QuestionQUESTION: Hey Jim,
I am looking at ways to increase and maintain the solvency of my start up LTL (I am still in the planning stages) and I was wondering if factoring invoices is a wise or prudent way to keep cashflow up? I am estimating 18k in monthly revenue and expenses of about 8k. I don't want to run out of working capital before I run out of month (LOL). How long does it typically take to get paid on an invoice? This business will start up with minimal capitalization so waiting 30 to 60 days to get paid may not be an option.
Thanks in advance for your help
ANSWER: Sheldon, I don't know your business plan or operating model, but LTL is a challenging low margin business unless you have good lane density in your service area. Having said that, factoring can be some of the most expensive capital you can find. It's just a loan against your receivables. To find out all of the terms including interest rates contact several factoring companies for their terms. If it's a question of solvency or meeting payroll it may be the last resort but I would not recommend that as part of your business model. It's not guaranteed money, if the shipper defaults you will have to pay the factoring company back plus interest. As quickly as you can establish a good credit rating with your bank you should establish a line of credit that will get you through any short term cash needs. Best bet is to operate as lean as you can in the start up to build a cash reserve as soon as possible. The cheapest cash is the balance in your account. Best of luck.
Jim.
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QUESTION: Jim,
Thanks so much for your response.
Good to know about factoring; I'll see what can be worked out with the bank.
In a nutshell my business plan is pretty straight forward. I will be running a one ton truck(cab/chassis)with a 34-36 ft flatbed. Operating costs run about .78/mile (this includes fuel, maintenance, truck note and insurance). I will have my C.D.L. B; loads hauled will be up to 18k# in a 700-1400 mile radius initially. I am looking for loads that pay 1.10 -2.10 /mile loaded. My strategy is to work an area with a lot of traffic based on information I gather and to always have a backhaul pre-arranged whenever possible before starting the run. Every time the truck moves it needs to be making money loaded. Dead head miles need to be managed to less than 30% of the total loaded miles for any given month. Authority, DOT tags and fuel taxes are being set up. Business will be generated by marketing to local shippers and through load boards like getloaded.com. My goal is to drive 10k miles a month which should generate about 15k/month gross revenue.Expenses are estimated at about 9600/month. I am hoping to net out about 3-4k/month after expenses. Does this sound overly ambitious? How much start up capital would you estimate would be needed for and operation like this? How long would it be before the first invoices to shippers were paid and in the bank ?? How much cash would I need to stay solvent until the company gets paid?; and how long does it take for a shipper to pay the invoice on average?
Thanks in advance for your answer.
ANSWER: Sheldon, you know your market better than me, but doesn't a flatbed limit the type of freight you can handle? I would think a closed van would provide more opportunities, but then you may have less competition by specializing in flatbed work. Your plan sounds good if you can market and get enough business at your target rates.
You might look at aligning yourself with an expediter for some of your business. Check these sites:
http://www.expeditersonline.com/
http://www.expresstrucking.com/index.html
Shippers payment times unfortunately seem to be getting longer which creates the dilemma for continuous business; how much credit to extend if they keep offering loads but don't pay timely. If it's a small company sometimes you can just tell them you are operating lean and need to collect their bills to offer the best rates and service. I would ask for 15 days terms but expect them to ask for 30 and pay in 45. Just to be safe I would have a reserve to keep running for 60 days before the getting paid. Some will trickle in sooner but if a big account holds out, and they will have every excuse in the book, you still wnat to keep operating.
Best of luck. Hope it works out.
Jim.
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QUESTION: Jim,
Thanks so much for your response, it is really appreciated.
It is very helpful to get the opinion of someone who has been in the business and knows how it works.
Looks like I'll need 60 to 90 days working capital to stay afloat in the beginning.
Regarding the flatbed vs closed van:
Wow! I never considered a closed van ( a trailer van right?)
I always thought a flatbed was the way to go ...do you think the closed van would be more versatile than a flatbed? It seemed to me that there are more flatbed loads available on these load boards than van loads. My strategy is to start out with a flatbed and eventually buy a van or reefer and/or modify a van into a reefer if possible. The flatbed I thought would be more universal with more types of loads than anything else. It would be easier to load and unload, carry odd shaped loads and carry multiple smaller loads. Would you agree? I'm just looking for the right start up solution. Do you think aligning myself with an expediter for some of my business and relying on load boards for a majority of the loads is a wise strategy?
Can you work for an expediter on a load by load basis or do they prefer a dedicated truck? Can you refuse loads with the, if you are already loaded?
AnswerSheldon, I think you will find most of the van loads on the load boards are going to require at lease a 48' flatbed trailer not a 1 ton truck. The smaller straight trucks are better suited for the expediter market whether flatbed or box van. With a 24' box van you could so a lot on your own or with an expedite company. I'm not sure but don't think you would need to sign elusively with one as long as you have your own operating authority. Another possibility is doing last mile delivery work for long haul LTL carriers. This is where a hydraulic lift gate would be useful as you find that you could specialize in residential or job site deliveries. Also depending on your geographic location you might find an under served niche lane. For example you could act as a cartage agent to a long haul carrier to the Florida Keys, or island towns in the Pacific Northwest or New England, or perhaps service Indian reservations, or remote mountain towns. Any place that the big boys don't want to go. It really just depends on what you want to do and what the market is for that service, so whatever you decide do some market research by asking around and making some phone calls. With regard to refusing a load there are contractual obligations and business decisions to consider. If you are legally contracted to guarantee capacity you don't have muck choice, but typically any type of load board or brokered load is accept/reject at your option. The business decision is how much freight does the shipper control and will they stop calling if you refuse the load. that's a case by case decision.
Best of luck. Jim
