So You Want to be an Owner Operator

This is an updated version to my posting in 2006 on this topic. I have tried to update the information to be as accurate as I can at the time of this posting. I am not perfect nor do I know everything. This is for informational purposes only. Please no hate mail. To the best of my knowledge the information in this post are factual and it is meant to help those that don't know, the rest is pure humor and I hope that it's taken that way. You might want to join OOIDA. They will be able to provide a lot of help for a new business owner. Go here: OWNER-OPERATOR INDEPENDENT DRIVERS ASSOCIATION - REPRESENTING TRUCKERS No I don’t get a kick back from them.The membership fee is tax deductible.

First, Make sure you have a business plan and enough money, actual cash in the bank. NOT credit cards to cover ALL your expenses including the truck/trailer payments, repairs, maintenance, insurance, fuel and all the expenses at home for 3-6 months, including health insurance unless you wife/ husband/S.O has a job that you are covered under. If you don't have this money in place then stop because you are probably not going to succeed.
Depending on what truck you buy, pricing and the interest rate you pay the payment can be from $1500.00 up to $3500.00 a month, yes that’s before any other expenses. If you are going to buy a trailer that can range from$10,000 up to $150,000. Just depends on what you are going to do with the equipment. Do some serious research and decide what type of trailer and freight you want to haul. Talk to as many people as you can in the industry that you are interested in.
Decide if you have the skill-set, equipment and location to do some of the maintenance yourself. I used to do more ,but now I have Truckworx in Montgomery handle pretty much everything. While it can be expensive, I get a yrs warranty on most repairs, they get me in and out because they ARE my go to when there is a problem. it is all tax delectable. Keep in mind with today's litigation happy society it gives you a layer of protection in the event of an accident or incident. Not to mention they require their mechanics to stay certified. One of the first things that the opposing attorneys ask for are maintenance records. Keep in mind they have specialized equipment that most of us cannot afford to buy or makes no logical sense to buy.
I am not, nor will I ever be a fan of lease purchase plans. The companies have too much control over your revenue. The ONLY way (IMHO) to succeed with a lease purchase make sure they have no prepayment penalty or any wording that can prevent you from getting a loan and paying the lease/purchase off and create an actual loan.
How to do this Keep detailed records of every load, all the expenses, and show your data to the finance company so they can see on paper that you are paying attention to the smallest detail and know what you are doing. Make contacts at the financial companies that you are thinking about using and tell them what and why you are interested in using them for your companies financial needs.

Decide what name your company is going to have and do a search on your state registrar's website to see if some one else has it registered. Pay the registration fee so the name is yours.

I highly recommend becoming incorporated to protect your assets in case of an accident insurance has its limits and once that's gone they look at the owner to pay anything above that. An S corp. or LLC are my choices there. The states of DE or NV are my choices if you don't use your home state simply because they have better laws to protect businesses. This cost about $500.00 depending on who does it. I had a law firm do mine.

You'll need a W-9 and an EIN number from the IRS once you decide your company name and if you are going to incorporate or works as a DBA see link below.

Next you need a DOT number, it doesn't' cost anything you get that here:
https://www.fmcsa.dot.gov/registration
You'll need to print out the form when it prompts you to. This is also where you update your MCS150 each year or anytime you add or change anything during the year. Be sure to get your DOT Pin number and keep it in a safe place.

 

You will need to get insurance before you go any farther than the DOT number, most states now require you to have one in order to get a tag. IF you are new to trucking (new CDL or MC) expect to pay some outrageous insurance premiums. This is where some times it's better to lease to a company and keep your nose clean for 3 yrs at least far as the insurance under-writers see you are a HIGH risk until you are established and have a great safety record.
You will need at least 10% cash as a down payment on the insurance. The cost of that depends on what coverage you have to have on the truck to satisfy the lien holders if any or to repair the truck and or trailer should they be damaged or stolen. The age of the truck and trailer, Do not over insure the equipment as the insurance company doesn't care if you just painted it or dropped a new engine in it market value is all they will pay in most cases What you are going to haul, trailer type, what states you are going to operate in, what's on your driving record will all factor into what the insurance cost. You will need the following coverage: Auto Liability: which covers the truck anything you damage in an accident the minimum is $750,000 with DOT. Then trucking liability, I carry 2,000.000 plus an additional blanket policy for 5,000.000. Some say over kill but I don't. Don't forget non trucking/bobtail coverage. Some shippers require you to carry a General Liability policy of 1,000.000 (the FMCSA requires $750K) which covers what the Auto Liability doesn't. Example: the truck is parked and some one climbs on it or the trailer NOT loading or unloading and they fall, it covers in those cases You can get what they call a umbrella policy which covers what ever the other insurance policies do not, they are very expensive. Don't forget cargo nsurance Everyone is different as to what they require for coverage.

