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Owner Operator …
Want Your Kid to Become One? Part II
Independent Owner Operator versus Lease on to a Motor Carrier –
One of the first decisions for a new owner operator is to decide to drive as a company driver or as an independent owner operator. There’s a big difference in lifestyle, income and start-up expenses here. Company drivers usually have little control on how things are going to work out. But, they are pretty much guaranteed a steady income. Owner operators usually have more flexibility in their decisions.
So, there are pros and cons depending which way the driver decides to get started.
Some think the best way for a younger person to start is to become leased on to a carrier. The carrier takes care of the operating authority, permits, insurance, license plates, trailers and the cargo as well.
Carriers may even provide fuel cards that allow drivers to purchase fuel at discounts in addition to reimbursing for toll fees and unloading fees and other related expenses. If the driver doesn’t own his own rig, he may choose to do a lease/purchase (hint: a lot of new drivers have been burned using this option).
Owner operators may make more gross income but their operating expenses can be steep and erratic.
Independent owner operators generally got their start as a company driver and they are not ignorant of the costs and demands when contemplating working as an owner operator.
Owner operators who lease on to a carrier are required to sign and abide by the carrier’s lease agreement. This is where some drivers may need help. This agreement should be fully understood by the driver and the Federal Motor Carrier Safety Administration (FMCSA) provides guidelines to help carriers clarify their terms plus help drivers understand them.
Drivers should understand that lease agreements have been prepared by attorneys perhaps over a long period of time and, yet, the carrier’s management may expect the driver to express an acceptance or rejection in a matter of minutes.
Drivers who lease on to a carrier, need to ask questions like “What is my total compensation package? What am I responsible for? What can I expect from my carrier? and What do they require from me?
The idea is for the owner operator to avoid “big surprises”.
This has been all too common in this industry for many years.
In addition to dealing with the carrier’s management, a big complaint from seasoned owner operators who are leased on to a carrier is dealing with dispatchers. “My dispatcher lies to me all the time”. “Lying” may be of some consequence but recent legislation in Moving Ahead for Progress in the 21st Century (MAP21) has outlined potential penalties of upwards to $15,000 for anyone found guilty of coercing drivers to violate FMCSA safety regulations including their hours of service.
Independent owner operators who choose to go it alone may also need to ponder their future not only in regard to perks but also in regard to their responsibilities. Solo owner operators need to hustle themselves for loads; they need to do their own collections; they need to understand the gravity of taking full responsibility of their position. Definitely, the life of a solo owner operator is not for everyone.
In addition to taking full responsibility for all the expenses, getting paid in a timely manner is one of the top priorities. Many independents begin using factors to get their money quicker rather than later – but there’s a price to pay for this service. Sometimes the cost is more than what the driver can bear.
If the factor takes 25-40% of the driver’s profits …
… that may not leave enough to cover other operating expenses. This is what new drivers may experience until they develop a higher volume of business which may lead to better terms.
Perhaps, creating a good relationship with a banker and seeking a line of credit may be the best way to go. It’s less expensive and not all that difficult to set up. Get to know a banker who knows your business.
In Part III, we’ll look at some ideas about buying or leasing equipment and other cash management issues.
If an owner operator decides to run independently, it’s imperative to develop good cash management skills.
This link above is for my live training in El Paso. The other options are to train via telephone and Internet or with the Home Study.