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How to Start a Transportation Business
Starting a transportation business is an exciting step to being your own boss and controlling your own destiny. Most people are looking to be a driver, but you could also be a dispatching service company, operator, logistics consultant, or other service provider. No matter where you start, you can always shift your role in the transportation industry as you gain experience and build your network while your company thrives.
One example is starting as a driver and then expanding by hiring drivers to work for you as demand increases. You may discover that you love pitching to clients, creating routes and maps, and managing operations.
Now you can step out of the driver’s seat and begin managing the day-to-day and closing deals, while staying in the industry you love.
If you’re ready to start a transportation business, we’re going to help you with easy explanations, some examples to help you determine price, tips on legal work you won’t want to forget, and marketing strategies (whether you’re a long-haul trucking company or helping seniors get around a city).
Table of Contents:
- Business Plan
- Buying Vehicles (New or Used)
- Financing Options
- Legal Work
- Pricing
- Software and Systems
- Marketing and Advertising Strategies
Business Plan
The first step is to create your business plan. If you need funding, want investors, or want to keep yourself focused and on track, this is your “roadmap” to get there. A business plan is fairly simple to create, so don’t stress.
A business plan for a transportation company should be an easy-to-read document that contains:
- Your brand values and what makes your business stand out from competitors
- The types of clients and customers you want to attract
- How you plan on marketing and providing customer support
- How you plan on making money and increasing profits
- The expenses you’ll be paying
- The ways you’ll fund your business
Your business plan is different from a mission statement. A business plan states how you will run, manage, and operate, while a mission statement focuses on your company values.
Your business plan should include details about how your business can thrive, so don’t forget to include things like upsells to increase profits and opportunities for expansion. An events transportation company could include upsells like champagne, red carpet, and front-door service. Another upsell could be priority pickup orders for hotels, which allow VIP guests to be picked up last and dropped off first for convenience.
A business plan for moving and shipping companies that want to expand over state lines will need to account for different vehicle registration types, as these vary by state. In this situation, the business plan would include a goal for when the expansion should take place so that the business owner’s accountant knows how to prepare and can make certain recommendations such as where to apply for funding.
Buying Used or New Vehicles
New or used? That’s the million-dollar question. Used vehicles cost less up front but may require higher maintenance fees than brand-new vehicles. For example, you can save on the initial payment, but you may have headaches and more expenses over the “long haul” depending on how many miles the vehicle has, any accidents it’s been in, etc.
New vehicles will depreciate fast in the first year once they leave the lot but have no wear and tear, so they may last longer. The initial cost will require more funds so you’ll either need a larger amount of financing or to hold off on purchasing business tools that aren’t essential for launch.
Pro-tip: Buying a new vehicle may qualify you for Section 179 and bonus depreciation deductions on your taxes. If you use Section 179, you’ll get more money back after the first year, which you can use to purchase other tools and supplies.
Ways to Get New or Like-New Quality Vehicles at a Discount
If you have your heart set on new, don’t count used vehicle auctions out. According to the National Auto Auction Association (NAAA), which has been around since 1948, dealers wind up with vehicles that do not meet their buyer profiles, so they list them at auction to get some profit. Another option could be checking out foreclosure or short sales.
If a transportation company was going out of business or did not make good on their debts, their new and used fleet may be sold to the highest bidder. This is an opportunity to get a high-quality and well-maintained vehicle at a fraction of the market price. If you’re tracking market values, look into short sales.
Short sales occur when the market value of a commercial vehicle is less than the amount owed to a lender and the lender allows the truck to be sold by the owner. It is not a very common occurrence, so you’ll need to use your current network to see if there are companies in this situation that are willing to offload one of their vehicles.
You’ll be helping them reduce their debt so they can get back on their feet while also getting the commercial vehicle you want. Now that you know what you’ll need for the vehicle (or vehicles, if you need a small fleet like for local package delivery), it’s time to look at financing your new transportation business.
Financing
The options to finance a new transportation business depend on your network, personal and business credit scores, and what you’re willing to risk by betting on yourself. There’s no shortage of options available, so we’ve put together this list to help you decide.
Depending on the type of transportation business you are starting, some of these will be more suitable options than others.
- Small business loans
- Commercial vehicle and transportation company loans
- Sweat equity
- Home equity lines of credit (HELOCs) and cash-out refinancing
- 401(K) funds or savings
- Funding from friends and family
- Funding from investors
Small business loans
Traditional small business loans can be a good option if you need more than vehicles, or you’re going to be a dispatcher and have a physical location.
