In 2014 I started a trucking company while working full time as a Valuation Associate at a Mergers and Acquisitions (M&A) firm. The company posted first year (2014) revenue of $293,278.78 and EBITDA of $26,589.82. I invested no personal money (to start), had no credit history, no industry experience, and no clue if it would work out. You can read the full first year story here.
Personal background update: I am now 24 years old. I graduated from a US university with a BBA in Finance and Real Estate in 2012; in 2013 I graduated with an MBA in the same fields. In 2014 I started full time in M&A and still hold that position. My role with the firm is primarily to draft the documents that are required to sell a business (OM, CIM); for business owners and new entrepreneurs, these documents are extremely similar to pitch books that would be required to solicit investors. As of today, I have worked with 61 entrepreneurs with a combined market value on all personal deals of approximately $420,000,000. If you have questions regarding writing or drafting these documents, please feel free to post them as well.
The previous post ended with my company in a tough position. We entered Winter of 2014 very boldly, purchasing equipment that would end up being a heavy burden to bear during our slow season and a very expensive lesson to learn. At the close of the post, we were just starting to see an increase in demand and business was finally starting to look worthwhile.
Q1, January 2015 to March 2015
Q1 had total revenues of $122,515.86. At the time, I was operating 5 pieces of equipment (owned) and 1 lease trucks (I/O’s). As discussed in my original post, an I/O is someone who owns their own equipment and runs routes I provide them. In exchange, the I/O pays me a commission on total gross income. Excluding these trucks and looking only at my equipment, I had gross income of $113,458.17 for an average of $7,563.88 per truck, per month; this works out to a pitiful average of $1,745.51 gross per truck, per week. Needless to say, our situation was quickly becoming dismal and it was entirely out of my control. It wouldn’t be until weather conditions improved that I would be able to land the contracts needed to keep equipment on the road.
However, there is more than one positive that comes from what was nothing short of a traumatizing experience. First, I learned the importance of cash and conservatism. I work with business owners on a daily basis. The most successful businesses almost invariably have overly large cash positions to provide the flexibility required to adjust to demand. Many entrepreneurs, including myself, fall into a trap where they start to believe they’ve hit a home run with no end to the possibilities. “Look at how much I’m making now.. but can you imagine how much I’d be making if I bought this extra equipment?” Second to that, but equally important, I found myself cornered and in a position where something had to happen. I had to get away from the seasonality of the industry I was in. *”How can I take the equipment that I have and put it to use?” One of my favorite quotes, “Necessity is the mother of invention”, fits perfectly into this story. At the beginning of Q2 I began talking to my dad about what we could do to keep the trucks running. Almost in passing, he mentioned a family friend of ours used to work in the industry as a truck dispatcher/broker and that it may be worth calling him. The lead panned out and for the next 4.5 months I built the financial model required to submit bids and eventually land work (to be discussed later).
Q2, April 2015 to June 2015
At the beginning of Q2 I had an extremely strained cash position and I was in over $30,000 in credit card debt to my father. However, work was picking up rapidly and at this point everyone was too balls deep into the success of the operation that there was zero opportunity to pull out. In Q2 we posted total revenue of $149,645.34, a modest improvement over Q1. However, prior to June of 2015 we had an average monthly revenue of $41,545.05; we posted $64,435.93 in June, a 55.1% increase. There were no adjustments to the business and I did nothing to merit the increase, other than persevere. My equipment works in highway construction. As the rains slowed in May the ground dried up; when the weather is dry construction in Texas hits full swing. Without weather delays, we we’re running full steam ahead and had more work for our equipment than we could reasonably handle.
Q3, July 2015 to September 2015
At this point in the year we were in a strong cash position, but still carried heavy amounts of debt. In Q3 we posted revenues of $254,416.35, setting a record for both sales and profitability. For comparison, in Q1 we averaged $1,342.20 in profit per week; Q2 we averaged $222.76 in profit per week (registration, insurance down payment, and huge repair); Q3 we averaged $3,419.34 in profit per week.
