5 Things You Need to Know About Projecting Startup Profits
This year alone I’ve seen several startup business plans projecting year three profits at 40%, 50%, or more, as measured by dividing net profits into sales. And most of these are pretty good plans as measured by potential product-market fit, scalability, and credibility of the management team. What’s wrong with this picture?
By profits, I mean net profits divided into sales, also called profits to sales. Of course there are other ways to define and compare profits, such as gross margin (sales less direct costs), earnings before interest and taxes (EBIT), and EBIT less depreciation and amortization (EBITDA).
So why have such unrealistic profit projections? No good reason I can think of. Overly optimistic projections make a plan look worse, not better. So please, if you’re planning a startup, get a clue. Here are five things you need to know.
1. High Projections Hurt Credibility
Unrealistically high profit projections almost never mean that your startup is going to be profitable. Almost always, they mean that the people doing the business plan failed to estimate expenses.
On the other hand, you might not be alone. Browsing for background on this post, I found the public thinks the average company makes a 36% profit margin, which is about 5X too high, according to a post by Mark Perry for the American Enterprise Institute.
As the title suggests, multiple polls of the general public indicate people think profits are way higher than the 6%-8% that is a real average.
2. Industry Averages are Available
If you’re writing a startup business plan, do your homework. Industry averages are available. Check out this page from Yahoo Finance, showing average profits for different industries. The overall average is about seven percent. There are, however, some industries that do better. According to that source, some kinds of real estate developments average more than 30%. Drug manufacture advertises 22%. And among some of the high-tech categories that attract many startups, biotechnology averages 19%, electronic technology 17%, and business software, 14%.
To find averages for your industry, do a web search. Multiple sources are available. One cluster of sources compiles averages from among publicly traded companies, divided by industry. Another cluster uses aggregated tax data from different industries, combined together to protect privacy. Search for “average profitability by industry,” “industry data,” “industry reports,” and “average financials” to turn up vendors. Look also for websites of industry associations for your startup’s industries.
Don’t be afraid to project profits at levels different from industry averages. Lots of startups have good reasons to presume profits better than averages. Maybe they have better technology, or innovations in marketing or business model. What I suggest isn’t just to follow the averages, but rather, if you are different, know what the standard is, and be able to explain how and why your startup is different.
3. Startups Need Time to Break Even
Normal startups take some time to break even. That’s part of the rationale behind the concept of break-even analysis. It’s the main reason startups need startup financing, which is generally capital that supports the business while it’s new and still growing. That comes from SBA loans, friends and family financing, founders’ personal resources and savings, or outside investors. The rule is early losses. The exception is quick profitability.
4. Inherent Conflict Between Profits and Growth
Growth costs money. It’s a matter of common knowledge among business owners, experts, and angel investors. Businesses that generate high growth rates are almost always making lots of small decisions that channel available money into spending that increases visibility, awareness, leads, and sales.
Ultimately, it comes down to a simple trade-off. Profits are what are left over when the spending is done. Business owners who want to generate sales growth decide not to take that money home as profits, but rather to put it back into the business as marketing expense. They spend it on more web presence, advertising, promotions, lead generation, sales expense, and even product research and development to support future growth. And of course they also spend it on struggling to grow, and making mistakes.
5. Good News: An Easy Error to Fix
So now for the good news. At least in the context of angel investors looking at startups, which is a process, I’ve been involved with for several years now. If you have a good team, product-market fit, potential growth, and a good argument for barriers to entry, scalability, and a long-term prospect of an exit, you have a good investment regardless of poor financials. Most investors will help you make better estimates. I’ve heard angel investors say it too, more than once: “poor financials are the easiest problem to fix.”
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7 Tips to Starting a Successful and Legal Child Care Business
Child care is a hugely important part of American life and a key contributor to the economy. According to First Research, the U.S. child care services industry is currently worth $20 billion thanks to an increase in the number of working mothers and the desire to provide young children with educational opportunities. According to the latest data from Census.gov, 25% of children are cared for in organized facilities including preschoolers (ages 0-4) and grade schoolers (ages 5-14).
