Owner operators have the responsibility not only of operating trucks but also carrying out the daily duties of the job, including delivering, loading, and ensuring the cargo arrives on time. However, they also have to consider the health of the business during all economic climates. Learning how to survive an unfavorable economic period such as a recession as an owner-operator is vital to ensure the business stays afloat and continues to bring in a profit even during the most challenging economic times.
Below, our team at Kavkaz Express LLC shares some of the main ways to survive a recession as an owner-operator.
Top Tips for Owner Operators To Prepare for a Recession
Implement Automated Invoicing
Using automation when sending trucking invoices can help to accelerate cash flow and eliminate long wait times for invoice payments. Often when an invoice is sent manually via text or email, it results in a lapse in having the bill paid promptly. This can lead to major cash shortages for an owner-operator.
During a recession, this type of cash shortage can place a small trucking business at risk of closure. Instead of depending on outdated and ineffective invoicing methods, owner-operators can take advantage of new advancements in automation for the trucking industry. These include automated ERP solutions that allow for immediate invoicing directly to the accounting department.
Consider Factoring When Necessary
When faced with immediate cash flow requirements, factoring is a helpful option for small businesses in the trucking industry. By selling invoices to a factoring company, owner-operators can receive the money they need on hand right away. It's essential to keep in mind that factoring does carry fees of 1% to 5%, which will impact the total amount paid to the business. However, during times when a client has 90 days to pay an invoice and the owner-operator doesn’t have any cash to cover costs, factoring can prove useful.When faced with immediate cash flow requirements, factoring is a helpful option for small businesses in the trucking industry. By selling invoices to a factoring company, owner-operators can receive the money they need on hand right away. It's essential to keep in mind that factoring does carry fees of 1% to 5%, which will impact the total amount paid to the business. However, during times when a client has 90 days to pay an invoice and the owner-operator doesn’t have any cash to cover costs, factoring can prove useful.
This option should only be a last resort when necessary. When choosing a factoring company, make certain to select one with low fees and favorable terms. Ultimately, choosing factoring when necessary will help trucking business owners to avoid missing payroll or covering other business-related costs.
Keep Fuel Costs Low
Transportation costs can be a major cash flow leak for small trucking businesses. One of the most common and most expensive transportation costs is fuel. By joining a managed fuel program, owner-operators have a better chance of keeping fuel costs low. Managed fuel programs can result in significant long-term savings of 15% or more. Looking for ways to keep fuel costs low is one of the primary methods to recession-proof an owner-operator business.
Look at Ways To Expand
An owner-operator must look at ways to expand if they are to survive an impending recession. It helps to consider supply and demand by region to determine if there are new areas to service. Start by taking stock of current accounts to see where they can add additional offerings to existing accounts. It would be wise to expand services to certain areas that have a higher demand to diversify the client base. Finding new clients provides extra insulation against profit loss in the event of a recession.
Take Stock of Existing Revenue & Investments
In addition to expanding to new services and adding clients, it's also helpful to take stock of existing revenue and current investments. Review all of your transactions for the past year and identify accounts with the highest risk. An owner-operator should fine-tune their books by eliminating accounts where they have a huge potential for loss. Taking these steps before a recession can help avoid an untimely business closure.
Alternatives to Layoffs
In a trucking business, it's not always just the owner that operates trucks. Often the owner-operator truck driver will hire another driver to help with loads. In an impending recession, it may seem as though the best option to cut costs is to perform layoffs as a first measure. However, companies should also consider alternatives to layoffs, such as:
- Providing pay by the job
- Reducing hours
Exploring alternatives to layoffs keeps the labor force intact and maintains the company’s capacity to fulfill orders.
Practice Debt Reduction
Reducing the logistics company’s debt load can go a long way to establishing a recession-proof business. Steps to take to reduce the company’s debt load include consolidating trucking equipment loans, negotiating lower interest rates on existing credit accounts, and closing out old and inactive accounts. Owner-operators should make sure to stay in communication with creditors and lenders to ensure that they are in good financial standing.
At Kavkaz Express LLC, we are a leading carrier that has been working with brokers, shippers, and owner-operators for many years. We offer trusted and reliable services and truck driving opportunities. Contact us at Kavkaz Express LLC at (303) 532-5955 today.