The key differences for Q3 were a combination of management decisions and being in peak demand season. Prior to Q3, I owned 5 trucks but operated only 4 and used the 5th as a spare. Started in Q3, I decided that this business model wasn’t working and that all equipment needed to be on the road, regardless of reliability. Our 5th truck was a 1990 Peterbilt 379 and is literally older than I am. It is a safe truck and is compliant with all safety standards, but it is old. It had high repair costs as a percentage of sales and putting it on the road was extremely risky. At any point, if the truck were to blow the motor or drop the transmission, I’m looking at $8,000 to $15,000 in repair costs that I simply can’t afford. Unfortunately, I also couldn’t afford to have it sitting and being that only one of the options was certain to lose money I decided to put the truck on the road. In addition, I added another I/O to increase “free” cash flow by taking a risk free 6% commission. Finally, and most importantly, the relationship that I pursued in Q1 paid off in the form of another customer.
In Q3 my business relationship with the family friend went from theory to reality. For months he had been working an angle on a long-term relationship that he had. The Company in question ran Van freight to regional hubs and was extremely frustrated with the service that they were being provided by another carrier. Most notably, the carrier in question would deliver loads late, use the customers trailer to book additional runs, and would complain if their dispatch wasn’t the optimal lane profit wise. Knowing this, I prepared a pitch that I knew would absolutely blow them out of the water. I knew what lanes were offered, so I told the customer exactly what I would need and exactly what I could give them. I let them know the minimum gross that I needed the truck to earn for me to come over, but that if we could hit those figures I would bring them a brand new truck, on-time delivery, and as much customer service as they could handle.
They agreed in August of 2015 and I sent them my best truck on a trial run with them. For four weeks we achieved sub-par results. While I was assured I would have over $3,000 in gross per week, I was actually averaging just $1,300. Sometime around September 1st I let the customer know that I would be unable to continue hauling for them unless my workload increase. They response was that they didn’t want to lose me and would be booking me more freight. As a sign of good faith, I went and secured a rental contract on a 2015 Kenworth T680. I showed up with it the second week of September and by week 3 I was up to $2,700 in revenue. I averaged $3,054.65 from that point to the end of the year (my slowest revenue period, historically).
Q4, October 2015 to December 2015
As of Q4 we were sitting on a very strong cash position (still with significant debt), but we were certain that as a worst case we would be able to park the equipment, survive the winter, and start back in Q2 2016 where demand was strong again. We posted Q4 revenue of $207,296.79 and had a record month in October, with $96,110.47 in revenue.
In 2014 the weather turned in December, so for 2015 we were expecting the same. However, this year the weather turned even earlier. In November 2015 we posted our 3rd lowest revenue of the year ($38,622.32). Unlike 2014, we were not struggling. We had prepared all year for the eventuality and hoarded cash. We were flirting with the idea of parking before the weather randomly cleared in December, allowing us to post $72,564 in revenue (our 4th highest of 2015). This was possible mostly because of my new customer relationship, whose busy season is around the holidays. During this time, they pulled 2 trucks from me for a total of $19,800 in revenue for December. Not only was the revenue useful, but when they pulled the additional truck I was able to reduce my supply to my original customer, allowing be to meet their requirements without overfilling them. This adjustment means that I was better able to keep the equipment I had working.
2015 Summary
2015 was not a sexy year, it was recovery. My decisions placed us in a precarious position in 2014 that I did not want to repeat. I spent the entire year working towards revenue diversification and improving my cash balance. While I knew that 2015 would likely be a “waste”, at least in the context of growing my asset base, I also knew that a financially sound 2015 would mean a higher probability that I could maximize 2016.
Bonus: Q1, January 2016 to March 2016
In Q1 2016 I had returned the extremely expensive rental truck and was facilitating my Van customer with my equipment. This placed strain on the relationship, because right when my equipment was added everything started breaking. However, this was mitigated by the fact that I made it very clear that I was willing to do whatever it takes to ensure his loads were delivered. When I had a truck go down, I immediately had another one going to pick up the load and ensure it was delivered. What would normally be a horrible situation actually improved my standing with the customer. While it was very frustrating for him that my truck went down, his confidence in us as a carrier skyrocketed (from my perspective) when he saw the lengths that I would go to to ensure a load was delivered. The result was that he cut the other carrier entirely and let us know that we would be the primary outside carrier along with one other company. We finished Q1 performing a total of $59,466.27 in revenue with this customer and were well on our way to establishing the diversification I was seeking.
We earned Q1 revenues of $149,345.84 from our core business. With essentially the same equipment, we went from $122,515.86 in Q1 2015 revenue to $211,719.00 in Q1 2016 revenue, a 72.8% increase!
