Lease/Purchase Tips

Agreed with the above.

However... one of the things about getting a business going is that some folks luck-out and its a go from the start. With others, you may have to start a business and watch it fail... once, twice, ??? But the point is eventually you figure out how to make it work.

Its unfortunate that so many people loose their tookas on something like this. But to then blame everything on the carrier is just plain naive. Yes, there are predatory carriers out there, and some of the excesses in the industry are outragous. When one enters into a business agreement with a carrier, the carrier has every right to believe that the contracting party is an adult - a person who is responsible for their actions. Who didn't read the lease? Who wasn't prepared to do what's necessary to make a business succeed? Who doesn't understand how to control expenses? There are pages and pages of post of "how (insert carriers name) screwed me," on this forum. When you really look at what happened, a large proportion of these folks were unprepared to do what is necessary to make their transportation business (or any business for that matter) succeed.

 

Close personal friend was involved in one before we became acquainted. Besides its just common sense they are a screw job, for the sucker leasing the truck.

Couple things people fail to think about when attempting to lease purchase a truck..... Its a win win for the company. They don't have to pay the taxes, ins, or all the other junk that goes with an employee, but they still have an employee. Now I'm sure someone will try telling all of us how they do what they want, when they want,......yada yada yada...... you've all heard it. But reality is and what they won't tell you is how the company strong armed them into working.

Another thing, that I just learned the other night on a radio show. Leasing a truck doesn't help your credit. Most if any companies report it and if they do the credit people basically dismiss it cause you, the one leasing the truck don't actually make the payment, it taken from your check.

Interesting facts huh?

 

Its not that you can't be successful doing one of the many lease deals available... you can. But like Les pointed out... its a win for the company. You have to make it a win for you as well.

Typical transportation companies manage to keep a nickle of every dollar in gross revenue they generate, and think they're doing pretty well. The well-managed ones keep a dime, and pat themselves on the back. That's the game... finding a deal where you can manage to keep enough to make it worthwhile. That's also the great failing in this... most people signing a contract don't understand this, nor do they have a plan for making it work.

If you can't end up with a operational ratio in the neighborhood of .7 to .8 - you're not going to make it. And if you're doing it for the "millions" you're going to make off of the deal, you're kidding yourself. You really have to look at your motivation for getting into being an IC before you take the leap.

 

Leasing a truck is the true American Way. Look back in history, people came from Europe with nothing and settled in a New World. Their children came across the Oregon Trail to get some free land and start a new life. That takes pure guts. The modern 21st century American is mostly a wussy compared. Granted it's hard to have the fortitude to live on beans and crackers for 10 days straight til you get a positive settlement (paycheck) when you see Kim Kardashian parading her 3rd wedding gown of the evening.

Just read your comment-- OK tips

Be prepared to stay out multiple weeks at a time.
Stock up food and water in the truck. Canned goods that can be cooked with a cheap crock pot that you can either plug into the 400 watt inverter or the wall socket while you are doing your laundry. Subway is going to be the cheapest and healthiest food you are going to find in the truck stop. You buy a 1 foot long breakfast sandwich, eat half now, wait a few hours and have an early llunch with it. Then later you buy another foot long and eat half for late lunch and the rest for dinner. Boom $11 bucks fed you for the day.
Set up a maintenance fund. Worse comes to worst, you can use it to pay the taxes and keep your business another quarter.
Stick with it, you're taking a shortcut to owner operatorship. The big sacrifices today will bring huge rewards tomorrow.

 

I know of one company that will actually help you complete a L/P, that's PGT trucking. Now, things may have changed since I was leased on to them?

The reality of the whole situation is that a L/P, no matter what you do, is a bad deal, for 99% of them. The fact of the matter is that at any given time the company can fire you and take the truck back. There is nothing you can do about it. You all want to skirt around that issue.

Anytime two words, "Your Fired", can take something you paid for away, its a bad deal!

Someone on this forum just had it happen to them. I wish they'd speak up, but I understand them not doing so. But you'd all believe this person over me and then maybe you will understand...

 

I have put together what might be a typical Cost of Operation for a Lease Purchase. This may or may not be typical. I have never operated a lease purchase.

I have operated in a lease agreement where I owned the truck and I have operated my own truck and trailer back in the day when you ran exempt. You trip leased broker loads through a company that had authority to get back to the exempt loads.

