Managing your trucking company’s books is one of the most essential activities that can be used to leverage its success. To assist you, we compiled 12 trucking bookkeeping tips and best practices, from understanding your business entity type and using a business credit card to reducing your day sales outstanding and selecting the right accounting and payroll solutions.
1. Understand Your Business Entity Type and Tax Classification
When you set up your owner-operator or carrier business, you have several options for structuring the business that will impact bookkeeping and tax filing. Setting up your business as a sole proprietorship is extremely simple and will help you avoid having to process payroll yourself but it’ll subject all of your net income to self-employment tax.
An S corporation (S-corp) tax designation is common for trucking companies because it allows a portion of the net income to pass to the owner/employee without being subject to either payroll tax or self-employment tax.
With an S-corp, you’ll have to run payroll to pay yourself just as you pay any employee. However, any income remaining after payroll and expenses can be withdrawn with no payroll tax.
2. Stay Up-to-Date With Your IFTA Data
The International Fuel Tax Agreement (IFTA) is a pact between the lower 48 states and the 10 Canadian provinces that requires all interstate motor carriers to report fuel taxes (Hawaii, Alaska, and the three Northern Canadian territories are unaffected).
IFTA was put into place to redistribute the tax to the states where the fuel is being used, not where it’s purchased. If you’re trying to decide whether to buy fuel in one state compared to another, then you’ll need to subtract the state fuel tax from the retail price you pay.
Keeping up with your IFTA data is one of the most important parts of running a trucking business and one of our top trucking bookkeeping tips. At the end of each quarter, you must submit an IFTA report that lists the miles driven and the gallons purchased. These reports will determine either the amount of tax still owed or the refund you are due. The IFTA office in your trucking company’s home state will notify you of your refund or debt.
3. Know Your Cost Per Mile
The most important metric for all trucking companies is the average cost per mile, which can be extremely useful when it comes to decision-making. It helps you price your services to make you profitable and can also identify high-cost areas that you may be able to reduce or eliminate.
Your variable costs per mile, such as fuel, should stay pretty constant regardless of the number of miles driven. Your fixed costs per mile, such as insurance, should drastically fall as the number of miles driven increases. You may wish to calculate cost-per-mile separately for each category, for example—drivers, equipment, states, or customers—to spot trends or areas for improvement.
To work out the cost per mile, you’ll first need to:
- Calculate the approximate number of miles driven in any given month.
- Divide your fixed costs and your variable costs by that number so that you get an average cost per mile for each category.
4. Keep Detailed Records
Bookkeeping is much easier if you stay up-to-date with your records and, if possible, try to maintain your books every day or at least once a week. Putting the task off will increase the likelihood that you’ll forget what payments are for, causing categorization errors that may make you miss out on deductions.
There are three types of documents that you should have your truck drivers keep: trip reports, expense receipts, and maintenance receipts. Ensure that they keep a notebook in their truck to record mileage and any expenses for which they don’t get a receipt.
Logbooks are your best proof of entitlement to per diem expenses, which are primarily comprised of meal costs. Have them keep notes of what specific payments are for, especially if they aren’t recording them immediately as this will help you deduct as many legitimate costs as possible.
5. Use a Business Credit Card
Using a business credit card can help simplify your bookkeeping, and most accounting systems sync with your bank and credit card accounts. Because the data will be entered automatically whenever a payment is made, it’ll help save time and eliminate potential errors. Having a business credit card will also streamline your bookkeeping because you can often separate expenses into categories, such as gas, food, and maintenance.
The first step is to research options and find one with a low interest rate that doesn’t have an annual fee. Credit cards with fuel rewards are ideal, given the amount truckers spend on gas. Ensure that you pay your balance in full every month to avoid high interest charges.
6. Plan for Necessary Expenses
Gain an understanding of your upfront costs and ongoing expenses so that you can plan for them. These include larger costs, such as docking and parking fees for your fleet when not in use and office space rental for administrative tasks as well as smaller expenses, such as tolls, gas, tire changes, repairs, and maintenance.
If you’re just starting your business, you’ll have to factor in the costs of the trucks themselves and the insurance to cover them. You’ll also likely need a general business license, sales tax license, and possibly a license to conduct business across state lines.
It is important to price your services right so that you can cover these expenses and make a profit. You can also start with a small fleet and add to it as your company grows. This will free up your cash flow and let you scale as your business attracts new customers.
Keeping your fleet well-maintained is also essential, and this includes getting regular oil changes and other standard maintenance on time. The best way to save on gas prices is to download an app like GasBuddy, which will help you identify the best-priced gas in your vicinity. Check out the GasBuddy app to find out if it’s best for you.
7. Reduce Your Day Sales Outstanding
Day sales outstanding (DSO) is a measure of how long it takes for a sale to be converted into cash. It can also indicate a potential issue that needs fixing. For example, low customer satisfaction can make clients less inclined to make timely payments for your services. DSO is an important metric because lowering it means more money in the bank—and thus, healthy cash flow.
There are several ways to reduce your DSO, including focusing on customer credit risk, managing your accounts receivable (A/R) carefully, improving your invoicing practices, and defining customer payment terms.
To get your DSO:
- Calculate your average sales per day by taking your total annual sales and dividing it by 365 days.
- Take your A/R and divide it by the average sales per day.
