Comment: Starting a trucking business? Get the right advice

By: David Boyce, CEO, NZ Trucking Association


Many new businesses fail and it's down to some common mistakes made by start-ups, says NZTA's David Boyce

The failure rate for new businesses in New Zealand is quite high; for every new business that starts today, more than 50% of them will have failed within five years.

The trucking industry is no different; you only need to look at the used truck sales yards or on Trade Me to see the result of these failures.

Starting-a-trucking-business-Get-the-right-advice-.jpg

So why do so many of these new businesses fail? There are some common mistakes made by new business start-ups, such as:

  • A lack of basic business skills
  • A lack of planning
  • Financially over committed
  • Don’t understand their true business costs
  • Not managing the business cash flow
  • They haven’t sought professional advice
  • They haven’t got a support network of experienced industry knowledge

Working for yourself and running your own business is different to working for wages or salary. The buck stops with you, so you’re going to need to have some of the following character traits to be successful:

  • self-Motivation
  • self-discipline
  • tenacity
  • a sense of humour
  • passion
  • creativity
  • people skills

If you’re looking to start up a trucking business, then the first decision you need to make is to get the right advice from people who are experienced in the trucking industry.

NZ Trucking Association should be your first point of contact. The association has more than 30 years of experience in providing advice to new entrants to the trucking industry; experience that’s been earned the hard way by running our own trucking businesses. Without good advice, your chances of success are greatly reduced.

There are many things you will need to understand before you get started: Transport Service Licence (TSL), delivery rates, contractual agreements, capital equipment required, financial requirements, business insurances, regulations, obtaining supplier credit agreements, servicing, fuel, tyres, RUC, GST, income tax, and ACC Levies to name a few.

You need to understand all the costs involved in running your business. The difference of a few cents on a kilometre rate can often be the difference between success and failure.

Ensuring that the businesses that you’re going to contract to have a good history of prompt payment is important. If you have to wait 90 days or more for payment, it won’t matter how good the rates are if you can’t afford to make the payments on the truck or fuel account.

Contact NZ Trucking Association and we can put your new business opportunity through our excellent industry-based Cost Model service where we can quickly work out for you if your business venture is going to be profitable.

If you have a contract, you will need good advice, as many contracts that appear to be for longer terms, are, in effect, only 30-day contracts because of the termination clauses they contain. Many contracts contain restraint of trade clauses that will restrict your ability to earn an income if you decide to leave.

Purchasing capital equipment, vehicles, plant, etc. will be one of your biggest initial costs. So concentrate on getting what you actually need for the job, rather than what you would like. Do you really need that flash new truck with all the chrome and extras, or can you make do with something more modest or even second-hand?

If buying new, consider a maintenance contract, this will give you a fixed monthly cost with no surprises. This will certainly help the cash flow and increase the chances of having a successful business.

Once you have worked out the vehicles you need, consider the cost of the other equipment you require: computer, mobile phone, tie-downs, chains, twitches, corner boards, safety equipment, etc. As a new business venture, money will probably be tight until you get established.

How you finance your new business venture is important. If you have some equity of your own, this will help to reduce your monthly commitments. Many financiers will loan you 100% of the purchase costs, but you will pay a higher interest rate for this privilege.

The danger with this option is that if after a few months you realise that the business is not going as well as you had hoped and you decide to sell up, it’s likely that with the depreciation of your assets that you will still owe considerably more than the equipment was worth, leaving you financially worse off than before you started.

Look at the different types of finance, including chattel security finance at rates only slightly higher than house mortgage rates or even a competitive lease, as this can be a more cost-effective option than traditional hire purchase. Always seek professional advice.

Obviously, you need vehicle and plant insurance but Carriers Liability and Public Liability are also necessities. Also consider a loss of use extension on your motor vehicle policy; this provides cover for a rental vehicle if yours is off the road due to an accident. Also look at extended vehicle warranty insurance.

Consider a sickness and health policy or an income protection policy. As a member of the NZ Trucking Association, you have access to transport industry-specific insurance at competitive rates, with the option to spread your cash flow with monthly premium payments as a no-cost benefit.

Starting out, you will need to arrange suppliers for many business consumables, including fuel, tyres, and vehicle servicing. This may require you to provide some cash upfront to get you going, as many of these suppliers will be reluctant to advance you credit until you build up a relationship history.

NZ Trucking Association members enjoy substantial discounts on these consumables. Put some time and energy into building good relationships with your suppliers, as this is just as important as the effort you take on vehicle selection. If you don’t have good back up for your business, then life will be difficult.

You’re going to be flat-out working in your business, finding the work, driving the vehicles, probably for long hours.

Then who is going to work on your business? Have you considered who is going to pay the invoices, do the GST, budget the finances, and arrange the servicing among other things. You may well have a partner who is experienced and able to do these tasks for you. If not, then you will probably need the services of a good accountant who understands the trucking industry.

Trying to do everything is a common mistake for new business owners. You may be good at what you do, but you won’t be an expert at everything. Employ people with the best skills for the job; this will help you grow a profitable business quicker and reduce mistakes along the way. You can’t afford to get this wrong, as your business success depends on it. NZ Trucking Association can point you in the right direction for the best advice.

Find more trucks for sale in NZ

Keep up to date in the industry by signing up to Dealsonwheels' free newsletter or liking us on Facebook