Starting trucking business in California

A buddy of mine recently asked me to walk him through the process of getting established as a new trucking company. I put together few things for him and i thought someone might find it helpful.

This is intended only for entertainment purposes, do all the research yourself as I've done when it was time. No one is going to run a business for you. As i put it its only 50% driving and the rest is office work when you're self employed.

Here is the breakdown for starting up a transportation company in a state of California.
You can get set up as a sole proprietor (less paperwork and lower taxes) or corporation (you can file for bankruptcy and it wont affect your personal social security number as far as i know) you can change that in the future too however its a pain in the butt.
I think you should be fine as a sole prop, i have corporation FYI
if you're starting as a corp then
1) you need to file for titles of incorporation with Secretary of State, when i was doing it in 2015 i came to their office in Sacramento and filed it there, all you need $100 and a unique name for your corporation, im pretty sure you can do it online nowadays.
When you are sole prop it will show Chris Ramirez Trucking as your company name unless you file for dba(doing business as, fictitious name) and then it can be anything as long as no one else in the state has it already (best part is that you can name it anything your heart desires)
Mine took like 2 weeks or so but it might have changed, you can browse their website for timelines and also names that are already taken
2)filing for EIN (employer id number) - serves as a Social security number for tax purposes.
If you are a sole prop then you can file for separate EIN or use your personal social (i dont recommend it since you will need to share it a lot)
You can get it online in a matter of seconds and from what i remember its free.
3) filing for your authority or US DOT and MC numbers, once assigned, this will be your primary identification in a world of truck driving
I think form called OP-1, its about 10 pages or so, you can do this electronically on the DOT website and get it right away keep in mind it wont be active untill you have insurance with minimum requirements and it will take like 25-30 days from when insurance company do the required filing with DOT (BMC 91). On FMCSA.gov website you can see when it goes active. Go to snap shot page and type in your credentials.(if you wont get active insurance It will show pending for the first 2-3 months and it will go from pending to inactive, in this case you have to reapply and pay again).
Cost $300.
Also you might need California Motor Carrier Permit if you ever planning to haul loads that originates and deliveres intrastate. Takes a few weeks and is $250.

Keep in mind all of that info is public, and anyone can access it at any time. And they will to solicit you with anything related or not so to your business

4) Now its time to buy and register a truck.
CARB (California Air Resource Board - agency that governs emissions quality) wants it to be 2008 model year engine or newer. Or basically anything with DPF (diesel particulate filter) as there is a way to retrofit DPF into older model trucks though i don't suggest buying truck with retro fitted filter.
Last time i checked if truck doesn't have (diesel exhaust fluid) then it was good till 2020 but they frequently extend the deadline, DEF trucks (normally 2011 and up) are good indefinitely.
I recommend starting with 2011-2014 truck with 500-700k miles on it, that way its not too much of a commitment, plus truck of that year range should be healthy enough as older they get a lot of little stuff breaks down just due to the age, also you can sell it without significant loss in value later on when you will know better what equipment is better fit for what you do (big chance you will do different type of hauling 2 years from start and again its easier that way)
Make sure tires and brakes have enough left as you might not be able to start throwing money on maintenance right away
Down payment is typically 25% or so (I've negotiated mine) for your first commercial vehicle and you can expect interest around 10-15% or more depending on your credit (best I've seen was 6% and thats with a paid morgage on a history, worst 24% or even more)
You can also purchase extended warranty for engine and tranny from a dealer and have piece of mind (engine overhaul on the road could easily cost $25-$30k and put anybody out of business since it might take a month or two and you payments won't wait). Negotiate everything even if you dont expect price to change, ask for double of your goal, and if you're lucky and they meet you in the middle then you still end up with what you wanted originally. Remember you are on your own now, and every penny matters. Crunch numbers few times before you commit to anything.
I recommend buying truck from dealer it saves time on paperwork and normally they make sure truck can pass annual inspection, meaning you wont have to spend much extra on it right away. Also generally trusted places will not be selling a complete junk that just looks good. I was told by my sales guy 2 weeks after i got the truck that within a month a could come and ##### about whatever breakdown i have and they would at least give me a break on a repair or else fix it free.
Registration. You will need an apportioned registration for interstate driving (long distance crossing home state boundaries) or regular california plates for intrastate driving, in this case you can still cross state boundaries however you will need to buy a trip permits and in case you dont have IFTA - fuel permits. Each state can be around $50 or more to cross it one way when you buying trip permits.
Also make sure registration company do a state filings for you - so called agent of process or BOC-3, a one time thing that you need in order for your authority to kick in.
Registration was around $2400 for me either apportioned or local and dealer is the one to do it sincd you havd to have a CMV registered when you buy it.
I was able to build half of registration price in to the loan. That way i saved on upfront investment.