If you have a passion for child care and child development but also want to enjoy the independence and responsibility of being your own boss, this small business opportunity may be for you.
So what does it take to get started? What laws and regulations must you follow, here’s what you need to know.
Understand the Demand in your Community
Do some research within your own community to gauge what child care facilities are in demand. Considerations include the number of working mothers, availability of other care facilities (and their waiting lists). This useful infographic from Census.gov breaks down some key demographic information about the profile of a typical family in need of child care.
Demographic data can also tell you where future demand will lie. For example, if the majority of the childhood population is currently at pre-school age, then you can expect a demand for school-age child care services (such as after-school programs) to increase in future years. SBA offers a number of free market data and statistic resources that can help you with your detective work.
In addition to quantitative data, you can also get valuable information about market need by talking to parents themselves. You could post a quick poll or survey on online community message boards, parenting forums or social media groups, or browse these forums for child care related topics and discussions.
Are You Ready to be a Business Owner?
Operating a successful business is not for everyone. In addition to doing what you love, you must also deal with the universal requirements of business ownership such as staying on top of business law, managing employees, coordinating sales and marketing, and maintaining tip-top customer service.
Here are some resources and questionnaires that can help you gauge your readiness to be a business owner.
In the same vein, think about the kind of business you want to run and the kind of child care service that you want to provide. Will you be licensed? Do you want to operate out of a private residence? What kind of hours do you want to dedicate to your business?
Develop a Business Plan
A business plan is a must. It will help guide your decision making, help you map a path to success and is essential if you want to secure any kind of financing. SBA offers many planning resources that can help including this handy step-by-step business planning tool.
Understand Licensing and Zoning Laws
Whether you choose to operate your business from your home or in a commercially-leased property you will need to consider zoning laws as well as get a legal determination whether or not the property can be used for a child care business. You should also check with your state licensing agency to see how many children you can care for before you need to be licensed (smaller care providers may not need a license while larger ones almost inevitably do). Read more about child care licensing from ChildCareAware.org.
If you are looking to operate a child care business from your home, check out these tips for starting and operation a home-based business as well as the home business zoning laws that may apply. Educate yourself on the safety regulations and the child care provisions of the Disabilities Act. Be sure to have a licensing specialist visit your home before you renovate and when you complete. Their suggestions and recommendations can save you money.
Different types of insurance are needed for different types of businesses. It’s a good idea to get the advice of a lawyer and insurance broker to ensure you have the right coverage for your needs. Read What Kind of Business Insurance Do You Need as well as SBA’s Business Insurance guide.
Set Your Business Up Correctly
Starting a business involves several legal, regulatory and financial decisions and steps that you’ll need to check off. For example, how will you structure your business? Which authorities and tax agencies do you need to register it with? And so on. These 10 Steps to Starting a Business can help guide you through that process.
Financing your Child Care Business
In addition to traditional bank, credit unions and other alternative finance resources, a variety of federal, state and local government funding programs provide assistance to child care operators for everything from start-up to operational costs to general business improvements. The Business.USA.gov financing tool walks you through some of these options, be sure to check “Child Care” as your industry.
- Child Care Aware - A program of the National Association of Child Care Resource & Referral Agencies (NACCRRA), Child Care Aware provides a hub of information for parents and child care providers.
- Office of Child Care – Part of the Department of Health and Human Services, Office of the Administration for Children and Families, the Office of Childcare is as an information resource for the child care community and also provides information on funding opportunities for providers, assistance programs for your customers as well as other child care resources.
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Resources for Veterans: Start Your Veteran-Owned Small Business
After years of service, more and more veterans are taking the leap into business ownership. Veterans are 45% more likely to start their own business than their non-veteran counterparts.
In fact, the latest data from the SBA Office of Advocacy suggests that veterans make up nearly 10% of all business owners in the U.S. One in ten of these veterans operate more than one business (and are more likely to do so than their non-veteran counterparts)!
