What is Break Even?
BeP or Break Even Points are at the very core of what determines success for your business; they determine one of the most basic aspects of a trucking business – the hauling rate. The reason why so many trucking firms fail is because they don’t factor in operational costs when establish hauling rates.
So, the next time you’re figuring out the math, take a good look at these components that make up the BeP.
Operational expenses: These are the basic expenses you need to make in order to keep the business running. Operational expenses typically include repairs, vehicle parts, and maintenance. The best way to calculate this expense is by using the cost per mile approach. You will also need to amortize the cost of repairs according to expected life of the repair. Once you have the total operational cost for each truck, divide it by the miles on the odometer to get the cost per mile figure.
Fuel expenses:
Fuel costs keep changing and therefore, need to be calculated on a change to change basis. This is done by taking a predetermined figure for distance and dividing it by each truck’s mileage per gallon of fuel. You will know how many gallons of fuel you’ll need. Then, multiply this with the current cost of fuel (per liter) and divide the result (total cost of fuel for established distance) by established distance.
Labor:
The expenses incurred as payment for your drivers. This will have to be calculated per hour or per mile. If it is according to distance, don’t forget to factor in benefits.
Load-specific expenses: These are costs associated with particular loads; costs that don’t appear with a typical load. Could include toll, pilot fees or permit fees.
Fixed expenses:
These are expenses that need to be paid regardless of whether or not you’re taking up orders. This includes utilities, salaries, office rent, loan payments, factoring fees, and so on. It also includes a critical cost that most trucking operators forget – the payment for the people who own the business.
These are the key components to look at when establishing your hauling rates and thereafter, your BeP. BeP is what allows your business to continue. It is never the profit you make, as is often misunderstood. Profit is what helps you stay in business during hard times and expand during the better times. BeP, on the other hand, determines your immediate status.
What Next?
Once all this is covered, then you need to address cashflow. When will you get paid and will you have it in time to cover your expenses? The truth is you can go broke while still making a profit and this is where debtor factoring or cash flow factoring comes in.
By using invoice factoring or receivables finance you can convert your unpaid freight notes or freight invoices into liquid capital within 24 – 48 hours and that way you will have the cash available to pay your expenses as and when they need to be paid.
