Chapter 1
Why should I care?

Running a successful trucking company is hard enough without having to learn how to read financial reports, right? That’s a job for bean counters, isn’t it? If that’s how you feel, then you couldn’t be more wrong. That attitude is potentially damaging to your company’s or your own financial well-being.

Assuming you had an endless supply of diesel, would you run a truck down the highway for days, weeks, or even months without checking the key dashboard instruments, or looking under the hood? Of course not.

Yet many fleet owners do just that with their biggest investments — their businesses. Just as gauges tell you the operating condition of your trucks, financial reports gauge the financial and operating condition of your company. Ignore these indicators and you’ll likely hear some gears grinding as bankers or creditors call you in for some emergency maintenance.

For a new driver, the dashboard instruments may seem impossible to learn. But in time, a driver learns what each indicator says about the tractor and what the “safe” operating ranges are for each system. It takes only a willingness to learn and an appreciation for the importance of each control or instrument.

Financial statements need not be mysterious or incomprehensible. Each tells a story about a different part of your business. Collectively, they give an overall picture of the financial health of your company. Learn what information each tells — and, just as important, doesn’t tell — and you’ll be in a better position to make your company financially healthy for a long time.

Who reads my financial statements?
Anyone who has a vested interest in your success will want to see your financial statements. Your banker studies them carefully, of course, as do your equipment financing company representatives. In fact, each likely has teams of specialists behind the scenes who use computers to analyze your statements.

Your biggest customers often request financial statements; they want to make sure you have the financial ability to carry out your end of a contract. You may also have investors in your business — active or silent, family or non-family — who may want to study the numbers very carefully.

As you grow your business, you may need to attract management talent. The more sophisticated candidates may often require some assurance that you have a proven track record, and have the financial ability to grow safely. When interpreted properly, the financials tell if continued growth is possible or not. After all, why should someone give up a career or relocate if the business trends are negative?

Lastly, you or your internal company managers should read your reports carefully every month. How can you get to a destination (such as a certain level of annual profit) if you don’t monitor the monthly mileposts? Recall the old adage: “Most people aim at nothing, and hit it with remarkable accuracy!” Financial statement targets, called budgets, are these key mileposts to shoot for.

How can I use them?
With all these people making decisions about your future, shouldn’t you place a high priority on knowing what they’re reading? Knowing the numbers puts you in a better position in each of the relationships previously mentioned.

It’s not uncommon, for example, for bankers to misinterpret your numbers. Since your banker is the person who must justify your loan request, you must know whether he sees your company in a good light, financially speaking. You can’t know this unless you know your own numbers inside and out.

You’re also like the head coach on a football team. Using budgets and comparing your actual financial results against the planned targets can be the very basis of the halftime pep talk to your managers.

And anyone else with a vested interest in your success will probably compare your financial results with a set of average numbers for companies your size. The IRS has entire teams of specialists that make it their business to know the finances of the trucking industry better than you do. Lenders set interest rates depending upon how your financial health measures up against others in similar size ranges. How can you possibly negotiate well without knowing this comparison yourself?

Finally, does the threat of personal financial ruin motivate you? Since you’ve likely guaranteed your bank notes, recognize that bankruptcy courts are clogged with cases of companies that were too busy to pay attention to their financial numbers.

How can I learn without going crazy?
This book is designed for owners of small trucking companies with fewer than 100 trucks. Most books about reading financials are aimed at understanding the glossy reports of big, publicly traded companies. We’ll look briefly at those companies because it’s useful to follow trucking company stocks, but that will not be our main focus.

Instead, we’ll focus on the types of reports that local or regional public accounting firms typically prepare for privately held companies. And we’ll distinguish between the annual reports that you get from your accounting firm and those that you get monthly from your internal accountant. There are significant differences.

We’ll cover the three basic reports: balance sheet, profit/loss, and the all-important but little-understood cash flow statement — including the numerous other items often found in these reports, such as accountants’ reports, footnote disclosures and supplementary information. We’ll explain the terms and jargon that can seem so confusing.

As you read this book, refer to your own financial reports. Try to apply immediately what you learn to your own reports; it’s the best way to retain the key concepts. Think of this book as your user’s manual; keep it handy when using and reading these important financial tools.

Finally, we’ll give you some tools to compare your company’s financial reporting to the best in the business. Comparing your practices to those of the most profitable in the industry — and adapting their practices to your own operations — just might help you maximize profits.

In Summary
Financial statements are important to you as a manager and to outsiders -- lenders, investors, customers, suppliers, etc. -- as an indication of their risk in doing business with you. Without knowledge of your income, assets and cash flow -- and the items that comprise them -- you can only guess at your company's performance.