If you’ve served our country, then you’ve no doubt worn many hats – an essential skill for any small business owner. You’re also likely to be very good at delegating authority, maintaining discipline, and sticking to your goals. If you’re interested in business ownership, these attributes will stand you in good stead.
That being said, starting and running a small business requires other resources and assets. The small business failure rate, particularly during the early years is high.
The good news is that veterans have access to a number of programs and resources that can help them pursue their mission of entrepreneurship. Here are just a few:
SBA Resources for Veterans
Here you’ll find everything you need to know about the fundamentals for starting and financing your business (including veteran-specific loan programs) plus quick links to veteran business resources. Be sure to check out your nearest Veterans Business Outreach Center. With 15 locations nationwide, these centers provide business training, counseling, mentoring and referrals for veterans in the community.
Operation Boots to Business
This is a two-step entrepreneurial training program offered by the SBA as a training track within the Department of Defense’s Transition Assistance Program. The training includes a two-day introduction to entrepreneurship and an eight-week, instructor-led online course that goes in depth on elements of a business plan and starting a business. Check out registration details and dates of upcoming courses.
Government Contracting Opportunities
Doing business with your former employer can be a lucrative endeavor. The federal government sets aside no less than 3% of the total value of all prime contract and subcontract awards for veteran-owned and service-disabled small businesses. Learn more about cracking this market in this 30-minute course in the SBA Learning Center and then take a look at these getting started tips and contracting support resources.
Entrepreneurial Bootcamp for Veterans with Disabilities
If you’re a post-9/11 veteran with disabilities, the EBV National Program provides cutting edge, experiential training in entrepreneurship and business management at no cost. With a strong success rate (70% of program graduates have launched their own business). The EBV is operated by the Institute for Veterans and Military Families at Syracuse University (IVMF) in partnership with the SBA, and offers boot camps through its 10 consortium universities across the country. Graduates also receive ongoing mentoring and assistance for 12 months.
What resources or programs helped you start your veteran-owned business? Leave a comment below.
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Boots to Business Reboot to Expand its Offering to More Veterans
During the third annual celebration of National Veterans Small Business Week Nov. 2-6, the Small Business Administration will host 30 Boots to Business: Reboot entrepreneurship training events nationwide.
We’re proud to announce that thanks to a partnership with First Data Corporation, The Marcus Foundation and Syracuse University’s Institute for Veterans and Military Families (IVMF), the Boots to Business Reboot program will be able to expand.
This coming year, the SBA will be able to present more than 100 Boots to Business: Reboot entrepreneurial training workshops. The other big news is that for the first time, the program will be available to military veterans of all eras. This also includes service members (including members of the National Guard and reserve members) and their spouses.
The Boots to Business: Reboot curriculum will introduce veterans to the fundamentals of business ownership, including evaluating business concepts and developing a business plan. Course participants will be introduced to their local SBA resource partners, consisting of Veterans Business Outreach Centers, Women’s Business Centers, Small Business Development Centers and SCORE.
Additionally, upon completion of the introductory course, participants will be eligible to register for “Foundations of Entrepreneurship,” an eight-week, online course
taught by professors from a consortium of accredited universities, and led by the Institute for Veterans and Military Families at Syracuse University. The course offers in-depth instruction on the elements of a business plan and techniques, and tips for starting a business.
Thom Besch is a proud graduate of Boots to Business: Reboot program. After retiring from the Army, Thom decided to find what he was excited about, and then build a business doing just that. He learned all he could about renewable energy and the technical side of installing residential solar systems. A year after starting his company Veteran Solar Systems in Albany, New York, he decided he needed training on how to grow his business.
The local Small Business Development Center connected him to the Boots to Business: Reboot program. There, he learned how to get financing to expand his business and the advantages of having a targeted business plan. Being in an environment where you’re able to discuss different aspects of starting your own business—especially if you have no experience, said Thom—is what makes Boots to Business: Reboot such a great resource.
