Most trucking company owners don’t get into business to focus on accounting principles. However, the reality is that cash is king. Ensuring your business’ financial health and that you are following accounting principles to a “t” allows you to focus on your business goals.  

We’ve highlighted seven costly mistakes transportation and logistics business owners make to help boost your financial wellness and get you on the right path towards improving profitability. Find out the most common mistakes below.  

1. Noncompliance with Generally Accepted Accounting Principles (GAAP) 

When looking at a transportation company’s financial records, it’s pretty common to see big swings in monthly net income. One month shows a huge profit, the next a big loss — and the owner isn’t sure why. In most cases, though, the problem isn’t the business itself; it’s that the bookkeeping isn’t following GAAP (Generally Accepted Accounting Principles). Without matching revenue and expenses properly each month (known as accrual accounting), business finances paint a very misleading picture. 

The reason this is a common issue in the transportation and logistics industry is because there are many prepaid expenses or accruals, such as insurance, fuel cards, and claims. Financial statements and records can be thrown off if the numbers aren’t recorded in the right periods. When these costs are lumped into one month instead of being spread out appropriately, it makes profits and losses look more dramatic. Over time, this causes large issues like incorrect tax payments. Sticking to GAAP compliance isn’t just about proper bookkeeping. GAAP compliance provides trucking owners the ability to benchmark themselves against competitors, apply for financing, and make informed decisions.  

2. Not Configuring Financials for the Trucking Industry 

Trucking businesses should ensure that their financials are configured specifically for the transportation industry. What works for creative agencies and manufacturers is not necessarily what is right for a transportation business.  

This means configuring expenses into appropriate expense groupings: 

• Purchased transportation: Similar to ‘Cost of Goods Sold,’ this category covers all expenses related to operating a truck. It’s helpful to break it down into the following subgroups: 

• Driver, fuel and tractor 

• Trailer 

• Insurance and claims 

• Other 

• Operating expenses: These are ongoing expenses associated with day-to-day costs of running your business. Operating expenses can be broken down into subcategories: 

• Operations 

• Admin expenses 

• Cost of money (this subcategory is for companies utilizing lines of credit or loans accruing interest)  

Expense groupings allow trucking companies to get granular with their metrics and compare their current position against industry standards. This comparison helps identify what weaknesses should be addressed to improve profitability. Regular monitoring also helps pinpoint where spending hikes occur and give your team a heads-up that something may be wrong.  

3. Missing Internal Control Procedures 

Internal controls decrease the risk of fraudulent activity committed by your employees. Business owners want to place trust in their employees. When hiring, owners tend to look for candidates with great character and, therefore, internal fraud does not seem a likely outcome. However, remember that good people can make bad decisions when under external pressure.   

All businesses should have internal controls in place, especially cash management controls. Internal controls should be tailored to your specific business needs and risk tolerance levels. No single person should have the capability to authorize transactions, maintain custody over assets, or maintain financial records and books without oversight or review of another employee.  

4. Forgetting about Tax Planning and Compliance 

Taxes. A word everyone dreads, especially small business owners. However, tax planning and compliance quite literally make or break your business.  

Working with a qualified tax professional helps you determine your current tax liability and potential tax savings to lower said liability before filing tax returns. Knowing this liability ahead of the April tax deadline ensures you set aside and submit the correct amount of taxes each quarter, but it prevents a larger bill from surprising you at the last minute. No one wants to owe the IRS money – especially when it’s already been spent.  

Tax compliance is just as important as tax planning. You likely worked with a CPA or an attorney to decide the right organizational structure for your business when you were in the startup phase. However, a common mistake trucking company owners make is not setting up a leasing company for their equipment. Keeping your operating company safe by having an additional leasing company keeps your assets safer if a lawsuit comes your way.  

5. Failing to Set Aside Cash Reserves 

A cash reserve provides your business with extra assurance—if an unforgettable opportunity comes your way, you have the cash available to jump on it. Two examples? The purchase of new equipment to increase production output and hiring talent, like a COO, to optimize operations.  

On the other hand, a cash reserve is also available to aid you if your business hits a tough spot. Think: a bad economy or the loss of a big client.  

We recommend that business owners strive for a cash reserve between 10-30% of annual revenue. This is only an estimate. The real number you need in your cash reserve can be calculated using a simple formula. Most transportation companies will not be able to hit that number right away. Consider this a goal your business should strive for to enhance financial safety.  

6. Relying on a Forecast to Plan for the Future 

A forecast is like a financial game plan for a business, laying out how income and expenses will be managed over a specific period. It’s as if you have a detailed roadmap for a planned trip — you plan out business expenses for that set period, such as office rent, marketing, travel, and more. Sticking to a budget helps keep spending on track and protects the business from surprises that could throw off business goals. 

Cash flow forecasting, on the other hand, is more like using a GPS. It uses past data and current trends to predict future financial outcomes and helps businesses adjust to new information, like shifts in the market or unexpected opportunities. Forecasting lets companies stay flexible, whether it’s navigating an economic downturn or preparing for a surge in new clients, so business owners can make informed decisions along the way. 

Having both a budget and forecast are essential for business growth and success and serve different (but aligned) purposes for your transportation business.  

7. Not Setting Up Separate Bank Accounts 

Having different cash accounts for different business purposes ensures you have the right amount of cash available. You never want to use the money needed for tax payments to pay for operating expenses, and vice versa. Keeping separate accounts makes sure you aren’t surprised by a lack of funds for various business expenses. These are the accounts we recommend every transportation company have: 

• Operating cash account (for day-to-day expenses associated with running your business) 

• Cash reserve account (your cash-on-hand for occasional needs such as business opportunities or obstacles) 

• Tax reserves (money set aside for quarterly tax payments) 

• Line of credit (for the biggest emergencies such as an economic downturn) 

If your business avoids these seven mistakes, you will be well on your way to a sound financial strategy. However, if you have more questions about proper practices for your company’s accounting or would like to talk to someone about our accounting services, sign up for a free virtual CFO consultation below.