The funding can be used in more ways like paying for software and computers, financing a location and paying rent, paying employees, doing renovations, and advertising your new transportation company to bring customers and drivers to your door.
Just like a transportation company loan, you will want to have collateral to lower your risk, good credit scores, and a strong business plan. Alternative lenders like us may be more willing to provide you with funding than risk-averse large banks, so don’t count out your options or get discouraged if the larger financial institutions say no.
Commercial vehicle and transportation company loans
Some lenders offer commercial vehicle and transportation company loans which you can use to purchase a commercial vehicle or fund your full operations. Each lender is different and will have unique terms regarding prepayment penalties, the ability to sell assets, the length of the loan, and interest rates.
Depending on the lender you choose, the money could be used for the vehicles, software, office supplies, and other business expenses to get you up and running.
Your goal for this type of transportation company financing is to make yourself as low-risk to the lender as possible. When applying, include your business plan, contracts that are signed or where you’re shortlisted, and any current business assets you’re willing to leverage.
Multiple lenders will require you to already be in business for a certain period of time. That’s why this type of funding is best if you’re acquiring an existing transportation business vs. starting from scratch. You’re still becoming your own boss, but in this case, you’ll have an established customer base, operations, and other logistics set up, giving you an edge.
Bonus idea: If you currently drive long-haul trips and your home is empty while on the road, try offering short-term leases or listing it as a rental in marketplaces. The extra income on your financial reports may decrease your risk level once you’re ready to start your own transportation company, because you’ll have more earnings available to pay back the loan each month. You can also use the additional income for the deposit on the loan.
Sweat equity
This strategy is where you have a third party give you funding and you work for free part-time or full-time until you have paid them back with services.
Transportation companies have multiple options for where they can obtain sweat equity including:
- Local retailers that need products delivered to their customers.
- Large brands that need deliveries made to other locations.
- Caregivers that need to transport patients (i.e., assisted living or senior care) and clients (i.e., doggy day care) to and from their homes.
While helping other businesses manage logistics, you could also get funding to get your operations off the ground. Plus, sweat equity also allows you to gain experience, credentials, and possibly customer referrals.
However, keep this in mind: If you do back out of an agreement, they may be able to claim your vehicle and business and take you to court. Make sure you read your contract carefully and are willing to commit to working for free until the sweat equity is paid off.
Home equity lines of credit (HELOCs) and cash-out refinancing
If you’ve paid most of your mortgage off or own your home outright, you can take out a loan or borrow from the equity you’ve already paid to fund your new company. This could be a good option if you’re not able to get a transportation company loan.
With this strategy, you’ll be using your personal residence to fund your business and making monthly payments to your bank. A HELOC will be a longer-term financing solution (10 to 20 years) than a business loan (often 3 to 10 years according to Investopedia). The important thing to keep in mind is that, if you default, you could lose your house.
401(K) funds or savings
Some entrepreneurs fund their new companies by pulling from their personal savings or 401(K) accounts. This is risky because, if your company fails, you have less of a nest egg to go back to.
If you use your savings to pay for the vehicle or a garage and warehouse for storage, and then they need repairs, your savings will be depleted and you may need emergency financing to keep you up and running until your operations are back to normal.
There is substantial risk with this method, but if you can afford the risk, it is an easy option that keeps you free from debt and in control (since it’s your own money).
Funding from friends and family
Friends and family who understand your business plans and have extra money may be willing to invest in your business. If they believe in what you’re doing and you know you can make it work, this is a great way to succeed and bring them along with you.
As things get busy, they may even join in to take on some of the workload, depending on their interest and availability.
Funding from investors
Investors can also be an option if you can sell them on how they’ll get a positive return on their investment. The ones that know the ins and outs of transportation businesses will likely have a network of professionals to help you get up and running sooner.
Their network may have connections with companies that ship or need services, advertising professionals that can aid with buying ad spaces or designing your logos, and accountants who are familiar with deductions, expenses, and setting up corporate accounts. This can ease the stress of starting a transportation business and fill any gaps you may have.
Legal Work
Once you have funding, and sometimes before, you’re going to need legal work done. The types of work will depend on your niche within the transportation industry, but here are some starting points that apply to most transportation companies.
- Contracts – These include vendor, client, employee, leasing, contractor, and consultant to ensure your business deals are binding.
- Insurance – This includes health, vehicle, business, general liability, umbrella policies, hazard, workers’ comp, and travel.