To learn more about the Boots to Business: Reboot entrepreneurship training program, visit www.sba.gov/bootstobusinessreboot or contact the SBA district office in your local community.
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Woman Owned, SDVOSB, and Minority Owned: Are Business Designations Necessary?
There are a variety of programs to help diverse groups of business owners procure work from government and private entities. For the record, the business registration process for women, minority, and service-disabled veterans does not differ from the standard process all businesses follow. You still need to register your business, obtain pertinent certificates, licenses, and permits in order to legally operate. Here are resources for getting your business started.
While the designations are not necessary, applying for these designations can provide a wealth of additional opportunity for your business both in the government and private sectors. Certain government contracts are set aside for businesses with these designations on the federal and state levels.
For more information on how to become eligible for set-aside federal government contracts, see SBA’S Government Contracting Certification guide.
In addition to the federal government, your state government offers a wide variety of opportunities for small businesses to compete for government contracts. See this list of state procurement agencies and information on how to register as a contractor and bid on opportunities.
It is important to note that this process is a large time investment. Requirements are very stringent and must be met entirely at the time of the application. Start the process as soon as possible! If you think you may want to get certified in the future, it is advisable that you create a binder when your company is young and start storing all the necessary documents, such as your incorporation paperwork, for the application processes.
Service Disabled Veteran Owned Business (SDVOB) Eligibility
In order to be eligible for the Service-Disabled Veteran-Owned Small Business Concern Program (SDVOSBC), the Service Disabled Veteran (SDV) must have a service-connected disability that has been determined by the Department of Veterans Affairs or Department of Defense. Your business must be at least 51% owned and controlled by a SDV, and the SDV must hold the highest officer position in the SDVOSBC.
Click here for more information eligibility and the application process.
Woman Owned Small Business Eligibility
To be eligible, your business must be at least 51% owned and controlled by one or more women. The women must be U.S. citizens. The business must be “small” in its primary industry in accordance with SBA’s size standards for that industry.
Click here for more information on eligibility and the application process.
Minority Owned Business Eligibility
Some minority groups are presumed to be socially and economically disadvantaged and can qualify for the 8(a) program. These groups include: African Americans, Hispanic Americans, Native Americans, Alaska Native Corporations, Indian Tribes, Native Hawaiian Organizations and Community Development Corporations, Asian Pacific Americans and Subcontinent Asian Americans. Individuals who are not members of one or more of these groups can be considered for the 8(a) program, but they must provide substantial evidence and documentation that demonstrates that they have been subjected to bias or discrimination and are economically disadvantaged.
Click here for more information on eligibility and the application process.
In addition to working with government agencies, you can register your business with non-government organizations and certification agencies. Each certification body offers different benefits for those who qualify, including business fairs, networking opportunities, training programs, financing options and more.
For example, the Minority Business Development Agency directs minority business owners to the National Minority Supplier Development Council where they can register their business as a certified minority-owned business and taking advantage of the benefits.
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5 Real World Examples of Forecasting a New Product
“How do I forecast a new product, with no real data to call on?” you ask. I’ve dealt with this a lot through the years. It began several decades ago when I had the job of forecasting new products for high-tech companies that were clients of the consulting firm I was with. It continued as I did business plan consulting for more than a decade, back in the 1980s and 1990s. Now I get it as questions my readers and it’s my favorite question. To this day my answer hasn’t changed.
First, it comes with the territory. Don’t think you’re not qualified because you can’t do econometric models or data smoothing, or you don’t have the MBA degree or CPA certification. You are. You know your business better than anybody else. Data analysis is all based on massaging past data, and you’re looking forward into the future. You can do it.
Second, the real goal of forecasting a new product isn’t the accuracy of a fortuneteller or a crystal ball. It’s about understanding what drives sales. Here are some specific examples:
- Focus on capacity. For example, you’re starting a restaurant and you want to say you have no idea what you can realistically sell. So draw a map of chairs and tables, figure out how many breakfasts, lunches, and dinners you can serve in your opening hours, then go from there to coffees and drinks based on the meals. Use realistic averages. Guess how many settings for each meal as an average, then multiply the hours and days to get months. Guess units and prices based on a reasonable sense of ramp-up.