5) Once you have truck's VIN you can insure it.
This is most anal part of the whole process.
It took me a whole month till i found barely affordable one for myself. New ventures are under fire, no one wants to work with you first 2 years, i had to prove that i was hauling for someone else for 4 years prior to that. Expect to pay $13-18k a year if your record is clean and youre older then say 40, with 5+ years of provable experience. Otherwise it only goes up.
Theres is rating agency called AM Best and they are like credit bureau for insurance companies.
Rating consists of a letter and a number.
Letter stands for the way they pay their claims an go from A+ to B- as far as i know.
Generally any A rating is what brokers wants to see.
Digit stands for amount of funds company has in their access, goes from I to like XV higher better i would say dont go lower then VI or VII.
Progressive used to be number one A rated insurer for start ups and at reasonable rates, but i think due to high risk they wont insure new ventures for the first 2 years.
Truck insurance includes few different types with requered one being:
Truck Liability of up to $750k (industry standard is $1 000,000)
Also there is Physical Damage that you will need in case you hit a deer or Godforgive get in an at fault accident.
Then Cargo, which is pretty much self explanatory, industry standard is $100k, "Bobtail insurance" - needed when not under a load or headed to loading since physical damage only covers you when under a dispatch.
I also have General Liability - $1mil (required to be able to go to port) and trailer interchange agreement with value $40k (if you renting or pulling someone's trailer as a power only) this covers it all

 

5) Once you have truck's VIN you can insure it.
This is most anal part of the whole process.
It took me a whole month till i found barely affordable one for myself. New ventures are under fire, no one wants to work with you first 2 years, i had to prove that i was hauling for someone else for 4 years prior to that. Expect to pay $13-18k a year if your record is clean and youre older then say 40, with 5+ years of provable experience. Otherwise it only goes up.
Theres is rating agency called AM Best and they are like credit bureau for insurance companies.
Rating consists of a letter and a number.
Letter stands for the way they pay their claims an go from A+ to B- as far as i know.
Generally any A rating is what brokers wants to see.
Digit stands for amount of funds company has in their access, goes from I to like XV higher better i would say dont go lower then VI or VII.
Progressive used to be number one A rated insurer for start ups and at reasonable rates, but i think due to high risk they wont insure new ventures for the first 2 years.
Truck insurance includes few different types with requered one being:
Truck Liability of up to $750k (industry standard is $1 000,000)
Also there is Physical Damage that you will need in case you hit a deer or Godforgive get in an at fault accident.
Then Cargo, which is pretty much self explanatory, industry standard is $100k, "Bobtail insurance" - needed when not under a load or headed to loading since physical damage only covers you when under a dispatch.
I also have General Liability - $1mil (required to be able to go to port) and trailer interchange agreement with value $40k (if you renting or pulling someone's trailer as a power only) this covers it all

5) 2290 or heavy highway use tax, $550 for a full year, otherwise its a prorated amount.
Due every july. Can be paid at IRS website.

6)IFTA or International Fuel Tax Agreement
There is a web site www.cdtfa.org to get set up if you are domiciled in California. Takes like 20 mins and you can print a temporary one till you recieve decalls by mail. Total cost is $12.
At the end of each quarter you are responsible to report your IFTA.
Here how it works, every time you pumping fuel at a truck stop - state fuel tax is already included in per gallon price in every state except Oregon. It differs state by state, some have a lot higher fuel taxes then others. And ideally if you only spend fuel that you purchased in each state your ifta return will be zero. But since that virtually impossible you'll have to calculate actuals, based on amount of fuel purchased, miles driven per state, and average fuel consumption to figure out wheather you underpaid at the pump or entitled for a refund.
You will need your fuel receipts for this and if you have ELD or Fancy Truck GPS they have built in mileage calculator for IFTA which makes it a lot easier.

7)Another thing is UCR or Unified Carrier Registration its like $75 for up to 2 trucks. You just paying for this one and forget about it till next year.

8)Load board. Unless you are going to be a subhauler and steadily have business from one source, this is the place to start.
There is 2 largest pools of loads that im aware of. One is DAT (pioneers of the industry) and there is probably over 10 different loadboards that all share same data from DAT.
The other one is a Internet Truck Stop.
They both have standard (around $35/m) and pro (around $150/m) options, i would personally go with standard as it has all you need other then the broker credit score (shows brokers paying pattern and tells you whether to work with them or not) but im assuming you will have factoring company (financial institution that will buy your invoices for a 3-5% share and lend you money right away instead of 30 days on average) and they credit check every broker before you took a load.
There is 2 options, you either post your truck and have brokers to call you or call yourself on a posted loads
A lot of brokers dont post their loads, and just call you, and a lot of loads that are on the board are cheap, good ones are gone in a matter of seconds, and you have to weed out a lot of them out before you find that right one.
Master the way you work the loadboard and it can do a magic, it brings matrix movie to my mind all the time when they were staring at the raining code.

