Most modern truck drivers work for a company, but for a select few, the lure of independence is too hard to resist. So which route is right for you? Answering that question will require a careful evaluation of your finances and skill set.
Below, we’ll help you understand how to become an owner operator and answer some of the most common questions we hear from those who are interested in jumping into the industry.
How Does Owner Operator Trucking Work?
As an owner operator, you’ll basically be running a small business, with all of the benefits and challenges that come with it. But there are some unique aspects to being an owner operator that you should know about, which we’ll explain in detail below.
What Is an Owner Operator?
An owner operator is a self-employed truck driver. This means that they either own or lease all their own trucks and equipment. Generally, owner operators drive a single rig, though some owner operators own or lease multiple trucks and employ other drivers.
What Does an Owner Operator Do?
Rather than working for a parent company, owner operators contract directly with shipping clients. The owner operator then transports the goods for the client just as he or she would when working for a company.
What Are the Requirements to Become an Owner Operator?
What is an owner operator required to do? Owner operators must meet several requirements, including:
- Registering for a USDOT number ($300 fee)
- Paying the heavy vehicle use tax ($100 to $550, depending on weight)
- Obtaining intrastate licensing through State Driver Licensing Agency (SDLA)
- Displaying fuel credentials under International Fuel Agreement (IFTA)
- Carrying a photocopy of their IFTA license
Many owner-operators will also need to obtain an MC Number in order to shop regulated commodities. The FMCSA website can provide guidance about whether you’ll need an MC Number in addition to a USDOT sticker.
Benefits of Being an Owner Operator
Being an owner operator has significant upsides, including:
- Ability to Control Your Own Income: Owner operators have to navigate industry trends to obtain favorable contracts, but those that do can earn appreciably more than industry peers that are anchored to a trucking company.
- Be Your Own Boss: Owner operators have total freedom, provided that they fulfill their contracts. No more fighting for bonuses, insurance, or permission for family members or pets to ride along.
- Drive Your Preferred Vehicle: Owner operators can purchase or lease the vehicle of their choice, instead of using a vehicle owned by a company.
Owner operators might not see every benefit immediately, but with time and dedication, they can expect to see their business flourish.
8 Steps to Become an Owner Operator
Wondering how to become an owner operator? The following eight steps can serve as a guide:
Step 1: Evaluate to Decide If This is What You Want
Success as an owner operator won’t happen overnight. In the early stages, you might be faced with long hours on the road, as well as the burden of paying for your own insurance and equipment.
These demands can be taxing for those who have families or other financial debts. But if you have experience and understand the industry, you may be able to endure these initial challenges to pursue a meaningful career.
Step 2: Obtain Your Commercial Driver’s License (CDL)
Obtaining a Commercial Driver’s License (CDL) is a bit more involved than a standard driver’s license, but the process is straightforward:
- Pass a physical exam
- Determine your license type (typically Class A)
- Pass a knowledge test
- Obtain CDL permit
- Pass a CDL skills test
While you can study independently, many drivers opt to attend a trucking school that can provide both education and guidance.
Step 3: Prepare Your Finances
We’ve already noted that owner operators have to shoulder a few extra financial burdens compared to their peers. These include:
- Education costs
- Cost of rig and equipment
- Health insurance
- Taxes and fees
Like any entrepreneur, owner operators should carefully map out their futures and have a plan for covering expenses.
Step 4: Form Your Business Plan
You’ll actually need a business plan before you can even apply for your USDOT number. To create a business plan, you’ll need to do the following:
- Determine whether your business name is available by searching your state’s secretary of state website
- Decide upon your business structure (most owner operators are structured as sole proprietorships or LLCs)
- Determine what your marketing strategy is going to be
- Identify your goals and milestones
- Create a financial plan for the next five years
If you intend to hire employees, you’ll want to structure your business as a corporation for tax purposes.
Step 5: Purchase the Truck & Required Equipment
Owner operators can buy their trucks outright, though you’ll also have to put down a sizable down payment and then pay the balance over time.
Leasing a vehicle is a cheaper option, but you won’t own the vehicle outright. Over time, your lease payments could be more expensive than buying a vehicle outright. You’ll also need to purchase related equipment, such as an FMCSA-compliant electronic logging device.
Step 6: Obtain Truck Insurance
The FMCSA requires general freight carriers to have $750,000 in liability coverage, but most shippers and freight brokers require $1 million in coverage. Many owner operators also purchase other kinds of insurance, including:
- Cargo insurance
- Personal property insurance
- Roadside breakdown coverage
The cost of these policies is another reason to create a clear financial plan so that your trucking business can cover these overhead costs.
Step 7: Understand & Follow the Profit Ratio
Financial experts say you have a healthy business if your profit margin is between 10% and 20%. How do you calculate your profit ratio?
- Determine your net profit by subtracting income from expenses
- Divide your net profit by your total revenue
For example, if your company earned $1,000 but your expenses were $800, you will have made $200 in net profit. This means that your profit margin is 20% ($200/$1000). Maintaining this profit ratio should be a major goal throughout the life of your company.
Step 8: Manage Your Finances
You don’t have to hire an accountant, but you’ll need to stay on top of your books. Using a simple spreadsheet can help with this.
Staying on top of your finances can provide a clear picture of the health of your company. Maintaining the books will save you time and a headache during tax season and shield you from audits or penalties.
Owner Operators in the Modern Industry
Owner operators enjoy considerable freedom, but there are also challenges in this competitive industry. Many owner operators survive by leveraging their existing assets and invoices to bridge a gap or take advantage of seasonal business opportunities.
Find a trustworthy factoring company that can help by offering invoice factoring and asset-based lending, so you can manage your assets and continue to thrive wherever the road takes you.
FAQ
No experience is necessary, but most owner operators strike out on their own after three to five years of working for another company. This provides a good “feel” for the industry, increasing the chances of financial success.
How much does an owner operator make? According to employment website Indeed.com, independent truck drivers make an average of $301,032 per year. However, these salaries change rapidly, as the industry is impacted by the pandemic and ongoing instability within the shipping industry.
Persistence is key. Owner operators can’t expect to generate huge profits right away. Through planning and discipline, an owner operator can turn a dream into a rewarding career.