- Business formation types – A way to help protect your personal assets is through forming a corporation, but this may not be right for everyone. Popular options include:
- LLCs
- C Corps
- S Corps
- Partnerships
- Lawyer for regulatory compliance – Both state and federal regulations will apply to your business. If you’re shipping or transporting across state lines, you’re going to need legal counsel to understand each of your responsibilities and what the requirements are in multiple regions. It gets complex fast, which is why a licensed legal professional that specializes in this work will be helpful.
- Licences and certifications – These include driver’s licenses, commercial licenses, P endorsements, hazard and dangerous materials permits, and other types of permits you’ll need to operate your business.
- One important thing to know if your transportation company works with hazardous materials or transporting people and animals is that each state has unique requirements in addition to the federal regulations from the DOT. When operating across state borders, you’ll need to verify your vehicles meet each state’s requirements or reroute them and ensure the drivers stay on path.
Here is where you can register and find restrictions on your routes by state for hazardous materials, as one example. Here is information on your DOT number.
Calculating Your Fees and Charges
Now that you know how to fund your business operations and which licenses, documents, and paperwork to look into, it’s time to figure out how to charge for your services.
Each type of transportation business will have unique pricing models, like how limousine companies have spikes in demand during wedding and prom seasons while moving companies pick up demand during summer.
The marketing will change as well, which we get into in the last section of this guide, as moving companies could partner with HR departments and divorce lawyers with a referral program, whereas this move would not make sense for a taxi service.
The most important thing is that you’re charging what you need to coast or excel during slow seasons, and that you make enough profit to cover operational costs and the lulls. Let’s start with expenses to account for since many of these apply to most transportation companies.
Major Expenses to Account For
Make sure you are billing enough to set part of your revenue aside for:
- Vehicle repairs and maintenance
- Fleet upgrades
- Inspections and licensing
- Price hikes, taxes, tariffs, and regulations that increase costs
- Fuel cost increases
- Vehicle leases when existing vehicles are out of commission for extended periods of time
- Client cancellations and refunds
Pricing Strategies
Be creative with how you price, and don’t forget to try upsells and cross sells to increase your revenue. Here are some starting points that can apply to multiple types of transportation companies.
- Transportation:
- Increased price per passenger with a deal or break at specific levels
- Upsells (champagne, flowers, gifts)
- Fees for showing up late or delaying the trip
- Extra hours and when the clients cause a delay (i.e., at a winery or tour of a city and they take more time than they originally paid for)
- Don’t forget to have your driver document that the client was late and that is why the extra hours apply.
- Additional services such as package handling, shipping, and other costs or upsells
- For example, moving companies can charge an upsell for packing and unpacking
- Moving and shipping with a focus on gas and space
- Consider price per mile + cubic foot of space used
- Consider price per pound + cubic foot of space used
- Operations providers and dispatchers
- Affiliate and referral fee partnerships for needed services like LLCs and passport expediting (i.e., for cross border deliveries)
- Freight lead sales and truck lead sales to the warehouses and logistic facilities
- Rerouting upsells for faster routes
- Guides and cheat sheets to new regulations by state including weight limits, hazard rules, licensing, etc.
Ideas to Reduce Costs
There are ways to reduce your costs and increase your profit margins. These can apply in unique ways. However, whether you’re a limo company, a trucking company, or a taxi service, transportation businesses have more commonalities than most people think. Here are some ideas to consider.
- Create partnerships with large hotel brands for custom rates.
- Negotiate prepaid cards for drivers for gas, food (with larger diner chains or truck stop chains), and more.
- Cut deals with local florists, gift shops, breweries and wineries, and chocolate shops for clients. They could refer your company clients.
- Take advantage of discounts with local or national companies that cover repairs, oil lube and filters, tire replacement, and other needed quick fixes while on the road.
- Get referral fees from restaurants and others for business referrals, or get discounts from these businesses by delivering food/products for their customers.
- Sell advertising on your trucks and vehicles.
The equation to calculate what you need will change throughout the year, so here is a basic formula and some of the outliers for specific types of transportation companies.
Formula for Transportation Company Revenue and Pricing
Total Revenue (what you make) – Total Costs (gas, labor, licenses or permits, marketing, hotels, etc. for an average year) = Net Profit
Shipping and Moving Company Pricing
The outliers in pricing here can include:
- Florida – It is a long state and if you don’t have product to move back north, you lose revenue until you reach Tennessee, Atlanta, or another shipping and warehousing hub.