9) Trailer and load security equipment.
You can buy, lease, or rent a trailer
Seems like leasing is a best option for a beginner, however ive never leased one myself so i cant share first hand experience.
Buying used one is a good option too, however requires significant upfront investment. If you planning to haul general freight from a board then 53' van, reefer or stepdeck will be a one size fits all solution.

10) Open a business account, this one is easy
Just go to your bank and open an account strictly for your business purposes, if they offer you a credit card under a business i would take it to - it helps building a business credit.

11) factoring company (financial institution that will buy your invoices for a 3-5% share and lend you money right away instead of 30 days on average)
Normaly after you done a load and submitted an invoice, broker have like 30 days to pay for the load, some pay sooner while others takes longer, meantime you have operational costs, your payments, fuel and other expenses. You can sign up with a factoring company and get paid right away, this is neccessary evil at the beginning. Some brokers will offer quick pay at a lower or no charge, but as you progress and able to put aside enough you can stop using this service. Just read through fine print as there might be long cancelation notice involed or you will have to pay a fee. Also they will put like 10% of your average monthly factoring amount to a separate account and use it in case one of the loads didnt pay and you need to buy back your invoice.
While they credit check every broker before you took a load and give you a green light, you can still take loads that weren't approved by them just ask the broker for a check on delivery. I usually ask for EFS or Comcheck (written in the confirmation or email) and if they not willing to do that then i assume they arent trustworthy.

Set up a folder for your truck with registration, insurance - including trailer's, granted authority page, annual inspection both for truck and trailer, IFTA agreement.

You can hire a firm to do some of this for a premium but my advice if you want to succeed - spend time and do it yourself, that way you will have that first hand understanding of everyhting. It is vital to success, in my opinion.

Also learn how to differentiate government agencies from a 3rd party ones posing as governmental. They will try selling you their services pretending its mandatory and you about to reach the deadline. Most of the time it wont cost anything if you do it yourself.

Learn to talk to brokers their language and know your numbers as you will need it to negotiate best rate. And here lays probably most important, fundamental principle, core to everything: Do not haul cheap freight. Period. Not once. You will be out of business before you know it. There is many reasons why. First you get use to it and would take cheap load instead of negotiating better, looking harder, or simply waiting for a better rate (morning rates are normally lower then noon ones since brokers dont have as many trucks to choose from as in the morning when everybody looking, also they dont have much time left). Second brokers keep record and if they see you were hauling for cheap there is no way youll see a good rate from them. And finally you are killing the market. Many truckers that do cheap loads thinking that they've outsmarted everyone end up out of business pretty soon with no one to blame for it other then themselves.
Nothing is cheap in this industry and if you need to justify higher rate just look at your bills and all bureaucracy you have to go through.
Definition of a cheap load to me is the one that wont make you reasonable profit. Thats it.
Good luck and don't look back

 

I wanted to add few things:
ELD or Electronic Logging Device, mandatory electronic logbook that connects to truck OBD port and tracks all your driving and other time automatically. There is many service providers to choose from, i have keeptruckin which consists of little box wired to a truck on one end and your phone on the other, instead of being a separate GPS type of device with screen that permanently attached to the truck. This way you just paying 20-30 bucks a month for the service and dont have to buy $500+ device.

Also other thing i didnt mention is detention time and layover when you are on the load, generally industry standard is 2 hrs for loading and unloading, if it takes longer you have to call your broker and let them know that you are running into detention, i see around $50 or more for a stepdeck loads 85% of the time, other times they give you run around and you end up without one. I usually ask for $85/hr and require them to send me revised rate confirmation before i deliver if i work with a broker first time, rarely when i see there is no much money in the load or i like the broker - i give em a brake, other times if its 30 mins extra i insist on detention.
Layover usualy $250, highest I've seen was like $800.
Also TONU- truck ordered not used charge, comes to effect if you agreed on the load and broker canceled it before pick up, i only see this maybe 50% of times and only from good brokees, highest was like $800, lowest $40
You only get it if they have sent you the confirmation

 

Good point, however there is difference between local and federal authority, you fall under CHP (California Highway Patrol) jurisdiction and BIT if you only have intrastate authority without mc number.
When you applying for interstate authority it is US DOT (FMCSA mainly)who governs everything, and their equivalent for BIT is New Entrant Safety Audit (which is condacted by CHP anyways) i hade one done on my company via email with no problems.

I also forgot drug testing, as a carrier you have to participate in drug and alcohol program.
Preemployment test should be done before your start and you have to be a part of random testing pool, that way you can be sent to a random testing, you can assign a person other than yourself for it within a company (usually wife) and they will be listed as a supervisor for that purpose, or pay a little more and service provider will serve as that.
Its around $300