- Focus on traffic, probably web traffic, but maybe auto, foot, or walk-in traffic. For example, a subscription-based web business ought to be able to project website views based on its organic search placement, pay-per-click advertising, email marketing, and related promotions. Make a projection of traffic by adding up your sources, then estimate conversion rates, and that gives you unit sales.
- Focus on contagion. Think of your product as a disease, in which one customer infects friends, family, and the world of word of mouth and amplified word of mouth through social media. Estimate a starting number of buyers and then how many new buyers each existing buyer will recommend (infect) each month. If each buyer infects five or 10 others, you’re happy. If each buyer infects nobody in a month, keep your day job.
- Extrapolate from somebody else’s history. You may not have history, but is there somebody else’s history that tells you something? I’ve been working lately with an entrepreneur who justifies her ambitious early sales forecast with data on what happened to a somewhat similar product in a similar market a few years ago. It’s not my favorite technique, but it is convincing to see how this forecast mimics real data from the recent past.
- Look at sales structure and channels. Especially for physical products that are supposed to sell through distribution channels, project how long it takes to get a distributor to carry your product, then how long it takes to get retail stores to carry it, and project the gradual increase of stores carrying it and a reasonable number of unit sales per month, per store. Getting into distribution doesn’t happen from one day to the next. The stores involved increase over time. And the direct sales process in an enterprise business-to-business launch has its structural numbers too. Think about how many deals per salesperson, how long the decision takes, how much pending business (called pipeline) at any time, and how the structure grows.
So the key, in all of these five cases, is connecting the dots. Don’t just take a wild guess; figure out the factors that drive sales. Build a sales forecast that you can use to track actual results, broken into variables like units, price per unit, stores, channels, web visits, or opening hours. Get it down at the beginning and then make sure to review once monthly to adjust your plan to accommodate ongoing actual results. You’ll be wrong at the beginning, but every month, you get closer to right. In the meantime, as you track results and make adjustments, you have managemen.
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How to Start a Consignment Business
Are you interested in opening your own consignment shop? Consignment shops can offer lower overhead cost compared to traditional retail stores, because a consigner provides your inventory and they are paid out only when the item sells. Shop owners resell items from multiple consigners and share a portion of the profits. While the business model might be slightly different than a traditional retail shop, starting a consignment business still involves planning, development, making key financial decisions, and completing a series of legal activities.
How it Works
Consignment shops commonly sell clothes, shoes, and housewares, but the there is no limit to the items that you can sell. Crafts, music, toys, antiques, and cars old and new can be sold.
While the items are in your possession, legally you do not have ownership. The consigner maintains ownership until the item is sold at which point you earn a commission on the sale and pay the consigner the rest.
If the item does not sell within the timeframe allotted by your consignment agreement*, then the contract should be renegotiated or the item returned to the consigner.
Startup costs for a consignment business are often less than say thrift or pawnshops, since you do not own the items, you do not incur the cost of purchasing inventory. Additionally you are not obligated to purchase the items if they do not sell. After the agreement time is up you can return the item if you do not think it will sell.
Keeping up With Your Inventory
In general retail businesses should invest in a point of sale or (POS) system. This is especially important with a consignment business because you do not own the inventory. Having documentation on the item’s description, the agreed upon price, and condition is an important part of the process.
POS systems can also help you determine what types of items you have a need for in the shop with up-to-the-date, accurate assessments of your inventory. When shopping for an inventory system you want to think of function and price; a good system should be a balance of both. You want to be able to set alerts, add new items, and print out price agreements. If your budget is a concern you can always start with a basic system and then add more robust features as your business grows.
