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FINANCIAL STATEMENTS- A TOOL TO YOUR SUCCESS

PART III

 

This is the final part of our mini-series about financial statements. 

 

Financial statements are important because they are used for the following as mentioned previously:  Tax projections and planning, obtaining loans, sale of your business, and budgeting.  Financial statements are also used to increase your operating profitability.

Managing cash and controlling costs are important elements to building a successful trucking operation.  Today’s truckers must use every tool at their disposal to ensure they are operating as profitably as possible. 

 

One of these tools is the ability to calculate both your revenue per mile and your cost per mile.   To determine cost per mile for your over-all operation, divide your total expenses by the number of miles you run.  This should be calculated monthly and year-to-date to get the most accurate figure.  Once you determine your cost per mile to operate your truck, you can use that to determine when a particular trip or load is profitable.  Let’s assume your cost per mile is 79 cents.  Next, you’ll need to know how to calculate your revenue per mile.  Take your total revenue (income) and divide by your total miles.  This calculation will give you your revenue per mile or, in other words, how much you make for every mile you run.  Let’s say your revenue per mile is $1.40.  Now that you know both your revenue and cost per mile, you can calculate your profit per mile.  Take your revenue per mile of $1.40 and subtract your cost per mile of 79 cents.  That would tell you your average profit per mile is 61 cents.

 

With these calculations, you can always determine in advance the profitability of a load.  Take the total amount a job pays – this is your total revenue.  Then divide by the number of miles the trip will take, and you will have your revenue per mile.  Let’s say a load pays $2,500 and the trip is 2,350 miles; the revenue per mile is $1.06.  You now know it costs you an average of  79 cents per mile to run.  If you accept this job, you will make only 27 cents per mile.  That’s less than half of what you need to match your average profit per mile.  When doing these calculations, be sure you include all the miles traveled, including deadhead.  If you don’t include unpaid miles, you won’t have an accurate number.

 

The cost to operate your business is something you want to continually review.  The more accurate your expense records, the more successfully you can manage your business.  You must be able to project revenue vs. expenses.  Will you have enough cash flow?  Are you within budget?  Will you be able to quality for a loan?  Is your cost per mile creeping up each month?  Why?  The only way to increase your profit is by either cutting costs, increasing revenue, or a little of both.

 

 

It is important to be able to identify all your costs in relation to your operation.  You should keep track of all business expenses, no matter how small, even though they may not be deductible for tax purposes.  For example, for meals on the road you may use the per diem allowance for tax purposes.  However, when calculating cost per mile, you will need to keep track of your actual meal expenses.

 

You should break down your costs between fixed and variable costs.  Fixed costs stay the same regardless of the miles you run.  Examples would be: equipment payment, some taxes, license, permits, insurance, etc.  Variable costs are operating expenses, and these will vary month to month as equipment is used.  Examples would be: fuel, oil, repairs, maintenance, tires, etc. 

 

Now that you know what to do, how do you use it?  Aside from using your calculations to determine the profitability of loads, you can also use the numbers to predict future costs, analyze past performance, and cost out equipment purchase comparisons.  When it comes to being successful, you’ve got to operate smart and use all the tools available to you.

 

Organization, good record keeping and proper, realistic planning can and does make the difference between success and failure.

 

TAX TIP

Hybrid vehicles can save dollars in fuel costs.  However, the most popular hybrids cost about $3,000 more than comparable gas-powered models.  Even with the increase in gas prices, you’d have to drive a lot of miles to offset the higher price tag.  But you can reduce the hybrid premium by taking advantage of all the tax credits available to you.  The federal Energy Tax Incentives Act, which took effect January 1, lets taxpayers claim a credit of up to $3,400 for IRS-certified hybrid vehicles.  The tax credit replaced a $2,000 deduction for hybrids bought before December 31, 2005. (A tax credit is more valuable than a deduction because it represents a dollar-for-dollar reduction in your tax bill.)   

 

If you’re interested in buying a popular hybrid model, don’t wait too long.  After an automaker has sold 60,000 hybrids, the amount of the credit will be phased out.  The phaseout won’t happen overnight.  After an automaker’s hybrid sales hit 60,000, customers will be able to claim the full credit until the end of the quarter in which the threshold is reached and through the next quarter.  After that, customers will be eligible for 50% of the credit for six months.  For the next six months, the credit will shrink to 25% of the full amount, then disappear.  Several states also provide various credits.  Do your homework.

 

This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century.  Contributions to this article were made by Shasta May, Director Business Development for PBS.  If you would like further information, please contact us at 800-697-5153.  Visit our Web Site at www.pbstax.com .

 

“Everyone’s financial situation is different.  This article does not give and is not intended to give specific accounting and/or tax advice.  Please consult with your own tax or accounting professional.”