Entrepreneurs launch their own businesses for various reasons, but certain themes are consistent across the board. This group is hardworking, innovative, and willing to take on a little risk in exchange for independence.
As an Owner-Operator, you can run under your own authority or lease onto a carrier. Each option comes with its own set of benefits and challenges, from the level of risk to earning potential to backend support.
Running under your own authority can be very rewarding. More independence, opportunity, and income are just the beginning. But there's a lot to do before you can make it official, and you can't take shortcuts. Approximately 25 percent of new trucking businesses fail within their first year, so planning and preparation are critical to setting yourself up for success. Follow these nine steps to obtain your authority and start trucking the way you want!
1. Build Your Team
Leadership entails understanding where you excel and when you need support to get the job done right. Get professional advice when it comes to complex topics with regulatory ramifications - legal questions, insurance issues, and accounting matters.
Any fees associated with these services are far lower than the amount you will lose if you make a misstep in your finances, business structure, or compliance. Choose reputable professionals with experience in the industry to be sure you get the best possible advice - then take it.
2. Choose Your Business Structure
You have choices when it comes to your business structure. If you set up shop without that decision, you will automatically fall into the sole proprietor/partnership category. However, your personal liability for legal and financial matters can be dramatically different from one structure to the next, and your tax bill is heavily dependent on this decision.
Your financial security relies on making a thoughtful, deliberate selection between one of these five options:
- Sole proprietorship
- Partnership
- Limited Liability Corporation (LLC)
- Corporation - C Corp
- Corporation - S Corp
Discuss the pros and cons with your accountant, then complete the appropriate paperwork to ensure that you are protected. That includes registering your business with your home state and applying for an Employer Identification Number (EIN) through the IRS.
3. Obtain Your Motor Carrier Number and DOT Numbers
The Federal Motor Carrier Safety Administration (FMCSA) issues a motor carrier (MC) number when you apply for authority. A first-time application takes 5-7 business days. Next comes the vetting process, which takes around three weeks. During the vetting process, the FMCSA takes an in-depth look at whether you are willing and able to meet FMCSA safety standards.
Your Department of Transportation (DOT) carrier number is activated right away. You can't run interstate freight as a carrier for hire until the MC number is active.
If your information is incomplete, it could delay the process. The FMCSA may request additional info. If they do, it's critical to respond quickly. The FMCSA's system will show your authority's status as suspended during the vetting period.
You can apply for the DOT number and MC number through the Unified Registration System. Don't forget that the Department of Transportation (DOT) requires you to contract with a drug and alcohol consortium. These are third-party administrators who manage your random drug and alcohol testing program.
4. Meet Minimum Insurance Requirements
Meeting the insurance filing requirements is non-negotiable. Trucking is a high-risk industry, and you must be able to cover any financial losses incurred by your business. Once you apply for your DOT and MC numbers, you have 21 days to ensure your insurance is on file with the FMCSA. If you don't file before the 21-day deadline, you'll have to start the application process over again - and the FMCSA won't refund your filing fee. You'll also need to pay for the new application.
Your insurance agent will help you choose appropriate coverages, but expect to buy liability and cargo insurance at a minimum. The FMCSA requires both. Most trucking companies also opt for additional liability coverage, and you will need special insurance if you plan to haul hazardous materials.
5. File Your BOC-3
If all goes well, you will never be in a position to accept service of legal paperwork. However, the FMCSA wants to be sure you are prepared to receive service in any state, just in case. Your BOC-3 lists a process server in each state that you have designated to receive paperwork on behalf of your business.
The good news is that you don't have to seek out individual process servers yourself. Some companies take care of this step for you. Keep in mind that a new BOC-3 is needed each time you make substantive changes to your MC number, or you will land on the inactive list for 30 days.
6. Apply for the International Registration Plan (IRP)
States leverage a variety of taxes on fuel, and some are higher than others. That becomes problematic when truckers fill up on lower-cost fuel and travel to higher-priced states. After all, states rely on that tax income to keep roads in good repair, and they want their fair share.
The original solution required truckers to log miles in each state and then file taxes in every jurisdiction. The International Registration Plan (IRP) simplified this process so that you only need to file one form for all member jurisdictions. Part of setting up your own authority is getting your IRP in order.
7. Create an IFTA Account
Fuel taxes are a big deal in trucking, so you aren't finished dealing with them once you have your IRP sorted out. You also need to create an account with the International Fuel Tax Association (IFTA) and obtain the appropriate license and decals. Every quarter, you must report your fuel purchases, and miles traveled in each member jurisdiction to ensure that states get reimbursed for the use of their roads.
8. Complete Your Unified Carrier Registration (UCR)
Suppose you are taking goods across state lines, or transporting interstate goods within a single state. In that case, federal regulations require you to participate in the Unified Carrier Registration (UCR) Plan. You pay an annual fee calculated based on the number of trucks you operate.
9. Research State-Specific Permits
Once you have completed these steps, you have permission to haul cargo across state borders. However, depending on where you pick up and deliver, you may need certain state-specific permits. Examples include:
- Kentucky's KYU Number (Weight Distance Tax)
- New York's HUT (Highway Use Tax)
- New Mexico Weight Distance Tax Permit
- Oregon Weight and Distance Permits
Make sure to connect with the appropriate state agencies to comply with these requirements.
Final Thoughts for Starting Out Under Your Own Authority
The first year of operation is known to be the most challenging. Planning is key to overcoming the obstacles that cause some new companies to fail. Before you launch, carefully consider where your work will come from, bearing in mind that brokers typically won't work with an owner-operator whose MC number has been active for less than 90 days. Some require up to a year.
All new MCs need a New Entrant Safety Audit within your first 12 months. There are three main areas of documentation that are reviewed: Driver, Vehicle, and Carrier Program. Proactively prepare for your audit with our guide listing out all the details and how to pass.
Finally, remember that it takes up to 45 days for your invoices to be paid, which can put you in a financial bind if you aren't prepared. Consider your cash flow before you haul your first load under your own authority, and be sure you can cover at least 60 days of expenses to keep your business running while you wait for your receivables to come in.
Other relevant articles:
Choosing the Right Structure for Your Owner-Operator Business
Trucking Insurance for Owner-Operators
The Owner-Operator's Guide to Getting Paid On Time Every Time