Small Business Advice

How to start a transportation business

Learn everything you need to know about starting a transportation business in this step-by-step guide.

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A transportation business is responsible for providing services that involve moving people and goods from one place to another. Regardless of the manner of operation and kind of vehicles in use1, the main focus of a transportation business is safe transit. Starting a transportation business may seem complex, but it’s much easier than it looks.

What is the most profitable transportation business?

Your profits are relative to startup cost, business size, personnel training and number, distances covered, and much more. Different kinds of business models have varying startup costs and income potential. Here are some you should consider when starting:

1. Shipping companies

These companies are responsible for moving purchased goods from retail businesses to customers. With online shopping services and purchases on the rise, shipping companies take the top spot among the most profitable transportation companies today. They typically have an annual income of about $30 million and offer their delivery services across countries or within a selected region. If you would like to choose this model, you should begin offering your services within a particular region and increase landscape coverage as the business expands. 

2. Trucking services

This transportation business model provides services using trucks and other heavy-duty vehicles. These vehicles can aid customers in transporting heavy equipment, carrying natural resources, or building materials. The business can operate in different ways:

  • You purchase trucks and employ drivers to offer services to clients. This could be a profitable model because you handle all income. However, you are responsible for keeping the business running. You pay salaries, manage vehicles, and maintain insurance. Managing all of these may translate to additional startup costs.
  • You can purchase trucks and rent them out hourly or daily to customers. This is usually more profitable as there are no salaries to pay, and the renter is responsible for damage control.

Anyone looking to start a trucking service can use either or both modes of operation. Trucking services can bring in an annual profit of about $50,0002.

3. Air transportation services

This model involves conveying people and goods using an aircraft. It’s highly profitable but has a few setbacks. Personnel must be highly trained, equipment costs are high, and the startup fee is astronomical. You may decide to either privatize the business and offer services as rentals to individuals, or make the services public for a lesser cost. Also, you can include accompanying services like private security, food, and more to help boost the profits. Air transportation business owners can expect a profit of about $29 billion annually.

4. Taxi company

Taxis provide services within short distances. They usually operate within jurisdictions as small as a city, town, or state. Cabs typically generate reasonable profit depending on the company's size and quality of service. If you’re new to transportation businesses, taxis are a good place to start. You can offer personal or exclusive rides and charge more or less based on the demand generated. Taxi companies are very profitable as they are a valuable option for most individuals without personal cars. 

Startup costs for a transportation business

Unlike other small businesses, transportation companies require a lot more capital. The costs involved are relative as they depend on the choice of vehicle, municipal taxes, and insurance plans. You must purchase relevant licenses and conduct periodic vehicle maintenance. Startup costs also depend significantly on the nature of the business and the vehicle in use. Small cars for businesses like taxi services, logistic companies, and delivery services usually cost less than vehicles required for industries like trucking services and air transportation. Vehicle prices also differ based on the mode of transportation selected. As such, aircraft cost much more than road vehicles.

The business location also influences how much money is involved. People who live in small cities are less likely to need personalized transport services so public taxis and buses are more likely to thrive. A small community with a few schools may not need school bus services. The location of your transportation business will affect what business model is suitable, and what startup costs to anticipate. Your business size matters, too. Starting with one truck, van, or bus costs less than starting with multiple vehicles. How many employees do you want? How many employees do you need? Your costs are dependent on the size, type, and location of your business.

Sources of capital for starting a transportation business

Now that you’ve considered all the factors that influence your startup cost, it’s time to source your income. Money is required for any new business, and searching for this capital is a critical step to your success. Let’s explore some of the funding methods you could consider.

1. Personal Funds

Personal savings are an excellent source of startup costs for your transport business. Your money is also a perfect way to ensure that you maximize profit from your new business venture in the long run.

2. Loans

This is usually the next best option. You can source funds from family and friends willing to support your new business or companies willing to offer you a loan. Your local bank is also an excellent place to request loans for starting your transportation business. Read through the fine print and ensure you aren’t overpaying in interest. Although some of the business profit will go into repaying the loan, it’s usually only a matter of time until any loans are fully repaid. When seeking a loan company or bank, you should look for those that offer good repayment options and low-interest rates.