*Links to a non-government website
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Top Tips to Lead and Empower Employees
Employees are an essential part of your business and brand. If they come across as unwelcoming or uninterested, you run the risk of rubbing your customers the wrong way. Unhappy employees can lead to assumptions about whether or not your business is a great place to work – and whether or not customers want to give you their business. There are countless studies highlighting the links between strong employee morale and satisfaction and customer satisfaction. So how do you make sure your employees are happy and satisfied?
“Happy” and “satisfied” are subjective terms, but typically, satisfied employees are those with a sense of well-being. This includes the presence of positive feelings like joy and interest, and the absence of negative feelings like apathy and sadness. In the same way that positive feelings can enhance an employee’s ability to find meaning in his or her work, those feelings can also play a role in that employee’s performance and growth.
Here are some tips to foster a positive work environment and empower your employees:
1. Start by being a good leader. You might be a good manager, but are you a good leader? It’s often said that while managers manage people, leaders lead people. In addition to managing projects and workload, make sure you’re also focused on inspiring your team to excel and succeed.
2. Give them quality time with strong leaders. As a leader, it’s important for you to listen and show that you care about your employees’ work, concerns, and aspirations. Whether you introduce a mentor/ protégé program or a few extra one-on-one meetings, your employees will be more engaged and productive when they feel seen and heard. If you have a larger business with a hierarchal reporting structure, it’s also important to give recognition to your management team. If they already get workplace face time with you due to their positions, consider a social outing like a lunch or a social event for the entire management team.
3. Encourage empowered behaviors. Employees who have a strong sense of well-being are also more likely to take on new challenges and to play a wider role in the success of your business. When possible and with parameters, let your employees make some decisions independently of you when they are closer to the action than you are and may be more likely to know the right call to make. Remind them that as they make decisions that they need to consider customers, the team, and your business profitability.
4. Encourage creativity. There are always new challenges to address and better ways to do things; let your employees get creative when it comes to dealing with common business issues. Whether it’s suggesting a process improvement for managing inventory or researching a new technology solution for your invoicing system, give your employees room to creatively address everyday challenges.
5. Hold “lunch and learn” sessions. These meetings give your employees the opportunity to learn and connect with one another during the lunch hour. Determine a clear topic ahead of time and tee the sessions up to be both informative and interactive. Whether you’re discussing team goals and performance, holding a “show and tell” with a partner or a particular team, or bringing in a guest speaker or outside resource, getting everyone together in one room can shed light on new ways of doing things and make the lunch hour energizing and engaging.
6. Don’t forget to say thank you. We all appreciate being thanked, but taking the extra step to use a hand-written note, a gift card, or other gestures to recognize achievement can make a big difference in making employees feel appreciated.
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10 Quick Tips on Business Plan Summaries
In this instant-update world we live in, life in 140-character bursts, it’s just a fact of modern life: you have to communicate faster. The whole world has attention deficit syndrome. So that’s as true for business planning as for most other things in business. Here are 10 lessons I’ve learned about business plan summaries.
- I’ve never forgotten what they told us decades ago in the resume clinic at business school: “Even the President of the United States can do a one-page resume.” Step back and appreciate the meaning of the word summary.
- There’s way too much vague and fuzzy vocabulary around summarizing business plans. A one-page business plan is a summary, not a plan. So too, an elevator speech, elevator pitch, business pitch, pitch deck, executive summary, and summary memo.
- As we use them these days, you can think of the lean canvas and lean business model as summaries. They focus on strategy and in some cases tactics. But they lack the milestones, tasks, performance measurements, budgets, and forecasts of a real business plan.
- Keep your summary short, cover the highlights, and assume key people will read this summary and nothing else. It’s a front door. Whether it’s an executive summary that comes first in a document, or a summary memo, make that reader want more information.
- A good summary is a collection of tips of icebergs. Each one has enough information to imply its entire iceberg, but it can’t go too deep, and it has to leave the iceberg somewhere. Don’t promise in the summary anything you can’t back up in the document or following discussions.
- Real business plans change often. It’s planning, not just a plan. And as your plan changes, rewrite and revise your summary to keep it fresh and keep it aligned with the plan.
