Top Three Reasons Trucking Companies Go Bankrupt

Lack of Capital

Small businesses have to be lean, efficient, and strategic about their spending. When margins are tight, making ends meet can be a persistent struggle. And when, for trucking companies, some costs have to be paid upfront to move goods from point A to point B, covering those expenses can create additional financial strain. Natural disasters, accidents, or other unpredictable events can also create a unique set of challenges and unexpected costs.

In addition to the larger elements impacting the revenue cycle, trucking companies must also contend with payment structures, like 30/60/90 day returns, that make it difficult to find the funds needed to cover the next shipment before payment is received. 

Inability to Adapt to Change

For the trucking industry, change is the norm. New or updated regulations can impact operations (and revenue). New required technologies, like electronic logging, can be costly to implement. In addition, one small shift in gas prices can trigger a cascade of other consequences, and even wipe out a quarter’s – or year’s – worth of profit. 

The continued challenge of labor shortages means companies must be proactive not just with hiring, but with maintaining their existing workforce. The current economic upswing means a higher demand for goods, which triggers the need for more trucks to deliver those goods. Ironically, because a healthy economy brings with it a lower unemployment rate, trucking companies are finding it difficult to lure new drivers. Wages continue to rise – as much as 10% in a year – but the supply of qualified drivers remains stagnant. According to Bob Costello, chief economist at the American Trucking Associations, there was a shortage of 51,000 truck drivers at the end of last year, up from 36,000 in 2016.

“It’s as bad as it’s ever been,” he recently told the Washington Post. “Companies are doing everything they can to make drivers happy: increasing pay and getting them home more often, but that means they aren’t driving as many miles.”

Not Clearly Understanding the Marketplace

In the face of change and unpredictability, it can be difficult to stay the course. Sometimes, companies themselves create roadblocks to profitability by not clearly understanding the marketplace, which can mean anything from failing to stand out from the competition, to using outdated or inaccurate pricing models, or focusing on the wrong customer base. 

Seasonal peaks and valleys, weather delays, and other cyclical factors can also impact cash flow, requiring successful companies to economize when times are tough and save during times of bounty. 

Options and Opportunities

All businesses contend with the delicate balance of operational costs and revenue opportunities. With small businesses failing at a rate of about 50% within their first four years, each quarter that passes in the red increases the pressure. 

Thankfully, there are several solutions and opportunities for trucking companies to whether economic storms and grow their business. Electric vehicles will eliminate some of the issues associated with fuel costs, which the US Energy Department predicts will slightly stabilize (but still be higher than average) in 2019. Technological advances can help create some efficiencies in maintenance and operations, while also helping to streamline driver training and hiring. Finally, the recent tax bill could free up funds and prompt more investment in equipment while also allowing companies to increase wages and their roster of qualified drivers.

As well, many funding options are available for trucking companies in need. For example, bank loans and lines of credit can increase access to capital, as can alternative funding. Alternative financing, known as “factoring,” also allows trucking companies to find solutions to help meet payroll demands, pay for fuel advances, or seize an opportunity for future growth. Instead of waiting for current customers to pay, alternative financing provides the resources to capture new clients and plan for future possibilities. Taking the time to understand the various financing options can play a huge part in a company’s financial survival.

For more information about factoring, please see Factoring Basics, or call us at 1.915-859-8900.

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