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HOW TO GET A HANDLE ON YOUR CASH FLOW
You’ve probably heard the phrase “cash is king” lately. One of the critical areas for the Transportation Industry is managing cash flow, especially in a slow economy. Cash flow is the lifeblood of any small business, and is especially critical for start-up companies and trucking companies.
A lot of drivers think the solution to cash flow problems is to get paid faster and then drag their feet when paying bills. At the end of the week this typically results in the driver having more cash in their pocket, but it also results in a pile of bills that still need to be paid. It’s only a temporary solution to what seems to be a permanent issue for many small businesses. Not that collecting from your customers isn’t important, it is, but focusing on other areas will improve your overall cash flow in a permanent way.
The key to successful cash management is to create a system where each load that is hauled is self-supporting. Each load should generate enough Revenue to cover all Costs, and still have enough left over to generate a Net Profit for the owners. The best way for a carrier to succeed long-term is to have enough cash left over from each load to provide a cash profit for the owners. That keeps carriers in business and trucks on the road!
Instead of just focusing on the end result, understanding the different components of the equation is essential for successful cash flow. Every load has the following components:
1. Revenue – Amounts billed for hauling the load for your customer.
2. Direct Delivery Costs – Costs incurred hauling the load, directly related to its delivery. Examples of these Direct Delivery Costs are:
- Fuel Costs
- Employee Payroll or Contract Fees
3. Indirect Delivery Costs – Costs incurred by the carrier to keep that truck on the road. Examples of these Indirect Delivery Costs are:
- Dispatching Personnel
- Technology Costs (Computers, Software, Phones, etc…)
- Depreciation Costs
- Preventive & Routine Maintenance Costs
4. Major Repairs & Investments – Costs incurred for major repairs or fleet and facility investments.
5. Net Profit – Cash left over at the end of the equation for the shareholders of the Carrier.
Net Profits are a critical component of the equation. Without a profit motive, people wouldn’t start companies that employ drivers, and there would be no revenue. At the end of the day, carriers are far more successful if they understand how much these different elements cost them when a load is delivered. There are a variety of ways to determine how much these costs are for each load. They can be tracked per mile or per load, whatever makes the most sense to you.
Come up with a simple way to determine how those costs impact each load; that is the important thing. Once you understand what your costs are, you will know how much Revenue needs to be charged in order for that load to “make money” or result in a positive Net Cash Profit at the end of the day. That will keep your trucks on the road for the long haul!
Why wouldn’t you want to?
– Rob Knaak
CFO / Controller
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