Step-by-Step Guide: How To Start a Transportation Business
Businesses that transport goods and people face a lot of different challenges. As a transportation business owner, you solve those problems. Here’s how to start a transportation business:
- Select the Transportation Business Type
- Create a Business Model
- Get a Federal Tax ID Number
- Get Business Insurance
- Prepare Your License and Permits
- Set a Transportation Business Budget
- Starting Investing on Transportation Resources
- Hire the Right Team You Need
- Maintain a Schedule for Maintenance and Recertifications
Whether commuting or shipping, you cannot overlook the importance of transportation to ease our day-to-day life.
The number of these companies in the United States has steadily increased in recent years.
Whether you have a single van or a handful of vehicles, this guide covers all the nitty-gritty of starting a transportation business. With my experienced tips, you will have a sound understanding of what is a transportation business and the best ways to start a transportation company.
What is a Transportation Business?
A transportation business is any company that transports goods or passengers to make money. Usually, this includes trucking companies, bus companies, taxi services, limousine services, etc.
Whether you want to affiliate with a private company or start a business yourself, a good rule of thumb is to follow in the footsteps of experienced people in the transportation industry to avoid mistakes.
Types of Transportation Businesses
For your ease, I have classified transportation businesses into three groups for this tutorial.
The below-mentioned breakdown is examples of transportation businesses:
This includes one-on-one services tailored to individuals or small groups, such as taxi services, ridesharing options, and limousines.
This category transports cattle, materials, consumer goods, and other items to regional markets. Depending on the delivered materials, the potential may be commercial or private.
Global transportation companies combine elements of the other categories globally. Cargo transport by sea or air may be available from international providers.
To comply, each category may require a specific understanding of state, federal, or international legislation. You can plan your future steps based on your areas of interest and expertise.
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9 Steps to Start a Transportation Company
When planning to start a transportation company, remember what you will need to learn, research, and acquire before starting.
It is critical to lay a solid foundation because ignoring these crucial elements could lead to severe problems in the future. To start a transportation business, I have listed the exact framework you need to follow to be on the right track.
#1 Select the Transportation Business Type
When starting a transportation company, a good rule is to choose the type of transportation that best meets your needs. As a best practice, do a small share of study to understand the different types of transportation businesses that each have its own set of regulations and standards.
Consider the following choices if you want to start a transportation company:
A freight broker arranges shipments between shippers and carriers. Freight brokers usually work with small companies that do not have their fleets. Not only this, but they also buy space on trucks and manage logistics for larger companies.
If you’re looking to become a freight broker, you probably have the option to specialize in a specific type of freight, such as refrigerated goods or hazardous materials.
Usually, taxi companies offer taxi services, limousine services, and airport shuttle services. People providing taxi services in this sector charge passengers a small fee, depending on the distance covered.
Delivery services supply products or services on demand within a certain area, such as food or package delivery services.
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Charter Bus Service
Charter buses deal with groups of people who travel together at one time, such as sports teams or school groups going on field trips or vacations.
However, charter buses are not scheduled like regular public transport buses or trains. Therefore, passengers book them in advance and pay for the service.
There are other transportation services as well, such as:
- Medical transportation
- Bread routes
- Bike rentals
- Bicycle rentals
- Livestock transportation
- Marine transportation
#2 Create a Business Model
Before considering starting a transportation company, you must devise a strategy for how your company will operate.
Your transportation business model needs to be financially viable, sustainable, and scalable — otherwise, it will not work.
The best way to develop a solid model is by brainstorming different ideas, researching existing companies, and writing your vision for how things will operate.
Next, choose which ideas make sense for your particular situation and create a realistic action plan to implement your business module.
From dealing with customer acquisition to managing team members or contractors down the road, take care of all the factors that can make or break your transportation business.
#3 Get a Federal Tax ID Number
If you do not know, a federal tax number is an essential factor for your state’s Department of Motor Vehicles (DMV). This is where you will receive your license plates and vehicle registration in your fleet.
You will also use this number when filing taxes as a self-employed individual or company, so all businesses must have one before starting operations.
While registering your business, you would also need an employer identification number (EIN) from the IRS.
#4 Get Business Insurance
Once you have set up your transportation business, the next step is to get insurance on every vehicle that belongs to your business. This includes vehicles owned by customers or employees who use them on behalf of the company.
However, the type of insurance coverage you require is determined by the number of workers you have, where they work (in-state or out-of-state), and their use of the vehicles.
#5 Prepare Your License and Permits
To avoid legal consequences, you must have proper licensing before starting your transportation service. Transportation companies require more permission than other businesses as you will be working directly with passengers, people, and other forms of deliveries.
Other forms of licenses and permits in the transportation business include:
- Require a Commercial driver’s license (CDL)
- Any fleet vehicle must have commercial vehicle registration.
- Licenses for fuel carriers
- Permits for heavy loads or cargo
- Insurance coverage for drivers, passengers, and products.
#6 Set a Transportation Business Budget
Before executing any new business venture, it is vital to have an estimated business budget you will require to get started. Read the pointers mentioned below to get more clarity on this subject.
- Compile a list of your startup expenses, including licensing fees, permits, tools, and ongoing expenses like fuel, insurance, and maintenance costs.
