Owning your own business is the ultimate realization of the American Dream and provides an incredible sense of accomplishment. And if you aren’t an owner-operator, maybe you run a trucking company. This too is something to be proud of. However, managing a company and ensuring you make a profit isn’t always easy. Have you considered how you will manage your budget?
You can always judge a trucking company by how it manages its money. In fact, creating and maintaining a workable budget is a big factor when it comes to managing a trucking fleet. How well a fleet manager can control, or lower costs will determine how well the trucking company they work for performs. And while setting up a fleet management budget is not fun, it is necessary.
The Benefits of Setting Up and Following a Budget
But why do you need a fleet management budget? Well, for starters it helps trucking companies set financial targets for their operations. But also helps them figure out areas they need to improve upon and sets the state for company growth. The best way to do it is to follow a simple plan.
Quite simply, budgeting is the most effective tool for managing money both in business and in other aspects of our lives. As an owner-operator or trucking company CEO, budgeting helps you create a roadmap on where your money is being spent and how it is allocated. How well you budget your money can mean the difference between an operating profit and a loss.
Although setting up and managing a budget requires effort, in the long run it will reduce stress and allow your business to function without fear of running out of cash. It is critical you ensure your cash flow remains positive and budgeting your finances will ensure you can do that. Budgeting provides an overall view and a detailed analysis of your money situation. It will also provide insight into what categories of spending are superfluous and can be managed or removed entirely. Let’s start with a look at your fleet management costs.
Evaluate Your Fleet Costs
Fleet costs are also known as total cost of ownership costs. They include the various costs associated with buying and maintaining a fleet of vehicles, no matter the size. Many fleet managers overlook TCO when they go through the procurement process, which leads to spending more money than is necessary.
Your total cost of ownership should include the cost of each vehicle, including the taxes and fees. You will also need to consider the return value of your fleet vehicles when you decide to sell or scrap them. Finally, consider all the maintenance and repair costs you will accrue over the lifetime of the vehicle.
Fortunately, trucking companies can use comprehensive fleet management techniques to reduce overall costs. You can do this through comprehensive evaluation of vehicle and truck driver performance. When you consider how you can reduce these costs, consider breaking out overall business costs, reducing risk to save on insurance, create maintenance schedules, and monitor vehicle idling and fuel consumption.
You must look closely at the operational patterns of your fleet to determine how you can properly mitigate costs. Using fleet management systems and strategies, you can determine what future spending will be and track unexpected activity.
Setting Goals and a Budget
Don’t overthink your fleet budget. Building a fleet management budget does not need to be a hugely complicated process. Simply combine fleet data and operational insights to outline your business expenses for the next year. First, set your goals for the year, then review last year’s expenses. This will let you set a forecast for the upcoming year. And finally, you’ll be able to track your results against your budget.
You need to write a budget that aligns with your company’s goals. This way you can turn your budget into a useful tool. Consider using the SWOT analysis to set your goals. You can use a SWOT analysis as a tool for identifying the strength and weaknesses of your trucking company, as well as threats and opportunities.
You may also want to consider adding electric vehicles (EV) into your fleet. This will not only help you keep up with your competitors, but it will also reduce fuel costs and meet your company’s sustainability goals. In the end, your goal should be to construct a fleet management plan that accounts for any changes or unexpected events. The goals you set will create the foundation for your budget.
How to Properly Review Your Expenses
Gathering information on last year’s costs will help guide you as you create a new budget. For example, if fuel expenses were much higher than you were expecting, you may want to introduce a comprehensive truck driver coaching program to reduce idling and needles speeding.
You also want to ask yourself how much you over or underspent in the last year. And where were your largest expenses? Is there a way to pare them back? You also want to have a look at areas of the fleet that were underutilized and could be better optimized. Did you have any unexpected expenses? Did you already attempt to cut costs, how did you do so, and were they successful?
These kinds of questions can help shape the future of your fleet. They can also provide good reference points to look back on throughout the year to make sure your budget stays aligned. You must be able to properly gauge past performance to help you determine future performance.
Top Tips for Financial Forecasting
You can rely on different budgeting techniques when preparing a budget. One way some trucking companies do it is through incremental budgeting. Incremental budgeting uses a flat increase over the previous year’s expenses. This is a fast way of completing your budget, but it is not without its flaws.
Utilizing a flat increase method doesn’t consider whether the previous year’s spending was necessary or appropriate. It is more of a blanket solution that doesn’t use data analysis. It also doesn’t give managers and others within the company any reason to cut costs. In the end, an incremental budget method might actually promote increased spending, as opposed to less.
Instead, consider a zero-based budgeting approach, which is more rigorous and thorough. When you utilize a zero-based budget approach, every item in the budget must be justified to zero. Even though this process is more time-consuming, it helps develop a better culture of cost-management and ensures you will meet your financial goals year after year.
Consider the following items in your budget:
- Maintenance
- Fuel
- Licenses
- Taxes
- Fees
- Insurance
- Accidents
- Leasing
- Interest
- Safety
Properly Track Your Progress
After you have set your goals, reflected on previous years costs and financial performance, and set your plan for the upcoming year, you must make sure everything is coordinated and in alignment. Make sure you regularly check your fleet’s metrics against the goals you set. Benchmarking is important.
One example of this could be in how you measure fleet productivity and downtime. These are critical factors to ensuring you don’t incur unnecessary expenses. If you find that costs are rising, don’t be afraid to introduce new solutions, programs, or policies to get budgeting back on track.
As with any goals, make sure you regularly check your expenses against your planned budget. This will ensure you stay on track throughout the year. You may also want to consider benchmarking your budget against those of comparable fleets, as that may also provide additional insight.
Utilize a Telematics Solution to Your Benefit
No matter the size of your fleet, you need to be budgeting. A well-defined budget will ensure you stay financially viable and provide excellent service to your customers. Utilizing a comprehensive telematics solution is one way to do this.
Telematics solutions are especially useful to fleet managers as they go through the budgeting process. Managers can use the data provided by the telematics solution to find opportunities for greater cost savings. Then, once the budget is set, fleet managers control the costs by using the telematics solution to monitor fuel consumption, optimize routes, and manage vehicle maintenance. Telematics is especially useful for the budgeting process. Managers can use data insights to identify new opportunities for cost savings. Once the budget is set, fleet managers can control costs by using telematics to monitor fuel consumption, optimize routes and proactively manage vehicle maintenance.