$1 million Owner Operator

If I died, yes the business could and would continue if that’s what you mean?

I’ll have to lookup and read about cash base vs accrual. I’m honestly not up to speed of the differences between the two. I pay quarterly estimated taxes and then the following spring do the year end and see where we end up. I use as much 179 as needed to get myself mostly into lower tax brackets. To where I’m hopefully not paying anything in the 20% and higher ranges. However, kinda my point is what happens when I no longer have enough depreciation to use to achieve this? And I’ve already exhausted things like fleet upgrade, no debt, and paying everything ahead for max discounts, etc?

My accountant is always saying make investments and 401k blah blah blah but I’ve always been more interested in investing in myself and don’t see needing money to get by month to month when I’m old. That’s why I’ve been busting ### these last 13 yrs! Also, I could never invest while I have debt that can be paid down or off. Doesn’t feel right.

 

You say the business would continue but a year or so later that mindset may change which is far more difficult to do with a "impartial" board. You never know what someone's feeling's will be later on. But all that is just a personal choice.

Basically if you average over 5 mil/year for three consecutive years you're supposed to be accrual tax. (other factors can change that)
Cash basis at end of year you're trying to pay anything you can, accrual you're waiting for the new year.
Cash basis income is only when you receive monies, accrual when the monies are owed to you.

When you run out of things to reduce the burden you bite the bullet and support those none working people. Or keep expanding. LOL

So if you're buying a $150,000 truck and pay cash vs finance @ 3.5% and invest @ 7%(just made up numbers) then that's a personal not business choice.

 

I obviously don't know anything about your specific situation, but as a former financial and business advisor, I know a lot about many of my former business owner clients situations. Probably about 15% wished they had followed similar advice when I gave it to them.

A tale of two clients:

One of the more strident examples; I had a client in the mid-Eighties that was worth >$10 million, but all of it was in his business (~$25 million in 2021) with an income to match. He owned a very successful geophysical business doing work all over the world. He didn't see a need to invest outside his business. After all, it was pretty hard to beat the ROI on his own business, plus he had control, etc. He wasn't a spendthrift, but he did enjoy the fruits of his labour. A downturn in the economy plus a downturn in his business, coupled with some other unforeseen events and a few years later his friends were paying his bills. He had to sell his custom-built dream-home and he eventually had to go to work as a salesman for one of his former competitors. He wasn't the only one; like I said, probably about 15% of my former clients. I'm not talking about startups, these were people with established, thriving businesses. I know, your situation is different and it'll never happen to you...

Client 2 is worth ~$1 billion today. He invested outside his businesses in stocks, bonds, treasuries, etc., but when he did, he invested in very low-risk ones like utilities, blue-chip dividends, government and investment-grade corporate bonds, etc. All his higher-risk investments were the ones he controlled. He viewed his businesses as part of his total investment portfolio and diversified accordingly.​

 

That’s good for me to hear. I appreciate the advice and insight. I’m very conservative and disciplined but I’ll take your advice and look into it. After all of the free money quits getting printed and we have the next pull back, that may be a good time. In the mean time my next big goal is to have paid for equipment.

 

You might want to look carefully at that idea of paid-for equipment.

It certainly has it's attractions, especially for the single-truck owner operator, but I doubt it is a coincidence that most of the larger trucking companies lease vehicles, or finance them to term.

There are likely economies of scale involved here, but at what point do the advantages of lease/loan payments for the full life of ownership override the advantages of owning vehicles outright?

 

Those couple of thousands of units carriers are in a different accounting and financial world.
They have different equipment, parts and fuel discounts, tax incentives, their business objectives could be radically different from those of small fleets and owner operators too..
For me, paying off the truck was a primary objective. Once accomplished, it was very liberating. None or little debt allows for much smoother overcoming of low rates periods to which small carriers are especially vulnerable. With no debt, I'll outlive those with $3000+ payments (and factoring as they have no cash reserves) when rates drop to $1.5 on average.
Most likely, running this low would sooner or later sink me too but I would not be the first to go out.

 

No doubt, but where is the tipping point at? How big do you have to get before it makes sense to change your financial model? I'm sure it won't be an easy answer, and a lot of it will depend on the state a company is based in, and the relationships they develop with dealers, parts houses, and other supporting companies.

 

The options could be limited too.
For example, I was told by my local Volvo dealer, they would not offer a tractor lease unless you have 10+ units in your fleet already