In some states you will have to have Workman's Comp, more and more shippers are requiring it. It's not cheap. I have actual Workman Comp even though in my state I am not required to have it. In some states you have to have over a certain number of employees. I have customers that require it. Some O/O have what they call a 'Ghost Policy” which covers any employees but not the owner. It's a technical work around. My W/C is based on what I pay myself. It was about $5,500 the first year.

You cannot get an ACTIVE MC number with out insurance. MC and DOT numbers are totally different. You can get a DOT number without insurance or even a truck. Your insurance agent will file the MSC 90 form with DOT which is stating that there is blanket coverage on all the vehicles operated under your authority. OOIDA will also do this.
You will also need to decide if you are going to be interstate or intrastate or both at this time. Interstate means you load in one state and deliver into another state, always crossing state lines. Intrastate means you load and unload strictly in one state and never cross state lines, normally your home state. In my state, we have Alabama Public Service commission who grants Intrastate authority ONLY. You cannot apply for it until you have your insurance in place and the receive a copy. Please note that on your application to the APSC the the EXACT name including spelling, punctuation capitalization MUST match anything the insurance company sends them or FMCSA for your authority.
You have to have both type of coverage in order to get your MC number. Which is somewhere around $300.00 and you can do it yourself. There are companies that will do it for a fee. I hate paying someone to do something that I need to know how to do so I understand the process. Everyone is different
Get that here https://www.fmcsa.dot.gov/registration/get-mc-number-authority-operate
UCR is about $37.00 for one truck and is required regardless of your operation authority unless you do not have an active MC number. You can have and active MC number, never leave the state only have what we call county tags and STILL have to pay the $37.00. The upside is it decreases each year.

Get that here UCR

Motor carriers operating in interstate commerce (for hire) are required to register their interstate operating authority with a participating state. The carrier must select as its base state the state in which it maintains its principal place of business, if that state is a participating state. A carrier that maintains its principal place of business outside of a participating state must select the state in which it will operate the largest number of vehicles during the next registration year. After receiving interstate authority from the Federal Motor Carrier Safety Administration and before commencing operations, the carrier selects and contacts the participating state to register its authority for all states of travel. The carrier's initial registration must include:
A completed application (RS-1 and RS-2 forms), guaranteed funds equal to the fees levied by each state of travel for the number of vehicles traveling in those states
A copy of its interstate authority issued by FMCSA
Proof of public liability insurance (BMC 91 or BMC 91X) or surety bond (BMC 91MX)
Designation of process agents for service of process in all states in which the carrier will operate (BOC-3). If you belong to OOIDA they do this for free.

You will have to pay at your local tag office property tax for your county, depending on the age, weight perhaps some states the value of the truck; each state is a little bit different.

Then you have to go to the IRS and pay $550.00 heavy highway use tax Form 2290, everyone pays that every year. If you buy a used truck then the previous owner should provide a copy of that so you don't have to pay it as well. Then you are ready to go to the IFTA/IRP office in your state to get your tag and set up your IFTA account. They will automatically put all the states on there. You will have to file a quarterly mileage report that shows the dates,states, highways and mileage in each state you traveled
Some states like KS, NY, NM, and KY to name a few you will have to get registration numbers or file property taxes. See the links to each at the end of this post.
Decide how you are going to pay for fuel. Any fuel card fees and membership dues you pay such as OOIDA. Stay on top of the fuel taxes! Those must be filed and paid quarterly! I used a company credit card which gives me cash back every month and I do NOT carry a balance from month to month. If you use credit cards learn the bill down date and use their money 45 days free.

