Buying a trucking company refers to the acquisition of ownership & control over a business entity primarily engaged in the transportation of goods using trucks. This process typically involves purchasing the company's assets, including vehicles, equipment, contracts, and operational infrastructure, as well as assuming responsibility for its liabilities and ongoing operations. The buyer aims to capitalize on the company's existing market presence, client base, and operational capabilities to generate revenue, achieve strategic objectives, and potentially expand or integrate the acquired business into existing operations.
Steps Involved When Buying a Trucking Company
If a person wants to buy or become the owner-operator of his own trucking company, here are the steps to follow are as:
- Write a Business Plan. The first step for anyone looking to start a new business is to create a business plan. This plan should include your foundational reasoning for starting the company and the necessary capital to get it off the ground. The Small Business Association (SBA) recommends including a 3-5-year projection of how you expect the company to grow.
- Get a Commercial Driver’s License (CDL). To drive a truck, you will need to have a commercial driver’s license or CDL, as required by the Federal Motor Carrier Safety Administration (FMCSA). There are different types of CDL licenses, listed by Class, you can obtain, so it’s important to know which type your business will require. Depending on the type of materials you are transporting there are also endorsements needed, many of which require additional testing and may mean you have to renew your license more frequently for safety reasons.
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Register Your Business.
To officially get your business up and running, you will need to register with local and state governments according to regulations in your area. This process includes a couple of steps, as seen below.
- Select a business entity that suits your needs. For example, if you are starting the business alone, you may want to consider a limited liability company ( LLC ) for the protections it affords. There are other types of LLCs for partnership companies or larger corporations.
- Choose a business name that expresses the identity of your company and communicates a strong impression to customers. Before doing so, it is important to consult the US Patent and Trademark Office database to make sure your company name is original.
- Apply for your trucking authority. This registration is mandatory for companies using vehicles of more than 10,000 pounds Gross Vehicle Weight (GVW).
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Obtain a Business License, Permits, and Insurance.
Following your registration procedures, you need to make sure to obtain the proper licensing and permits to operate your business legally. Because of the unique challenges trucking companies face in a highly regulated industry, it is important to research all requirements before you begin operations. These steps may include:
- Getting U.S. Department of Transportation (USDOT) number
- Securing International Fuel Tax Agreement (IFTA) stickers
- Obtaining an Employment Identification Number (EIN)
- Registering for properly apportioned license plates
- Applying for a Standard Carrier Alpha Code (SCAC) from the National Motor Freight Traffic Association (NMFTA)
- Acquiring proper local/state business licenses
- Arranging for commercial liability, cargo, physical damage, and other necessary types of trucking insurance
- Choose the Right Equipment. Of course, some of the most important business decisions you will have to make involve finding the right equipment for your needs. This means trucks, first and foremost, but also other supportive systems the vehicles will need to operate smoothly, such as electronic logging devices (ELDs).
- Secure Startup Funding. Buying one commercial truck alone is an expensive endeavor, so to start your trucking company, you will need significant capital. Aside from the expenses involved in buying trucks, you will need to consider the upkeep and operating costs, fees surrounding business licenses/permits, and the costs of other systems you will be using. There are some options you can consider for securing a loan, like SBA Loans and Short-term business loans.
Cost of Starting a Trucking Company
The costs required to start your trucking business ultimately depend on your location, number of trucks, and business plan. Registration, taxes, and other paperwork to start the business alone can cost up to $15,000. Obtaining your CDL also depends on the locality but typically costs between $3,000 to $10,000. Once you start purchasing equipment, the cost rises significantly, but, as mentioned above, the total cost will depend on many factors, such as buying new vs. used trucks and trailers. One will need to make a detailed business plan that forecasts possible revenue and other related financial projections to make sure your company will have cash flow and can remain profitable and successful.
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Pitfalls to Avoid When Buying a Trucking Business
Here are just a few examples of things to be mindful of when completing due diligence :
- Permits and Registrations: Review the target trucking company’s safety fitness certificates, operating authorities (where applicable), and other licenses, permits, and registrations that are central to its operations.
- Carrier Safety: The target’s carrier safety program, safety ratings, and driver training records should be reviewed. This review should identify any safety and operational concerns so the buyer is not left trying to remediate a poor safety record after closing.
- Driver Misclassification: Details regarding the targeted company’s relationships with drivers and independent contractors should also be carefully reviewed. This will involve a look at owner-operator agreements and practical relationships to ensure drivers are not misclassified as “dependent contractors” or employees.
- Merger Review under the Transportation Act: Very large transactions involving extra-provincial and cross-border motor carriers may be subject to filing obligations under the Competition Act and a “public interest” review by the federal transportation minister. Buyers and sellers should turn their minds to this issue as early as possible in the due diligence process.
Statistical Analysis of Buying a Trucking Company
Just about every service and business in the U.S. relies on the trucking industry in some form or another. About 73% of the country’s freight (by weight) is shipped via truck, and if trucks stopped driving, it would only take three days for grocery stores to be out of stock of most, if not all, of their goods. The trucking industry is vital to the U.S. economy, as just about every necessity and convenience depends on this industry in some form or another. Here are some statistics about the truck driving industry:
- Trucks move about 72.5% of America’s freight by weight.
- The trucking industry earned $875.5 billion in revenue in 2021.
- There are about 3.5 million employed truck drivers in the U.S. as of 2021.
- There are 1,102,799 for-hire trucking carriers in the U.S.
- U.S. trucks moved 10.93 billion tons of freight in 2021.
- 4.06 million semi-trucks are operating in the U.S. as of 2021.
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Key Terms for Buying a Trucking Company
- EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's operating performance and profitability.
- Regulatory Compliance : Adherence to government regulations and industry standards regarding safety, environmental impact, driver qualifications, etc.
- Insurance Coverage: Policies covering risks associated with trucking operations, such as cargo damage, liability claims, and worker compensation.
- Driver Contracts: Agreements with truck drivers outlining their responsibilities, compensation, benefits, and terms of employment.
- Maintenance Records: Documentation of vehicle maintenance and repair history, indicating the condition and reliability of the fleet.
Final Thoughts on Buying a Trucking Company
Purchasing a trucking enterprise is a strategic action that requires deep analysis of many factors. Although the trucking industry presents opportunities for expansion and profit, it also poses some inherent risks and challenges that require careful consideration. To be informed one must conduct detailed financial scrutiny, review market conditions and competitors, appraise operational effectiveness as well as compliance with rules governing it, and predict what is likely to come in the future. What’s more, existing operations must be taken into account while developing a distinct exit plan for such a business.
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