- Space used and in between shipments that don’t delay long-haul transportation.
- This could include taking product from Ohio to Illinois while on a route from Pennsylvania to Oregon for additional revenue.
- If you have the square footage open and can add to your load, the weight of the vehicle increases, resulting in additional stops on highways and higher gas expenses. However, additional revenue on a route where you have time to stop can allow you to increase total price and revenue.
- Tariffs and disasters impacting how much product arrives or delayed cargo arrivals at ports.
- If the trucks aren’t shipping because the product isn’t available or too expensive, you need to pick up additional cargo or reduce prices to compete.
Transportation People (Events and Corporate Accounts)
The outliers in pricing here can include:
- New licenses once you have larger vehicles and bookings
- Sedans and limos vs. a party bus
- New and smaller vehicles if seats do not get filled often
- Price per seat filled
- Additional pickup stops to increase passenger load (total passengers per trip)
- How many upsells per order (by tracking what works, you may be able to increase revenues)
When calculating these numbers, look at people per seat as a smaller vehicle may be more cost effective if seats are always open, or you can add additional stops or fees for smaller groups.
Alternatively, you could try pricing private vs. shared shuttles. Private makes up for the difference so revenue could be high. Meanwhile, shared transportation may increase profit more because all seats are filled and multiple parties are paying. You also only need one driver vs. a few, so payroll remains lower. The same applies to the number of pickup locations.
Software Needed for Operations
Trucks, limousines, taxis, and transport vehicles aren’t the only things that keep a transportation company moving. You’re going to need multiple types of software and systems.
What is considered the best tool today can change overnight, so instead of recommendations, here’s the types to look at and then evaluate based on your current needs.
- Accounting and bookkeeping
- Background checks
- CRM for clients and marketing based on what you actually need to operate vs. all the bells and whistles you may never use
- A website so clients and drivers can find you, check in, update their accounts, and book business
- Vehicle tracking (telematics) and reporting
- Communications with drivers and clients (SMS, apps for phones and tablets, etc.)
- Vehicle health and age so you know when they are due for maintenance or replacement
- Transportation management system (TMS), which is vital for shipping and freight hauling companies
- Route optimization
- Freight broker systems
- Parcel tracking, if you aren’t working with the shipping companies that may have this set up for you
- Live chat and customer support, if you’re a smaller company and need to be on the road driving
Marketing
No two transportation companies are the same, including taxis, chauffeurs, and shippers. Each one can have a different customer base, like one limo company that focuses on corporate accounts, another that specializes in airport and hotel transfers, and a third that does tours and celebrations.
Even when two companies have the same customer base, they can have different selling points and reputations, allowing for different types of customers and price points.
Your marketing strategies should change based on the season, and you can try mixing it up for steady business all year round. Transporting people from assisted living has constant demand, for example.
If your vehicles are able to do this type of work, you can offset slower tourist seasons by picking up these contracts. Getting the contracts is more than filling out an RFP and providing pricing, though. It’s being the provider that the partner company knows has their best interest in mind, and you can prove this with your branding, marketing, and advertising.
Luckily, each type of transportation business has the same starting points for effective marketing campaigns. Here are some of the channels to get you started with marketing your new transportation business. Each can be modified to share why customers should choose you over your competitors.
Limousine, People, and Pet Transportation
- Word of mouth and partnerships (i.e., HR teams, divorce lawyers, past clients, PTAs, and student groups)
- Referral programs with complementary vendors (groomers and pet walkers, florists, hospice counselors) and hospitality companies (hotels, wineries, wedding venues, etc.)
- Google business profile (a free resource that helps provide the details of your company to people who search for your business by name)
- Google or Bing online ads
- Traditional advertising in wedding editions of local magazines, at bus stops, and in publications that go to targeted audiences.
- Advertising on your personal vehicle with a phone number, URL, email, and possibly a QR code
Shipping, Transportation, and Moving Companies
- Traditional advertising in niche publications your customers read
- Social media advertising where you can target by job title for corporate accounts and life events for consumers
- Google business profile (a free resource that helps provide the details of your company to people who search for your business by name)
- Postcards and direct mail using NAICS codes
- Advertising on your personal vehicle with a phone number, URL, email, and possibly a QR code
Starting a transportation company is exciting and now you have the information needed to get yours in motion. And if you are looking for funding, see what QuickBridge can do for you today. Click here to learn more about our transportation business loans.