We will assume you run 3074 miles a week of which 2900 (94.3%) are loaded and 174 (5.7%) are empty. We will assume you get paid mileage of 0.95 CPM and FSC of 0.38 CPM on all miles loaded and empty for a total 1.33 CPM. You will run 147,552 miles per year. We are assuming 6.2 MPG loaded and 7 MPG empty.

Remember this assumes running 3,074 miles a week for 48 weeks a year and allows for 4 weeks home time. If you take 50 days (7 weeks) off, which should allow for breakdowns and about 1 day home for each week (45.6 days) out, you will work 45 weeks. So you will have to run an additional 205 miles per week for a total of 3,279 miles per week.

This means you have to run 8 hours per day at 59 MPH for every day (472 miles per day) on the road without a reset (8 * 59 * 7 = 3304). Or you could run 10.2 hours a day at 59 MPH (602 miles per day) and take a 34-hour reset (10.2 * 59 * 5.5 = 3310). While this is possible the question is will you get almost 3300 miles a week and be able to run them with loading and unloading time?

All amounts are rounded to the nearest dollar or percent. They won't come out exact if you add them up but I didn't go out 4 decimal places to simplify the example. None of the figures represent exact costs but are close compared to research I did while looking at this option for myself.

We are paying $586 per week for our truck payment and $180 per week for trailer rent. The truck cost is $84,371 with a $1 buyout on a three-year term. This calculation assumes all repair, maintenance, tires, cleaning and other truck costs will come from the escrow account. The company may not release funds for all of these items like truck wash. In addition, this is most likely not enough to cover all these incidental costs. This calculation does not provide for excess mileage if it applies or is charged. Truck, trailer and escrow are 0.31 CPM.

Wages are a net (in your pocket) of $33,494. This would be comparable to a gross wage of $41,000 before tax withholding. In addition, living expenses on the road are calculated at $4,427 and workmen's comp and health insurance are included at $4,427. If you look at the total benefit package for yourself, it is about $50,000 compared to driver's wages if you paid for benefits.

If you run the 3279 miles per week that we originally figured your wages are $50,000. If your miles drop to 2809 per week you will lose $6,513 in wages for a total of $43,500. If your miles drop to 2332 per week you will lose $17,402 in wages for a total of $32,600. These comparisons are just the difference of one day of miles per week!

DESCRIPTION....................YEAR.........MONTH.........WEEK........MILE.........%

Miles..........................................147,552.............12,296............3,074

REVENUE - 1.33 CPM - 100%

Revenue....................................196,244............16,354............4,088............1.33............100

FIXED COSTS - 0.34.5 CPM - 25.5%

Truck Payment..........................28,123.............2,344................586............0.18.............14
Trailer Rent..................................8,660.................722................180............0.05................4
Truck Insurance..........................4,200................350...................81............0.03................2
License & Permits.......................1,918................160...................40............0.01................1
Wrkmn Comp & Health Ins.......4,427................369...................92............0.03................2
Road Expenses............................4,427................369...................92............0.03................2
Phone Internet & Other.............2,361................197...................49............0.02................1

VARIABLE COSTS - 0.93.5 CPM - 70.5%

Fuel..............................................91,954.............7,663.............1,916..........0.62..............47
Repair/Maint Escrow................11,804................984.................246..........0.08................6
Driver Wages.............................33,494.............2,791................698..........0.23..............17
Fuel Taxes.....................................1,033..................86...................22...........0.01................1

TAXES - 0.05 CPM - 4%

Federal Tax..................................1,904.................159...................37..........0.01................1
Social Security............................4,710.................392...................91..........0.03................2
State Tax.........................................734...................61...................14..........0.01................1

 

You left off the big write off on the schedule C for per diem which would decrease the tax liability directly.

 

My head hurts and didn't even read that yet......

 

I figured per diem into this, it is included in the tax computation. The tax numbers are for budget purposes only. They are almost exactly what I would pay based on my tax situation for this lease.

I can't possibly cover everyone's tax situation but at least I included taxes which most don't think of until it's time to pay. As I pointed out in an earlier post Jdrentz, in his Crete thread, pais $13,000 in 2010. He documented other years if you want to check his thread.

It does include paying tax on the escrow fund since I can't estimate what will be spent and what will be banked.