I get a lot of questions on hotshot trucking start-up costs. Since I’m sitting home today idle, it seems like a good time to go over that part of getting into the business.
Now, just to be really specific, this info assumes that you have your equipment in perfect condition, are ready to roll and have customers lined up, and money in the bank. It also assumes that you are currently able to cover all of your normal living expenses for at least the first 45 days after starting your hotshot business.
If you haven’t gotten that far, this won’t help you immediately, but it may be good to know once you get to that point.
The way my hotshot company works (and as far as I know most trucking businesses work) is that I pay all up front expenses to move each load. I then send in my invoice, and have to wait for payment by my customers. The average time that I wait to be paid is between 10 days to 30 days after I turn in the load invoice and paperwork. (That 10-30 days is only because I have made arrangements with them ahead of time (and given incentives) for them to pay me much faster than most companies normally pay.)
If you are just getting started, keep in mind that the average wait for that settlement check is 30 to 45 days, and you have to keep enough operating cash on hand to cover any and all jobs you may book until the money starts coming in. Figure here that you can theoretically run every day for 45 days if you have enough work, and you have to be able to bankroll those 45 days of running.
If you do run 45 days, you can make about 22,000 miles (at around 500 per day), so you can see how your expenses can start piling up fast. Not that this is the norm for a beginning hotshot business, but you sure don’t want to have to turn down work because you ran out of operating cash.
On the other hand, you can sit for long periods of time in this business without any work whatsoever, and whatever money you have accumulated goes fast when you’re not moving. It’s smart to start out with as much money as you can save up, and then sock back as much as you can when you have a lot of work to get you through the slow times that will come.
The general consensus (or conventional wisdom) surrounding start-up money that will cover your operating expenses is that a person should have no less than $10,000.00 set aside. I would recommend at least that, and anything extra is icing on the cake. With fuel knocking again at $4 per gallon, more is definitely better, and if it keeps going up in price, then I would not hesitate to raise that operating start-up cash to $15,000.00.
In my experience, people most often underestimate their initial operating expenses by around 50%. The fact is, until you actually pay those expenses up front, it’s hard to imagine what they would be. I’ll try to lay out for you what it actually costs to run a hotshot truck…
If you think about it, the average hotshot truck probably gets somewhere between 12-15 mpg unloaded. With a trailer and load of any size, you can pretty much figure on that dropping down to between 5-9 mpg.
My stock diesel tank on my 5500 holds 52 gallons. At $4 per gallon it takes right at $208.00 to fill it up. Do a little math, and it will become apparent that it doesn’t take long to burn through $1K in fuel. Depending on your trailer, the load, the profile of that load, you can burn a lot of diesel a lot faster than you think you can.
At worst, that $1K will take you 1250 miles at 5 mpg. At best, you may squeeze 3800 miles out of it. It depends on your truck, whether or not you pull a trailer, what type of loads you get, what kind of terrain you’re running on, and last but probably most importantly, how you drive.
Having a lead-foot in this business costs you money and cuts into your profits. It’s better to run steady but slower at 60-65 mph and give yourself enough time to make your delivery than to run 75 mph on the interstate just because you can. That extra 15 mph may gain you a few minutes per hour you drive, but it may cost you 2-4 mpg in mileage up front, and more wear and tear on your truck that you’ll pay for later.
Most trucks have a ‘sweet spot’ where they run the best but when you exceed that spot, they turn into big fuel guzzlers. That sweet spot on my Dodge is 2100 rpms or between 60-63 mph. If I run faster, I really start sucking down the fuel. Of course if I run slower, I get even better mpg’s out of the truck too, so when I’m not in a big hurry I’m not ashamed to run 55 to bump up my mileage, and lots of the time on my way home I do just that which increases my profit margin. Just something to keep in mind…
So getting started, just assume the worst case scenario for whatever equipment setup you run. I mostly run truck-only loads these days, and calculate my projected cost for any given trip based on 12 mpg, which is the worst case mpg for my truck in my current circumstance. As long as you use worst-case mileage for your calculations, you can fairly safely assure yourself you won’t run out of operating cash on a particular job.
Back when I hauled truck beds on a 40′ trailer, I used 5 mpg for my calculations. So obviously equipment and the average type off load you haul has to dictate the amount of fuel expense you need to plan for. If you haven’t hauled anything yet and are trying to figure a planning point, start at 5 mpg just to play it safe if you will be towing a trailer. If you’re running truck-only, then use your lowest known mileage less a couple of miles so you always figure in a buffer zone.
This category is iffy… If you have a truck payment, you need to figure that in. You also need to get a commercial insurance quote and figure that amount in as well. Just for grins, we’ll use an average truck payment of $550 per month and another $550 for the commercial coverage. 45 days worth of truck & insurance payments will cost you $1650.
The next expense to think about is doing regular oil changes. You have to do these on schedule every time and keep records of all service done to your truck per FMCSA rules if you are under your own authority. If you run under someone else’s authority, they’ll probably tell you when you need to get in and get your oil change and service done since they have to keep records on it.
On my Dodge, those oil changes run me about $130-150 for the oil and filter, and fluids. It’s a little higher when the DEF fluid needs topped off, and I always top off all other fluids at the same time. When you run a lot, you do a lot of oil changes. We do ours every 7,000 miles and use synthetic oil. So if you use my maintenance schedule, in a year running 100,000 miles, you should plan for 14 oil changes per year, which obviously is an oil change every 26 days. You won’t always run this much, but you need to be prepared in the event that you do get busy and need to keep up that maintenance.