- Calculate how much money you will need at hand at any given time to cover payroll for employees and operating expenses for yourself.
#7 Starting Investing on Transportation Resources
Once you are done with the planning, now is the best time to acquire the vehicles and equipment you will need to run a transportation service. The type of vehicle you choose should be the one you specialize in and can help you launch a transportation company.
Common transportation vehicles include
- Box trucks
The vehicle’s quality and size are essential parameters that depend on various factors, including:
- Whether you have chosen passenger or freight transportation,
- In the case of goods transport, the weight of the materials
- The type of ground on which the usual journey will take place
- Possibility of wear and tear.
- Choosing fuel-efficient options
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#8 Hire the Right Team You Need
To run your transportation company on a large scale, you must hire the right team to help you. The more employees you have, the more efficient your company will run and the more money you make.
On the basic level, you will probably need the 3 groups of people to make a team of the right individuals.
To operate a trucking company, you will need drivers to help you with the delivery of your goods and services. When looking for reliable drivers, consider their experience and check their license to avoid legal problems later.
Customer Service Representatives
If you plan to run a taxi or limo service, you may want to hire customer service representatives who can deal with the fares and daily queries.
Accountants and Bookkeepers
Be it transportation or any other business. You will need to hire an accountant to track your finances and ensure everything is done according to tax laws.
It’s impossible to run a transportation business without keeping your vehicles maintained. Find the right auto mechanics who are affordable because you’ll have to visit them often.
#9 Maintain a Schedule for Maintenance and Recertifications
To keep your business on the right track, a best practice is to create a schedule for routine maintenance and service checks.
Usually, this includes oil changes, tire rotation and replacement, and other inspections required by your insurance company. Once the maintenance is done, notify your drivers, so they can schedule them as needed.
You will also need to renew your company’s certificates and licenses every few months. Not only does it help you comply with legal regulations and runs your business properly while taking care of daily operations.
5 Things to Keep in Mind While Starting a Transportation Business
In the transportation business, competition is tough, and many problems can slow you down in your race against the competition. The transportation business is dependent on the flow of goods and services, both personally and commercially, to run smoothly every day.
Below is a quick breakdown of the common problems faced in the transportation business.
With the increasing inflation, the cost of diesel has increased over time due to many factors such as fuel taxes, oil price fluctuations, etc.
Fuel costs has made it difficult for people to reap profits out of transportation and pay more for diesel, which can add up to other expenses.
Be it transportation or any industry. It is common to face competition with other businesses that offer similar services to yours.
To stand out from the crowd, your business must offer something unique in services to meet customer demands and build loyalty.
Most companies have to manually manage their inventory, which is time-consuming and error-prone. If a company has too much inventory, it may not be able to handle peak demand or incur unnecessary costs. However, it may face lost sales or unhappy customers if it does not have enough inventory.
You can use different inventory management software to track your items and shipments as they move across delivery points.
This keeps you informed on when each item was sent and should arrive at its destination so that you know whether it has arrived safely.
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The customer service you offer can make or break your business reputation. When it comes to the transportation business, the easiest way to make your customers happy is by reducing the time for shipping.
No customer wants to wait hours for their order to be fulfilled, and no brand wants to lose a customer because of poor service.
Work on improving your customer service by investing time and money into training and technology. Make sure your staff knows how to handle customer issues rapidly and professionally.
Invest in call center solutions that can automate everyday transactions or phone calls, so you are free to focus on complex ones.
The improper work distribution among employees is one of the significant problems that lead to chaos and underlying consequences in your transportation industry.
Whether a transport truck driver or a cargo ship worker, assigning jobs without considering the driver’s expertise, experience, and feasibility can often lead to problems.
Thanks to modern technologies, transportation businesses can now monitor and alert their employees when it is time to prevent fatigue.
In addition, companies must also offer regular breaks during workdays to promote alertness and attention on the road or at work and help employees rest a little.
As per observation, such programs reduce accidents among drivers by as much as 50 percent.
4 Mistakes to Avoid When Starting a Transportation Business
Making mistakes is inevitable, but the best thing you can do is follow others’ footprints to establish a profitable transportation business.
Here are some mistakes to avoid while launching a transportation company:
Forgetting to Ensure All Aspects of Your Company
While it may appear time-consuming to cover every item you transport, driver you employ, and passenger you assist, a small share of homework may help.
General liability insurance might fill in the gaps when you do not have a specific coverage requirement and want to secure your assets.
Not Consulting with a Financial Expert
To prevent yourself from making mistakes like others, a golden rule is to consult a business or financial expert before making critical decisions that could make or break your business.
Ignoring States’ and Locations’ Rules:
As a transportation company, you may need to traverse state lines or operate to avoid legal complications afterward.
Also, be aware of the rules and license requirements in each state or location where you do business.
Failing to Incorporate Contracts and Waivers
Although business contracts can ensure you are /paid for your services, there is still room for mistakes.
To avoid those, check documents to know what to expect during a project or work.
The goal of a successful business is not just to earn money but to establish a sustainable business that offers solutions to customers. Many small businesses fail because they lack a solid foundation or sound understanding of where they want their company to go.
I hope this guide has encouraged you to envision a brighter future for your transportation business or service. Like everyone, you can start small and expand in this market while reaping maximum profits from your business.