3. Applying for grants

With grant opportunities on the rise, an acquisition - although it may not cover the entire startup cost - is an excellent way to acquire funds for your transport business. Requirements to apply for grants include well-structured blueprints, ideas for the business, and valid identification of the business owner.

4. Partnerships

You don’t have to be alone when you start a transportation business. You can seek out a partner to help reduce the costs involved. A partnership model means your business begins faster, with more ideas, and with more efficiency. If you don’t want a partner, consider investors for your new startup. 

Steps to follow when starting a transportation business

It may seem daunting to start a business, but having a transparent model can help you. Here are the steps you need to follow to start a successful transportation business: 

1. Create the brand

The brand is the outlook of the business, the part that customers come in contact with before they begin to place demands for your services. Your brand includes a good business name, an appealing design, a mission statement, and a clearly defined niche. Your brand is one of the distinguishing factors between your business and your competitors. Establishing your brand during the early stages of your business is essential. A good brand draws the clients' attention and ensures they value your business.

2. Write out a business plan

A business plan assists you in defining the mode of operation, creating its structure, and developing a process3 overview. This includes:

  • The location of the business, including the routes and distances that the business’ vehicles would cover.
  • The timeframe within which the business would run, as most transportation businesses run for 24 hours. 
  • Whether or not the business will require employees and how many are necessary.
  • Financial projections of the business, including startup costs and details of how funds will be utilized. 
  • Vehicle requirements, including models, number of vehicles, and relevant licenses. The business plan should state your fleet’s brands, usage, mileage, vehicle total, maintenance, durability, and insurance.
  • A brief analysis of how the transportation market runs. This will help you decide what changes to make in order to get the business to stand out as you progress.
  • Lastly, the rates at which the business will run. This includes prices for all services offered, estimated profit, loan repayment plan (if applicable), and employee remuneration.

3. Register your business

Once you are clear on the fine details of your transportation model, it’s time to register your business. The requirements for registering a transportation business are relative to its location. You need to know the rules that are applicable in the region where your business is situated. The requirements also depend on the business entity you choose. 

4. Choose a business entity

A business entity is the organization through which your business will run. Businesses fall under four major entities, and you consider each when you start a transportation business.

a) Sole proprietorship: this business entity is simple and involves one individual or a married couple running and managing a business alone. It’s essential that a transport business, even if run by a sole proprietor, is registered. An advantage of a sole proprietorship is that you’re responsible for making all the decisions about the business. A disadvantage is that you’re responsible for all business liabilities. Sole proprietorship registration includes your business name and address, identification, and business objectives. 

b) Partnerships: this involves two or more people owning the business and sharing full responsibility. Partnerships are similar to sole proprietorship businesses because they’re as easy to start and require no formalities. The lack of formality means registration requirements are also fewer but that loans are difficult to acquire. The requirements for registering a partnership often include the name of the business, names, roles, and identification of each partner involved, business objectives, a partnership agreement, business address, and signature of all partners. 

c) Corporation: a corporation is more of a legal entity where the business stands on its own, entirely separate from you. You are one vote among a board of directors and shareholders who make decisions that pertain to the business. A corporation is much more formal, taxed lower, and more likely to receive loans. However, they’re more expensive to start. Requirements for registering corporations include business names, licenses, bank statements, and passports of all members. You’ll also need the office address, objectives of the business, articles of association containing regulations that will govern the business, a list of all the board members, and a declaration by the corporation's president. 

d) Limited liability company (LLC): LLCs, like corporations, are a lot more formal and are not tied solely to the owner, but have less paperwork and requirements like sole proprietorships. An advantage of LLCs is that you don’t bear personal liability for the company. A disadvantage is that it’s also quite expensive to establish. Requirements for establishing an LLC include objectives of the company, company name, office address, company contact information, articles and memorandum of association, details and particulars of all legal entities associated with the company, and information concerning the business' shares. If you decide to form an LLC, consider Sprout.