You should also differentiate between external and internal DSO. External DSO is the time it takes from your customer receiving the invoice to when it is paid whereas internal DSO is the time it takes for the invoice to be sent after the shipment was completed. Streamlining processes to send invoices sooner can help improve your cash flow position.
8. Claim Your Per Diems Correctly
Per diems are tax deductions that cover meals at a standard amount vs having to track and deduct actual costs for meals. It’s important to claim your per diems correctly to reduce your gross income, resulting in less money owed to the IRS. To qualify for a per diem deduction, you must be away from home for the night.
You have two options for deducting the cost of meals and lodging—either by how many days and nights you were on the road or with your receipts. You can deduct the greater of 80% of the per diem rate for each day or deduct 80% of the total expenses for the receipts you have collected throughout your trip. You must select one of these options for each year. It’s also essential to keep proper documentation on hand in case you’re ever audited by the IRS.
9. Find the Best Accounting Software
Trucking companies have certain bookkeeping requirements that make them different from other businesses. For example, you should be able to manage loads and dispatches and generate data that will help you file your IFTA reports, which is one of the trucking accounting best practices already mentioned.
It’s also important to keep detailed information on mileage and trips, no matter the size of your business. The ideal accounting solution will provide all of this information and offer trucking management tools, such as fleet maintenance tracking.
The right accounting platform will help leverage your company’s success. We suggest checking out QuickBooks Online with the TruckingOffice integration, which combines the powerful income and expense tracking of QuickBooks with TruckingOffice’s dispatching and fleet maintenance features. You can learn more about our recommendation through our guide on the top trucking accounting software.
10. Select the Right Payroll Solution
Processing payroll for a trucking company can be different than most other industries. Since drivers can be compensated by the truckload or miles driven instead of receiving a monthly or weekly paycheck, it can be confusing and time-consuming without a proper system. Working with the right payroll provider can be the key to saving time and avoiding unnecessary paperwork.
Ideally, this would address unique payroll scenarios and fulfill trucking-specific requirements while also simplifying salary calculations from the back end. Depending on the size and needs of your business, you may be suited better with software that provides the basics or one with trucking management features.
If you need affordable and reliable software, then we recommend Gusto. Apart from its robust human resources (HR) functions and reporting functionality, it can manage the pay processes of both driver and nondriver staff—all at an affordable price. It tops our list of the best payroll software for trucking companies.
11. Keep Business Activity in a Separate Bank and Credit Card Account
Keeping your trucking company’s finances separate from your personal finances is one of the trucking accounting best practices as it will make it easier to track business expenses, income, and profits. This will also make preparing accurate income tax returns more efficient. With all of your transactions in one place, you’ll be able to identify deductible expenses and prevent confusion with personal expenses.
While we recommend even sole proprietors keep their business finances separate, this practice also provides a level of legal protection for S-corp and limited liability company (LLC) owners. In the event of a lawsuit or bankruptcy, separate accounts make it easier to demonstrate that the business is a separate entity from the owner’s personal finances. It can also enhance the professional image of your business because it shows customers and vendors that you have a separate financial identity and you’re managing your business responsibly.
Our guide on how to separate business and personal finances gives specific suggestions, which include how to lend credibility to your business by registering it as an entity and applying for an employer identification number. Because separating your business finances also helps with building business credit, you could choose to apply for a credit card and establish utility accounts under your company’s name.
12. Invoice Customers Promptly
Invoicing your customers promptly is a key factor in maintaining cash flow for your business because it ensures that you receive payment for your services as soon as possible. This will provide you with the necessary funds to pay for expenses such as fuel, maintenance, and wages. Waiting to invoice can result in payment delays and potential disputes over billing issues, which could strain the relationship with your customers and potentially result in loss of business. Timely invoicing also helps with maintaining accurate financial records and regulatory compliance.
Automating your accounts receivable by using invoicing software will help you to create customized invoices quickly and get paid faster. Our guide to the top invoicing software programs provides suggestions for specific situations, whether that is for freelancers or professional service firms. For an effective invoicing solution, we suggest QuickBooks Online, which is not only our overall best invoicing software but also our leading small business accounting software.
How Trucking Bookkeeping Is Unique
Trucking accounting differs from regular business accounting in several ways. In addition to common bookkeeping practices, such as accounts payable (A/P) and A/R, companies should manage operations with mileage tracking, fleet management, dispatching services, and IFTA reporting. If you have employees, you must also be able to manage payroll for different types of pay and have flexible payment options.
Frequently Asked Questions (FAQs)
Trucking bookkeeping is crucial for managing cash flow, calculating profits, and fulfilling tax obligations. It also helps trucking businesses make informed business decisions by providing insights into key financial metrics, such as operating expenses, revenue per mile, and profit margins.
The most common expenses include fuel, maintenance and repairs, meals, lodging, insurance, permits, and tolls.
No, you cannot deduct your truck payment as an expense. However, you can deduct the interest portion of your truck payment plus depreciation on the cost of your truck.
No matter the size of your fleet or how long you have been in business, having a strong grasp of trucking accounting best practices will help to ensure compliance with industry-specific regulations. It’ll also help you make informed decisions and position your company well for future growth. Therefore, you should follow these trucking bookkeeping tips to increase profitability and save valuable time.