Now you and your family need to decide if your family is going to help you or you are on your own. They might not want to get involved. If you are on your own then you'll have to devise a way to get loads and do all the billing, collections, taxes etc yourself. It's better to have some one that can help you, me I do it all. You will have to have discipline.
You need to have some customers, which will be your company's life blood. Be sure to run credit reports on them. Just because they are a business that doesn't mean they pay the bills on time. I prefer to have a contract with them outling payment terms, and detention to name a few.

You can exist working solely with brokers, but remember you are supporting them as well. Also since they only have $75,000 bond to file against if they don't pay you, chances are that you won't get paid unless you are one of the first ones to file against the bond. Never work with a broker that doesn't have a bond. When in doubt call the brokers bonding company. Some brokers only pay 30 days after they have received your invoice and POD so that runs into 45 days or more in most cases. Some of them offer "Quick Pay" for a fee. Some brokers will not work with new carriers(O/O) for the same reason your insurance is high, you don't have enough information in FMCSA Safe Syst. I don’t believe I’d work with a broker who will not provide a true copy of the invoice that they are billing the customer on. You really have no way of knowing how much the load really paid with out that information.

 

There are factoring companies that for a fee will take your billable invoices providing your customer passes their credit check. They take a fee to pay you that day or in X number of days. Similar to Quick pay offered by brokers. Some factoring companies want you to use them for ALL of your customers some will let you decide which customers you want to factor. Some offer No recourse some do not. No recourse means that if the customer doesn’t pay them then they cannot come back on you for the mosey they have already paid you. Keep in mind that you are sharing YOUR hard earned customer data base with some one that may also own a trucking company. Be sure that there is a clause that keeps them from back-dooring your customers. Which is the same thing that many brokers have in their contract.
You need to have a safety program, a drug testing program in place. Owner Operators have to go by the same rules and regulations that all companies do as well as the regulations pertaining to drivers. This means that you have to fill out an employment application just like a driver, and have a current DOT physical. I used OOIDA for my drug testing as well. (This post is starting to sound like an ad for OOIDA)

Now all that's done you need to set up the books, and keep track of everything and file your quarterly estimated tax returns.
So in summation here's how it works: Figure out your company name, decide if you are going to incorporate or run a DBA or sole proprietor register it with the state of your choice, if you so desire. Get a DUNs number again, if you desire..
Get your DOT number, free, get the insurance lined up between $5,000-12,000.00 as a down payment and get it paid, get your MC number $300.00 this takes from a week to a month depending on how busy they are and how you do it. Pay the UCR fee. Pay the property tax in your county, and then pay the IRS form 2290 tax, $550.00 at the IRS. Get your EIN from the IRS. Go to your IRP/IFTA office, set up both the IFC and IRP account, and pay for the tag between $1200.00 and 2,000.00 depending on the states you will operate in. Be sure to take a copy of the paid 2290 to get the tag. Contact the states in the links below to see what you need to do with each one and pay their fees.
I'm sure I missed some things but this is the best that I can do.

Now on the other hand say you get all that done and survived. Your family hasn't disowned you, moved away while you were gone. Whew, that last phone call to home had you wondering. You've finally managed to get home without skid marks on your underwear when there was no tissue in the bathroom, because you used your underwear to handle that problem. Then what time you have left because you now "own" the company is spent fielding the telephone calls from irate four wheelers that "your dangerous driver" caused some silly offense to, catching up on all the regulations that changed when you weren't looking ,doing all the various state's paperwork, pay all the bills, invoicing out/mailing all the billing, the collections, the repairs on the truck and trailer as well as your chores around the house you might have a couple of hours to spend with your family, keeping in mind that shippers and brokers have no respect for family time and your cell phone will ring until you throw it in the garbage. That is if you were crazy enough to give that to them and leave it turned on. Congratulations! You are now the owner of your own trucking company!
Until next time, Happy Trails
NightWind.

IRS
Employer ID Numbers | Internal Revenue Service
Kentucky
Home | KYTC
Kansas
Kansas Department of Revenue Division of Vehicles - Commercial Motor Vehicles (CMV)

New Mexico
Commercial Vehicles | Motor Vehicle Division NM
New York
Commercial vehicle registration fees, vehicle use taxes and supplemental fees