2016: Key Business Changes, Current Strategy, and Overall Projections
Key Business Changes
In Fall 2015 I was pursued by a local mechanic who was looking to further establish his independent mechanic operation. I was extremely hesitant to bring in an outside mechanic to perform the work that my father and I had previously been responsible for; but, I was quickly finding myself reaching burnout and could tell that holding onto that responsibility was actually hurting the up-time of the equipment. The mechanic in question was relatively young (30’s), extremely knowledgeable and, above all else, he was hungry. I loved that he had the same mentality I did, that he was clearly willing to do whatever it took to succeed, and that he understood that uptime is everything in our industry. In a somewhat difficult decision, I decided to partner with him, agreeing to send him 100% of my non-critical repair work and allowing him to pick up my tire account. At the time, he was working by himself. He worked hard to impress me and we immediately saw results.
My gut instinct was that our costs would skyrocket in a time of low demand, but the opposite was true. While our repair expenses did increase nominally, they actually stayed even as a percentage of sales because of how quickly he was able to get the equipment back on the road. Previously, if a truck went down I would have to send it to my fathers place for the day for a night repair. If it needed a part, it would have to sit another day while we waited for the part. Then, if it was a major repair, we would need to sit it another day so we had time to finish the repair in the evenings. The result was 3-4 days downtime on major repairs and 1-2 days downtime on anything minor. After partnering with the mechanic, we found that minor repairs would cost us only 2-3 hours of run time (allowing the truck to keep working that day) and that major repairs would usually take 1-2 days. Putting dollars to the example, if each truck grosses $850 a day we net about $460 after paying the driver and fuel. Each day the truck sits we were missing out on $460 in money to pay bills. We were saving around $1,000 per repair on all repairs, major and minor alike, because of the uptime increase. More than that, I didn’t have to keep doing mechanic work!
Following the same theme, it’s in Q1 that I started doing hard analysis on our uptime. I always had a gut feeling that it was horrible, but I didn’t necessarily have the data needed to know why it was horrible. I didn’t even live in the same city to be able to take a close look, I still had a full time job. Was it weather? Driver issues? Repairs? No matter what it was, I knew that it could be improved. As it turns out, I found out that we were earning a pitiful $500 per week, per truck, in revenue… Excluding weather days! If I assumed that 20% of work days were a wash due to weather, we were earning just above half of what I thought we should be earning. But, how do I fix a problem that I am not there to see?
After extensive debate, I came to the conclusion that I can’t fix what I can’t see. Almost everyone in my life has been pushing me to quit my current job and run the trucks full time; but, that has never been logical to me. I do very well at my current job, so as long as I can hire someone to do just as good of job for me, and be able to hire them for less than my salary, then it only makes sense for me to hire them and keep my job. I began building a model and was able to show that if I simply improved our performance to the minimum standard that should be met then we’d increase revenue from $124,000 per truck to almost $150,000 per truck. This increase would come with a steep increase to margins due to the increased efficiency, easily justifying paying for a GM. Not only that, but we are currently pursuing no outside sales. We are in a strong cash position, able to purchase equipment to meet demand, have many I/O’s interested in running for us, but I have no way to make the calls/visits required to land additional contracts.
At the end of Q1 I put in an offer to the family friend that founded the growing Van freight division. I offered him a base salary plus a hefty commission on outside work. In addition, while previously my drivers were all 1099 contract labor, I decided to make the transition and convert everyone to W2 employees. The changes mean that I will be able to put someone on site to track when trucks are starting work, what drivers are meeting their quotas, what drivers aren’t (and why), and I’d gain someone who would be able to dedicate time to finding additional routes for my equipment.
I made the offer and he put in a contingent acceptance. He has a family, a steady job, and said that he wanted to see evidence that when he comes over he has the ability to earn enough to survive. Thinking that was more than fair, we set a date that I would need to show him results by. On top of that, we went to our Van customer and asked them for permission to buy our own trailer, let them use it for their loads, but at the same time for them to let us haul freight back. I guess our previous efforts to build customer trust helped, because they not only allowed us to do it, but almost forcefully encouraged us to do so. The concept was simple, I would buy a $5,500 trailer, they’d pay me the same rate that they’ve been paying me, but on top of that I would book loads from the destination back to the origin. I wouldn’t need one every day, and on the days where I didn’t have one I’d still use the customers trailers, but at $450 apiece (with the only extra cost being driver pay) I would only need to book 3 or so a month to break even. We are in the second week of operation for that and have booked 4 loads with backhauls and have established a key relationship in our destination city for consistent backhaul freight.
