SETTING UP IN BUSINESS

You want to own your own business. You want to start up in business as a truckie. How should you go about it?

Ideally, you should have recent experience as a truck driver. If you do not have experience in the trucking business, you would be well advised to obtain a job as a truck driver for a year or two before attempting to set up on your own. You will also need the necessary licences to drive a truck.

Is there a market for a new trucking business in your area? Talk to people in the business. Are the current operators making a reasonable profit? Could you operate more efficiently? If the market is saturated and some operators are going broke because of the cut-throat competition, then you should think of starting up in another area. On the other hand, if things are buoyant and you reckon you can muscle your way in and get a share of the market, then go ahead. Bear in mind that the time-honoured way of grabbing a share of an existing market is for the newcomer to drop his prices.

Now that you have decided that a) you have the experience and b) there is an opening for a new business, you must think about finance. You must try to forecast all of your income and expenditure for the first year in business. Expenditure will include start-up expenditure like buying the "rig", buying office equipment, installing phone, fax etc. Decide what kind of truck you want and obtain various quotes. Make a reasonable estimate of how much work you are likely to obtain in your first year of operation. Estimate how much cash you will receive for the work. Estimate the truck running costs based on this income. Running costs will include fuel, parts, repairs, registration etc. Next estimate your overhead expenses for the coming year. These will include Accounting, Advertising, Bank interest and charges, Depreciation of truck and equipment, Electricity, Hire of equipment, Insurance, Printing/postage/stationery, Rates, Rent, Telephone, Travel & accommodation on the road etc. Decide how much wages you will require in the first year. Keep this amount to a minimum. Leave as much cash in the business as possible.

When you have gathered all of this information, make an appointment to see your accountant. He will ask you some more questions. He will then prepare a Business Plan taking into account all of the above information. The Business Plan will show much money you need to borrow. It will also show the estimated Net Profit of the business for the first year. It will show how you propose to repay the loan i.e the monthly repayments that the business can afford.

Next, make an appointment to see your bank manager. Hopefully, the bank manager will be impressed with your Business Plan and approve a loan for you. If he does not, try a finance company. Finance companies normally charge a higher rate of interest compared to a bank.

Once finance has been approved, you buy the truck. You rent business premises, have phone and electricity connected, open a bank account, arrange insurance, buy stationery, buy fax-machine, photocopier, computer, office desk and chairs, filing cabinet etc. Have a standard contract printed. Often, your trade association will be able to provide a standard contract for you to copy. Make sure that it states that you are not a "common carrier". Also, make sure that it absolves you from any damage that your truck might do to a customer's property. Next, you see about obtaining work. First, attend to advertising. Place an advert in the local paper. Perhaps, you can get the local paper to do a feature on your new business. Make sure that you have a display advert in the telephone Yellow Pages. This will bring in quite a bit of business over the years. Hire a sign-writer to prepare an outside sign for your business. Have your name painted on your truck. Have an information sheet typed and photocopied. Send it to all businesses in your locality that might be interested in your services. Call personally on all "hot" prospects and explain your services. Emphasise any special points about your business such as a) lower prices, b) prepared to go anywhere, c) special type of truck, d) available seven- days-a-week etc.

Before you quote for a job, you must have a good idea of the cost of the job. It is no good either under-quoting or over-quoting. When quoting for a job, you should estimate the number of kilometres to be travelled and the time to be taken. You can base your quote on the number of K's to be travelled or on an hourly rate or on a combination of both these methods. It is obvious that expenses like fuel and parts vary with the amount of kilometres travelled. On the other hand, overhead expenses like rent, interest etc do not vary and are the same whatever the volume of work.

Now that you are in business and have obtained work, you must decide what records you need to keep to run the show. First, open a bank account. Obtain a large duplicate deposit book from the bank and a cheque-book containing at least 100 cheques. Try to keep the bank account for business use as far as possible. This means that you should try to pay personal expenses like the weekly shopping bill in cash and not by cheque. Bank all moneys received "intact". By "intact" is meant banking all cash and cheques received, without first taking out money to pay for either business or personal expenses. Pay all expenses by cheque. This is a most important rule. If any particular person wants to be paid in cash, make the cheque out to "cash" and tell him to obtain cash at the bank. Obtain two "concertina" files. Keep one for unpaid accounts and keep the other for "paid" accounts. Make sure that you have received the goods or service before paying. Do not pay on a bogus invoice.

You will also need a daily worksheet. This will record 1) the customer's name, 2) job no., 3) pick-up point, 4) drop-off point, 5) time started, 6) time finished, 7) description of goods, 8) delivery docket no.. You will also need to prepare a Consignment Note or Delivery Docket for each job.

Husband and wife teams are very popular for small trucking businesses. The husband does the driving and the wife does the bookwork. If you are in this lucky situation, you must hand over the daily worksheets to her at intervals. She will then raise an invoice. A Statement of Account should be sent to the customer at monthly intervals until the account is paid. Once your business expands, I would suggest that you install the Kalamazoo system for debtors. An alternative is a computer system for debtors. You can buy a software package that will take care of invoicing and debtors. When any account is three months overdue, start chasing it. Phone the debtor. Call personally on him. Stop doing further work for him. Place the account in the hands of a debt- collection agency. Go to the Small Claims Tribunal and issue a summons, if necessary.

Once you take on an employee, you must a) get a Group No. from the Tax Office, b) obtain an employer kit from the Tax Office containing blank Group Certificates etc, c) keep a wages book and d) obtain a copy of the relevant Award and study it.

You should also have a Business Plan for each year. Your accountant will have prepared one for the first year when you applied to the bank for a loan. Before the beginning of each financial year, you should forecast a) your income for the coming year and b) your expenses for the coming year and c) your Net Profit for the coming year. You will thus know that you are in a profitable business if things go according to plan. In addition, you should have a three-monthly cash forecast. This should forecast 1) your cash and cheque income for the next three months, 2) your cheque payments for the next three months and 3) your expected bank balance at the end of the three months.

After the end of each financial year, you should hand the following to your accountant 1) cheque-book stubs, 2) bank statements and 3) finance company agreements. He will prepare Financial Statements for the business and your personal Tax Return from these.

A common mistake made by persons who start up in any kind of business is to draw as much money as possible from the business and spend it. When the tax bill inevitable comes in, they have no money to pay and they go out of business. As you know, employees have tax taken out of their wages. Self-employed persons do not have tax taken out of their wages. They pay their tax in one lump sum, usually on the 1st April each year. This is called Provisional Tax. Also, remember that you will have no Provisional Tax to pay the first year you are in business but you will have two year's tax to pay in the following year, on the 1st April. The best thing to do is to set money aside to pay the tax, right from day one. Open up a savings bank account. Ask your accountant how much you should take out of each cheque received in order to pay the eventual tax bill. Draw a cheque each month for this amount and pay it into the savings account. You will be glad to find when the tax bill arrives that you have sufficient in the savings account to pay it. The percentage to be taken out of each cheque received to pay the tax can vary widely. However, an average might be 4%.

If your wife is to run the administrative side of the business, what training should she undertake? If you have employees, the first thing she should be able to do is to calculate the wages due, take out the appropriate tax and then draw the cash. She could do a course at a local TAFE college or the Tax Office could help. Another desirable skill is being able to operate a keyboard. This is useful for typing and operating a computer. If you decide to use a computer to run the business, I would recommend that your wife take a course in learning to operate the software packages. The software packages will include word- processing, wages and invoicing/debtors. I would not recommend that your wife learn double-entry book-keeping. Double-entry book-keeping is only used by professional accountants.

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Copyright 1994.

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