treat yourself to the simple wants in life)
- 20% - Savings (A smart budgeter always saves in the event of an unexpected expense)
Depending on personal situations it may not be feasible to follow these percentages. Bills might be 60% or even 75%! If so, cut back first on disposable income. It’s important to keep the 20% savings for unforeseen medical expenses, car repairs, etc.
Instituting a personal emergency fund is also imperative to a budgeting plan. A good rule of thumb for anyone is to have at least $1,000 in their personal emergency fund. If you find yourself using emergency fund money, you need to build it back up immediately! Use the 20% savings money to build it back up and once you have done so, keep saving!
Money Management is 20% Knowledge and 80% Discipline
It doesn’t take a personal money manager or a CPA to ensure financial stability. All it takes is inner motivation, a goal setting and goal seeking attitude, and most of all discipline. A budget is in theory and only as good as the budgeter’s discipline. As the saying goes, Rome wasn’t built over night and same goes for being financially fit. Time and discipline are the most important variables when it comes to measuring financial success. Above all else remember this when budgeting; it’s not how much you make, it’s how much you save.