A profit/loss statement is a simple calculation, (sales - expenses = profit). We have outlined in this blog the details of the expenses side of that equation several times, and what drivers should target as objectives for sales and expenses.
But cash flow is a completely different issue. The best way to think about cash flow is to add it as a cost to your start-up expenses. Many guys buy a truck and trailer, then hit the road without considering the initial cost to operate the truck, AND the time it takes to get paid by customers. Sometimes customers do not automatically pay you at drop off. You should plan on a rolling Accounts Receivable (AR) in your business of $4,000 to $5,000. This is an ONGOING rolling value that’s always going to be owed to you unless you take a break, or quit the business.
Here’s the math. The average truck with a 3-car trailer will gross $600-$700 a day. Those are billable dollars that are NOT in your bank account. From our experience about 30% of Hotshot loads are paid COD, that helps cash flow! But on average it will take 10-12 days to actually collect the remaining 70% of your sales. So that means that about $450 per day will create a rolling AR balance of $4,500 to $5,400 dollars. Another way to think about this is to understand that for the first 2-3 weeks of operations you are only going to get paid 30% of the time, while you’re waiting for the other 70% to trickle in.
Your COD payments will normally cover fuel costs while on the road in the first 2-3 weeks, but if you follow our profit/loss model and pay yourself 28% of the gross, and 20% to your truck, that’s $3-$4,000 of cash you won’t have received from customers, just about the time another insurance payment of $1,000 to $1,500 is due. So before you start transporting cars, make sure you have $5,000 cash in the bank, or else be prepared to not pay yourself for the first 2-3 weeks of running and then pray there are no mechanical issues to your truck or trailer. If you’re running with less than $4,000 to $5,000 cash in the bank, your are a ticking time bomb to run out of money, and run out of business. Even IF the profit/loss outcome looks good.