5. Acquire all licenses and permits required 

You need to acquire several licenses and permits due to the nature of your business. One of these includes getting a Federal Employer ID Number which will allow you to purchase a tax status with the government. It’s essential to ask the local city office to know what other permits are needed to ensure the business runs smoothly. 

6. Apply for funding

Now that you have a plan and have registered your new transportation business, the business is legitimate enough to apply for funding from interested and willing investors or lenders. This way, you can focus of funding other aspects of the business, like acquiring vehicles, fuel, or staff. 

7. Make purchases

You can now proceed to purchase the vehicles and equipment required. By now you should have an idea of what your business looks like. Do you want purple vans? Beige trucks? Blue sedans? It’s up to you, but you can find and purchase those new or used vehicles now.

8. Hire staff

It’s time to look for drivers, cleaners, secretaries, maintenance, and all other employees you need. The staff you hire depends on the business model you choose. It’s essential that every person employed is licensed, experienced, and not a suspect in criminal activity. Endeavor to discuss salaries at the beginning and agree with your eventual staff on their working conditions and remuneration.

9. Promote your business

Pat yourself on the back! You're almost done. Now you want to get the word out there about your transport business. Print flyers and brochures to advertise it. Flock to social media. Let your clients and prospects know that your services are safe, outstanding, and affordable.

Frequently Asked Questions

How do I start a transportation business with one truck?

Starting a transportation business with one truck involves following the same principles, except the startup cost should be less, about $2000. Also, starting with one truck means you need fewer employees and can merge job roles. You can start offering your services with your truck and add more trucks as your business expands.

How do I start a transportation business with one van?

The most important thing to do would be to acquire the van, whether by purchase or rental. After this, you can begin operating in your niche. The van could function as a moving van, aiding people to move into houses or offices, moving goods from production sites to warehouses or shops, and so on. Your operation’s niche is based on the demands if its location.

How do I start a passenger transport business?

Starting a passenger transportation business isn’t complex. All you need to determine is how you provide service to your passengers. You can offer services at random or choose categories of passengers based on age, location, or occupation. If it‘s an air, road, or water transport business, you must follow the same steps to brand, register, and promote the business as when starting a transportation business. 

How do I start a transportation business for the elderly?

Starting a transportation business for the elderly won’t require different steps, but you must consider that your clients are a diverse and vulnerable group. This means that services must be quick and very comfortable. So, if your niche is taxis, you must make provisions for accommodating the needs of the elderly, like wheelchair options, pillows, and more. 

How do I start a logistics company?

A logistics company offers pickup and delivery services from other businesses to their customers. These businesses are primarily retail companies. You must carefully analyze the logistics and understand how the business operates3. You must find the best businesses to reach out to and decide the products you want to specialize in delivering. Knowing these specifics will make it easy to select the right delivery vehicle. You must also choose whether to operate within a city or an entire country. 

How do I get clients for a transportation business?

There is no specific blueprint for obtaining clients when starting a transportation business. The business model solves the needs of potentially everyone. Advertise your business in places with a broader reach. The internet is a great way to do this. You can gain clients by owning a website, advertising on a well-known blog, or owning a social media account. Even newspapers and fliers are a great way to gain publicity amongst local people.

Which license is required for a transportation business?

The licenses required often differ based on the location of the business. Standard licenses required include driver’s licenses, a Department of Transportation number, an Operating Authority number, and a Heavy Vehicle Use Tax number where applicable. You may also need to acquire specific permits, licenses, and complete registrations required at state and federal levels when you’re starting a transportation business.

References

  1. 1 July. 2022, https://www.entrepreneur.com/article/273805
  2. 1 July. 2022, https://gomotive.com/blog/cost-starting-trucking-business/
  3. 1 July. 2022, https://www.biggerinvesting.com/how-do-logistics-companies-get-clients/
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