Other operating expenses are lodging and food. To keep food costs down, and because I’m not big on eating out, I usually take food with me when I work. I usually get easy to fix stuff at my local grocery store and just keep it handy so I don’t get caught out working without at least something halfway edible. I mostly go for snack foods and things I can either microwave or mix up with hot water from a coffee maker, since most motels have either one or both of those items in the rooms.
Once in a great while I might run through McDonalds for a burger or a bacon biscuit, but I can tell you I’ve done that about 4 times since I started hauling. I do, however, stop at Starbucks a lot, and figure that into my expense budget.
Lodging is one of those things that you just have to play by ear a lot, especially when towing a trailer. Not every motel can accommodate a hotshot rig & trailer, and there isn’t a real easy way to find cheap motels everywhere you may run.
I’d have to say the average motel is going to run between $50-$100 a night, although I’ve stayed at a few for $45 and a couple that were well over $100. It depends on location and what’s going on at that particular location. In most small towns you can do pretty well for around $50 for a clean room. If you’re in Midland, TX, and are lucky enough to find a room, it’s going to run you $160. The point is, figure a reasonable amount if you use motels so you don’t have to camp out in your truck. (Some folks do by choice, I just don’t.)
Another expense to think about is tolls. Whenever possible I route around toll roads, but once in a while I get a hot load and am forced to use them to get the load delivered on time. I keep enough cash on hand to cover tolls, most of the time, anyway. In the age of plastic money it’s not something I think about too much. Which means I have needed to use a toll road and not had the cash in hand. Luckily I did have enough loose change in the truck and my purse to make it by… but it’s better to have a $20 stashed in your wallet for just such occasions.
Next comes tires. My first set of tires was a good one, and we got almost 2 years out of them. But when it came time to replace them it cost us a whopping $2100.00. Now, you can buy six tires for less than we did, but we got good tires, not iffy ones. If you think about it, those tires are one of the most important parts of your equipment. You can limp into your home base with a lot of mechanical issues, but a blow-out in the wrong place, or hitting bad weather with bad tires can ruin your trip or get you killed.
Personally, I won’t run may-pops or other iffy tires, saving a few bucks isn’t worth losing time, a load, or my life. So I figure in enough money for good tires that are correctly rated for my truck and the weight I can haul with it. The same goes for trailer tires. Make sure the rating is right and don’t exceed the safe weight for the tires you run.
If you’re running new, good tires, you’re probably safe to assume (although I cringe at the word) that you probably won’t have tire expenses unless something bad happens. So let’s kick this expense over into the emergency repair category. If you have old, thread-bare, or el-cheapo may-pops on, do yourself a favor and replace them with good tires before you hire the truck out.
So to recap (the list, not tires!), so far, our operating expenses should include fuel, maintenance, food, lodging, tolls, and tires.
Let’s add emergency repairs just for giggles. If you’re the handy type and carry tools and commonly needed parts, you should be fine with a minimum of $1K for emergency repairs. If you’re not, figure $1500. You may need more, or never need it at all, but if you are under a load and have to be towed, that will set you back by a fast $500 bucks, so it’s better to be prepared…
Over all, let’s look at how much money it costs to run for 90 days. Most companies, as stated before pay between 30-45 days after being invoiced. Some, however, may have some unexpected SNAFU and not pay you for longer. So, theoretically, to run 90 days without being paid, just going by a 500 per day mile average at 10 mpg, (45,000 miles) and having no emergencies or breakdowns, and figuring for a motel nightly, you could spend $18,000 for fuel (4500 gallons), 90 motel nights at $75 would be another $6750, and oil changes would cost you about another $1000 bucks. If you stocked in enough food not to have to eat out you would have spent about $300, if not, eating out would run you about another $1350 at $15 per day. If you have a truck payment, add that in. Insurance, add that as well. We’ll use my example costs from above, 90 days of truck & insurance is another $3300.00.
All of that (remember, no unexpected bad stuff or emergencies) makes 90 days of normal operating expenses cost you about $30, 400.00. Half of that would be $15,200.00, which is a realistic 45 day operating budget. (If nothing bad happens.)
Of course, you probably won’t hit the gate running like that unless you just luck out and get in with someone who has more work than drivers.
Most hotshots work 2-4 days per week on average. Some weeks we just sit and worry and don’t work, other weeks we run like striped-butt monkeys and use up all of our hours.
Now figure in to that, let’s say you actually work 20 of those 45 days in your first couple of months. That would be pretty exceptional, but it has happened. Using the figure for what it costs to run for 45 days, one day average operating cost is about $338.00. Multiply that by 20 and you have $6760 for 20 days working. Figure the other 25 days out of the first 45 days in business as off duty days at home looking for loads.
If you started with a $10,000.00 budget for your first 45 days, and spent $6760 working 20 of those 45, then you would have just over $3K left to get you through until your settlement checks come in. If you’re like most of us, in the meantime, you still have a house payment and a family at home that expects to be fed and clothed.
Of course, you can affect a lot of your operating expenses depending on how you like to run. If you’re a camping out in the truck kind of guy, then you can shave off the costs there. But if you’re running an old truck and have unexpected break downs, you can add more there.
Even though this list obviously isn’t written in stone, it’s still pretty realistic as far as numbers go. Some guys may pay a lot more for commercial insurance, or have a bigger truck payment. Some guys have no truck payment and get cheaper insurance.
You just need to put pen to paper and figure out what is realistic for your setup.
In the meanwhile, keep your day job long enough to make sure you cover your own existing living expenses and provide for them first, (as in, cash in the bank) make sure you have your truck and commercial insurance covered, (also cash in the bank), and then set aside the additional $10-15K for your initial 45 days of operating expenses before you ever book that first load. Once you have all of that covered, cash in hand, you’ll be set to get started hotshotting on the right foot.
And you’ll be glad you did it right, trust me on that one.