Finally, the amount of paperwork required to operate was becoming overwhelming. My mother has worked incredibly hard her whole life to provide for us and since the beginning of starting this I’ve wanted to hire her, but couldn’t afford her and didn’t have a role for her. I’ve since hired her to manage all incoming mail, all invoicing, all hiring documents, filing, and general admin tasks. It’s very part time for her, but it’s extremely helpful to me and worth every penny that I am happy to be able to pay her.
Current Strategy
As of this month the GM I put an offer on left his job and is preparing to start with me full time. He’s spent this month working to convert everyone to an employee (so that I can legally hire a supervisor) and building relationships on backhaul freight. My goal is to further diversify my revenue so that I am not attached to any single industry. By the end of this year, I’m hoping that the Van freight division can post revenue in excess of $300,000.
For the core business, I’ve added several pieces of equipment. As I said, 2015 was a prepping year that would allow us to blow 2016 out of the water. In March 2016 I purchased two additional trucks, following up with a third purchase in May, and added the rental truck (this time a brand new Volvo) in order to increase reliability for our Van backhaul plants. In addition, I increased the number of I/O’s to 3. The additions bring us to 8 owned trucks (1 spare), 1 rental truck, and 3 I/O’s for a total of 12 trucks… a significant increase on 2015.
I’ve discussed my plans with the team that I now have. I converted the 1990 into a spare truck, which is affordable now that we have more equipment, and told the mechanic that our goal is to never have a trailer sitting. We have an extra truck, so while a truck may go down, there should be no reason that a trailer is sitting other than driver issues or trailer repairs. This simple change should further reduce our downtime on repairs from 1-2 days (on average) to just a few hours. When a truck goes down, the driver can slide into the seat of the other truck and make sure the trailer stays rolling. More than that, I spoke with the GM about what I need from him to justify keeping him around. I’m expecting a minimum of 20% efficiency increases just by having him on property watching what everyone is doing. Previously, if I had a problem driver it could take months before I would be able to recognize a pattern that warranted releasing them. With a GM, these issues should be identifiable on the spot, increasing uptime on equipment.
2016 Projections
I’m expecting big things in 2016. I have been preparing everyone for the changes, knowing that year 3 needs to be the year that we go from something I call a “side business” to something that is a key carrier in the region I service.
I started 2016 with the goal of $1,000,000 in revenue, but that projection has since changed. I’m setting our conservative goal at $1,250,000 in revenue and our expected goal at $1,500,000. I’m expecting to earn $21,000 in EBIT and $114,000 in EBITDA on the expected figure with no GM efficiency improvements. With my expected GM improvements, we should earn around $150,000 in EBIT and $250,000 in EBITDA.
Conclusion
As I said in my original post, if you want to start a business, just do it. There will never be a perfect time to do something, you will always have bills and responsibilities, but you won’t always have the opportunity to build a dream. That’s not to say it’ll be easy, be prepared to live with your ‘nuts in a sling’ (as my peers have affectionately described me). Most importantly, be prepared to bust your ass with no reward. While I’ve pulled a few thousand from the business here and there (<$10k), I have taken ZERO salary for the two years worth of work that I’ve done, opting to leave everything in the business so that I could continue to grow.
There are too many people in this world that say you have to be the guy/girl that quits their job, jumps ship, and goes into crippling debt to start a business. That’s the only model that seems to be propagated and those are the stories that hit media outlets. Even one of my favorite shows, Shark Tank, does this. You’ll see entrepreneurs with careers get butchered because the sharks ‘don’t know whether you time is spent on your own project or on the business I invested in’. You don’t have to have a billion dollar idea to build something and you don’t have to risk your home or feeding your family to start a successful business. If a 24 year old in crippling student debt, with a 2.8 GPA, can work in M&A, start a trucking business (with no trucking experience), and be in the process of starting another business then I’m convinced anyone with the right opportunity and right work ethic can do the same.
Proof
Just like last time, this is all the proof that I'm willing to supply. Hopefully its sufficient! Click to visit imgur album of financials
The last time I did this the post took off quite a bit, and I'm still receiving messages to my inbox about it. I answer every single question provided, but I ask for some patience if your answer is delayed.
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