Trucking Carriers: How Accounting Can Support Operations

by Vector | Apr 27, 2020 12:00:00 AM

Trucking Carriers: How Accounting Can Support Operations

April 27, 2020
Trucking Carriers: How Accounting Can Support Operations

Trucking carriers are constantly searching for ways to improve operations. As a carrier, you'll look for an advantage anywhere you can find one. For example, you might seek out better equipment, newer technology, or more experienced drivers. However, one often overlooked area for supporting operations is accounting.

A variety of elements of accounting can help you support and improve your trucking operations. These include but are not limited to:

I'll take a closer look at all of these and more as we dive deep on how quality accounting can aid the operations side of your business.

Terminology Overview

A handful of accounting terms are especially important in aiding carrier operations. Therefore, let's take a look at a few of them.

  • Revenue: Revenue is the total amount of income you receive. Customers will pay you for each load that you complete. The cumulative amount of all of these paid loads, prior to any deductions, is your revenue.
  • Expenses: Any cost that you, the carrier, must pay out is an expense. For example, whatever you pay for equipment, insurance, fuel, and employee payroll are all expenses incurred.
  • Profit: Profit is equal to the total amount of money you are left with once all expenses have been taken out from your budget. Therefore, total revenue minus total expenses equals how much is left for company profit.
  • Profit and Loss: You'll want to keep a report tracking your profits and losses. This is also referred to as a P&L report. It covers a set amount of time, and it lets you budget all elements together in one place.
  • Cash Flow: This refers to how much cash your company actually has on hand. Furthermore, it can help you project the future financial health of the company.

These are just a few of the important terms to know. We're going to take a closer look at how these work together to influence carrier operations.

How Your Budget Affects Operations

Let's break down some of these terms in more detail. Then we'll discuss why using them for an accurate budget is imperative for operations.

Core Element 1: Revenue

To create an effective budget, you must have a report to track all the financial dealings of your business. This is most often in the form of the profit and loss report. First and foremost, you must be able to track and add up all forms of revenue. As a carrier, this will be in the form loads you complete for brokers and customers. You should be able to project your revenue for ensuing months by using a report that follows the revenue trends of your company.

Core Element 2: Expenses

Next you'll want to keep track of all expenses. These costs are often dynamic from month to month or even week to week. Some expenses you can't predict. For instance, you might need to make a repair of an unexpected equipment failure. However, many expenses are static or close to it. Insurance premiums, payroll, fuel costs, building costs, and regular equipment maintenance are all things you can account for. You'd also be wise to set aside a certain amount to help cover unexpected expenses such as repairs.

Core Element 3: Profit

Ultimately, the goal of your company is to accrue profit. Accurate counts and projections of your revenue and your expenses will lead you to accurate expectations of company profits. If you're spending more than you're making, then your company won't last long. Conversely, just because you're making profit today doesn't mean you'll still be generating profit tomorrow if you spend unwisely. You need to be able to budget properly for an extended period. Often, this will be done at least quarterly.

Using All Three Core Elements

Obviously all three core elements to the budget are important to the health of your company. So how do these numbers help you with your operations? The most succinct answer is decision making.

With a proper budget, you know how much revenue you need to accrue in order to make a profit. In turn, as a carrier you are thereby able to determine which loads are worthwhile for you to haul. Here are some examples of decisions you may need to make.

  • Can you afford to break even on one shipment in order to service a customer that may give you a higher volume of business if you perform well?
  • Should you allow a driver to take an entire week off without another driver to fill the truck?
  • Can you afford new tires for your truck today, when you may not absolutely need them until next month?

The answers to all of these questions come from a quality accounting representative, department, or software. Knowing your budget allows you to make crucial, critical decisions for the health of your business. The more accurate these numbers and projections are, the more efficiently you can manage your operations.

Daily Maintenance of Budgets, Operations, and Equipment

You need to be vigilant to make use of this information. Having a high-quality accounting division that's providing accurate and up-to-date information is paramount. Furthermore, communication between accounting and operations management is key. A mutual understanding of where the company's financials stand and where they need to be allows both sides to work more efficiently. Daily updating and maintenance of budgeting reports keeps day-to-day operations moving smoothly.

In turn, the operations team members can make decisions daily based on the financial information they have. Your company can keep your drivers moving by determining the best available loads that fit your needs. You may need to focus on servicing your customer today. However, you may need to focus on making positive margins tomorrow. Using a long-term plan to make short-term decisions can keep your operations running smoothly.

Lastly, regular maintenance of your equipment is just as important. I discussed earlier the dynamic status of repair costs. You should be taking regular care of all trucks, trailers, and other parts of your fleet. Proactively treating your equipment will help prevent surprise expenses down the road. Those expenses can be the difference between being profitable or keeping your doors open. (Fleet management software may be helpful for you depending on the size of your fleet and the size of your company.)

Now let's talk about one of the most important documents for you and your company.

What's a Cash Flow Report?

A cash flow report is essentially a document showing your company's day-to-day financial health. The profit-and-loss report can help you with your long-term budget and as you track prior performance. On the other hand, the cash flow report is more about the actual cash on hand for your company right now, today. This determines how your company is generating or using cash revenue at a given time.

It's important to use both the cash flow report and the P&L. An accurate profit and loss report may show long-term profit, but you may still experience temporary negative cash flow that could affect your company.

Once again, this is important in operations for the sake of decision making. Cash flow affects all of these:

  • Which shipments you can accept
  • At what rates
  • What expenses you can afford to spend on a given day

The cash flow report focuses on the extremely short term. What about taking a longer view?

Long-Term Goals

The long term goal of any carrier operation is to make money. Carriers are in a constant search for an edge to improve the overall operations and financial health of their business. You may investigate options such as new equipment, better technology, or even more experienced drivers.

However, accounting is the most often overlooked asset to operations. Every decision a good operations manager or team is making should start with knowledge and understanding of company budgets. It's imperative to have someone very capable with a great understanding of the business handling your accounting. Furthermore, effective communication between that team and operations can only help your company.

As a carrier, you should try to understand all aspects of the industry and of your company. In turn, you should be able to use a wealth of information to make good operational decisions. With patience, intelligence, and attention to detail, your company should operate prolifically for years to come.

This post was written by Matthew Zandstra. Matt has been working in transportation and logistics dispatch for the past six years, both as a broker and direct to drivers. He’s familiar with various facets of relationships, technical systems, pricing mechanics, and commodities.

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