- Different experts have different opinions on the ideal length of a summary. I’ve always recommended a summary of 2-5 pages, which can be used as a stand-alone summary memo where that’s appropriate. For example, in my angel investment group, we don’t read full business plans of all the startups that apply for investment. We eliminate some proposals just from reading the summaries. We read the full business plan only after deciding, from the summary, that we want to know more.
- A generalized summary will include the obvious information such as essential business details, what you sell, what locations, projected sales growth, profitability, and news you don’t want anybody to miss. It’s a good place to put a highlights chart, a bar chart that shows sales, gross margin, and profits before interest and taxes for the next three years. You should also cite and explain those numbers in the text.
- However, generalized summaries are as rare as generalized business plan events. Write a new summary for each time you need one. Tailor it to match the requirements of your specific business need. The summary you show angel investors is different than one you show a bank loan manager, and different again from the one you show a potential partner, employee, or attorney. How? How can you tell? Think what’s most important for each audience, in each context. That changes depending on the occasion.
- What you highlight depends on the context, as in point #8, but also on the specifics of your business. Highlight what serves your purpose best. For example, if you’re looking for investment and have a venture already backed by major brand-name backers, say so early in the summary. If you’ve got a founders team that includes several known entrepreneurs with good track records, then put it up front. If you have a good business track record, like impressive early sales or landmark deals with major channels, corporations or governments, put that first. If you have an amazing new invention or break-through technology, lead with that. Use good judgment. You’re an editor, at this point, looking at things through the audience’s eyes.
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Starting a Business in the Trucking Industry: Part Two
Earlier this week, we talked about the highly competitive trucking industry, and some guidelines that will hopefully save you time, money, and energy if you’re hoping to start a trucking business. Today, we’re picking up where we left off with some of the specific rules and regulations of this industry.
Starting a trucking business may require locating and purchasing specific equipment to get started. If you choose to operate a private fleet with your own drivers, you’ll need commercial vehicles. Different types of cargo require different equipment – if you’re transporting food, you may need a refrigerated truck. If your cargo is oversized, you might need flatbed trucks.
In addition to specific equipment needs, the trucking industry comes with its own set of tax, license, and permit regulations. Depending on the type of trucking business you’d like to start, important regulations could include:
- Federal DOT Number and Interstate Operating Authority: Understand your requirements and apply for these certifications online on the Federal Motor Carrier Safety Administration’s website
- Heavy Vehicle Highway Use Tax Form (2290)' Comply with tax regulations related to the heavy use of U.S roads with this IRS form, which the IRS updated in July 2015
- International Registration Plan (IRP) Tag: Most states require you to obtain IRP tags. You can learn more by visiting your state’s transportation website and its IRP portal
- International Fuel Tax Agreement (IFTA) Decal: You can obtain your IFTA deals by visiting your state’s transportation website
- BOC-3 Filing: You’ll need to file this form to secure and maintain active operating status – learn more on the Federal Motor Carrier Safety Administration’s website
Beyond operational requirements, if you choose to employ private drivers, those drivers will need to obtain special driver’s permits or endorsements such as a commercial driver’s license in order to legally operate your vehicles.
The good news is that each state has a portal dedicated to commercial transportation. For example, Idaho’s government site has a trucking portal with detailed information on commercial driver’s license requirements, rules and safety information, permits and licenses, taxes, and other related topics. Before you get started, be sure to visit your state’s transportation portal to ensure that you understand your state’s requirements and available assistance.
As always, the best step you can take to ensure you are meeting all requirements is to consult a compliance professional.
Time to Go Find Those Contracts
The trucking industry is competitive, and tracking down those first contracts can be difficult. As a new business, you won’t have the reputation you need to secure large accounts – but don’t be afraid to start small and utilize local contracts and small business trade shows to build up your client base. As you successfully complete your first jobs, you’ll be able to grow your business and contract larger jobs each year.
If you own a trucking business, what best practices would you share with someone who wants to get started in this industry?
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