Accounting for Trucking: 10 Facts to Know
The thing about the trucking business that makes it special is, well, that truckers love the road. Paperwork? Well, maybe not so much. So, getting help with your business accounting is the very best way you can keep your attention on the work you like best.
So, first of all, let’s start with the basics. What is accounting and why should you pay attention to your business accounting?
According to the website Investopedia, accounting is “the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company’s operations, financial position, and cash flows.”
So, in plain English, when someone says they are doing accounting work, they could be doing any number of activities related to the books and records that tell the story of your business in terms of money spent, money earned, and money owed. Pretty important stuff.
If all this seems a bit overwhelming, let’s consider these ten things about accounting for your trucking business.
1. Your Books and Records
This is the financial history book of expenses, payments, and deposits made in your business for the year. Good records provide reliable information about the health of your company and is the foundation for financial management and planning.
2. Tracking Expenses, Not Just Writing Checks
Many individuals who own a small business run their company finances out of a check book. But if you want to be successful, you need to track where your money is coming from and where it is being spent. That means tracking expenses by category, amount and date. By doing so, you will start to realize that certain expenses can be economized by rethinking the way you buy. Running to the copy center to make a few expensive copies every other day? How about buying a printer with a copy and scan function instead? Are you writing out invoices on a word processor? Maybe a software that can write invoices and keep track of your outstanding invoices might be more efficient, especially as you get busier and tracking who owes you by memory is no longer an efficient way to work. It all starts with the mindset of tracking expenses instead of just your checkbook.
3. Tax Planning
Getting the most out of the tax code requires some planning on your part. Your tax professional can help you in this department. By sitting down and planning out your known expenses and anticipated income, you can make decisions that will let you leverage deductions available to you and avoid paying additional taxes needlessly. Sometimes a little tax planning will tell you when to make a large purchase—and when it may be best to postpone it to the new year. Since the tax laws change every year, its an idea that every small business should avail themselves. An hour or two of professional conversation might save you thousands in additional tax expenses.
4. Knowing What to File…and When
Trucking businesses have some complicated tax matter to navigate. From fuel tax reporting to state and local nexus issues, the way you conduct your business can have a huge impact on when and where you might need to file important documents. A tax professional can help you navigate this reporting schedule—especially if you have employees—in order to avoid problems with the IRS, the Department of Labor and your state and local tax officials.
5. Knowing What Receipts to Keep
Record keeping is not just a matter of keeping copies of your invoices. So many small expenses are critical to substantiate your on the road expenses. From meals and fuel to repairs and supplies, those small items need to be recorded and receipts saved in an orderly manner to protect yourself down the road if officials ask questions. This is even more important when it comes to contracts, agreements, and insurance policies. Best practice is to keep things like insurance policies in a fire-proof safe place…forever.
6. Profit and Loss
Are you making money or not? If you don’t understand what your true expenses, how do you know that what you charge is generating enough profit to be a worthwhile endeavor? If you lose money on short runs, why do them? Unless there is a strategic reason for spending your time and money on losing activities, wouldn’t it make sense to stop such practices? After a while, a business that consistently loses money is considered a hobby, not a business. To be successful, we urge you to analyze your profit and losses to determine your true costs and arrive at a fee, or hourly rate that your business must achieve to operate at a profit. You should know how much revenue is required to bring on another team member, and what it costs to run your rig every day, including insurance, labor, repair, taxes, etc. Knowing the true cost of doing business is surprisingly not everyone’s top of mind. Many small business owners don’t take the time, and for this reason, they are not successful, or at least as successful as they could be in the long term.
One other thought on this matter. When you know the key performance indicators that drive your business and the true costs of producing your product or service, you can make smart decisions. For example, driving old equipment that is paid for may sound like a cheaper way to work. However, if you know that the old equipment is less efficient, costs more in fuel, requires hundreds of dollars a month in repairs and is more expensive to insure, the actual cost of leasing or buying new equipment over time may actually be more cost-effective while increasing your productivity. If you take this logic to every aspect of your business, you will quickly find great satisfaction in knowing you are running a lean, mean profit machine.
6. Most of my income goes to bills. How do I save for retirement? How do I get started?
No doubt, it’s a hard battle. Yet, as difficult as it might be when you are young, think of how tough making ends meet will be decades from now when you are ready to retire, or if you are forced into retirement due to a disability? Even a small amount of savings every week will make a difference. If you have $20 or $50 a paycheck automatically removed, chances are you won’t even miss the money after a while. Some advisors say taking the cost of a cup of coffee at a Starbucks every day from your budget and moving it to savings could make you a millionaire in 40 years. The point, of course, is that even small amounts at the beginning will deliver you real savings in a few years. The earlier you start, the better off you will be in retirement.
7. Buy or Lease Decisions
As discussed above, the lease verses buy decision depends upon many factors in your financial situation. Leasing is an excellent way to buy the newest equipment every few years without the capital outlay required of an outright purchase. However, one must look at the cost of financing instead of the lease cost. Today’s rising interest costs may make leasing a better value, particularly if bonus services and maintenance are part of the plan. Upfront costs, like deposits and security may impact your decision, as well as mileage overcharge that may impact the back end of your purchase. Often, owners are swayed one way or the other on the basis of cashflow and the upfront costs. Remember, too, that a section 179 Deduction may apply to either a lease or purchase decision, meaning that your transaction may be partially or completely deductible in the current tax year. A few minutes on the phone with your tax consultant might help you decide what the most advantageous way to go might be for your current situation.
8. Payroll and Keeping in Compliance with Labor Rules
Between state labor boards, unemployment and tax withholdings, the small expense of having someone handle your payroll is so far and above worthwhile no argument can be made to the contrary. If you fail to make payments in a timely manner or underpay, your business can face painful scrutiny and penalties from authorities.
9. Financial Statements and Banking Compliance
If you borrow money from a financial institution, they may require that you provide them with some kind of financial statement periodically, but most certainly on an annual basis. To avoid issues, this is another area where your accounting professional can help you handle the compliance reporting while you concentrate on running your business.
10. Cash Flow Analysis
Having your accountant prepare a cash flow analysis is an important step in determining where your is today and where it may be going, financially. A cash flow analysis will help you understand where the money you earn is going, who you are paying and when, and if there are better ways to manage payments to keep more cash on hand for tougher times. Again, your accounting professional is well versed in putting these important puzzle pieces together and helping to guide you to a better understanding of what is working and what needs to be improved in your business. They can help you manage your payables, of course, but they can also recommend ways to improve your receivables as well as give you insight as to which of your customers are A-listers and which ones should probably be replaced with new business.
Understanding these ten financial factors in your business—and getting professional assistance when it makes the most sense—will help you build a better business and create more profit opportunities moving forward. If you are interested in discussing any of these matters discussed above, feel free to reach out to our company for a no-obligation consultation.