your transportation company performing as well as its industry peers? You
reviewed your financial statements from your accountant and you are making
money. That is great, but what else are the numbers on the paper telling you?
benchmarks is an easy way to determine how well your transportation company
compares to others in your industry. Below are benchmarks regarding five major
subgroups in the transportation industry:
- Public School Bus Services
- Chartered Bus Services
- Local Freight Trucking
- Long-Distance Freight Trucking
- Airport Operations
company is unique and the below standards will not apply to all. These metrics
should be used as a guideline. Statistics and information was provided from the
IBISWorld Industry Reports, June 2018.
Public School Bus Services
- Profits are expected to average 7.2% of earnings
before interest and taxes for school bus operators. This is dependent on
company size. For example, larger school bus companies have profit margins
closer to 10.0% due to economies of scale. In recent years, profit margins
should be climbing slightly due to lower fuels costs.
- Wages represent the most significant cost for industry
operators. Due to the labor-intensive nature of the industry, operators can
expect to see wages near 46.2% of total revenues.
- Purchases and fuel are another large cost of the transportation
industry. With acquisition of buses, leasing, and licensing, 27.8% of revenues
can be accounted for through purchases. School buses can range from $65,000 to
$85,000, with newer, more technologically advanced buses even reaching up to
$185,000. Assuming an average of 7.0 miles per gallon for a school bus, we can
estimate roughly 1,700 gallons of gasoline are used each year (average 12,000
miles driven). Fuel can be anywhere between 20% and 30% (5.56% to 8.34% of
total revenues) of your total purchase expenses.
- Depreciation costs average 9.7% of total revenues. This
number has decreased over the past five years due to increased investments into
software that helps to track vehicles, verify inspections, and track and manage
fuel consumption rates. This information can help to extend the life of capital
investments, such as buses.
Chartered Bus Services
- Profits (earnings before interest and taxes)
average 6.4% of revenues. Flexibility in the economy’s disposable spending and
increasingly popular and inexpensive curbside lines have caused growth over the
past five years for chartered bus services.
- Purchases are the industry’s second largest
expense behind wages. Averaging 15.7% of revenues, a majority of this expense
category lies in gasoline purchases. Smaller companies tend to feel the impact
of changing fuel prices versus their larger counter-parts. Typically, this difference is due to larger
companies having the resources to purchase fuel in bulk, or enter in forward
- Wages, the largest cost for companies, average 33.7%. This cost
segment varies largely between company sizes. For instance, workers in
traditional scheduled bus service positions usually belong to a union, which
can help to increase their wage negotiating power.
Local Freight Trucking
- Profits are typically low in this industry due
to the competitive nature. Most trucking companies in this industry are
non-employers that operate with extremely thin margins. Profit as a percentage of revenues averages
6.7% for the industry.
- Wages represent the largest individual expense at 30.9% of
revenues. With labor being an essential component of this industry, companies
can expect to see wages follow trends in overall demand for services.
- Purchases average 32.2% of revenues with
fuel-related expenses making up the majority of this category. Fluctuations in
fuel costs impact this category most often. As prices increase, profit margins
thin, with only slight relief to larger employers whom have fuel surcharges in
- Rent and utilities in this industry can account for 5.0%
revenue. It is typical of companies in this industry to rent and operate
warehouses and distribution centers.
- Depreciation is a given in this industry. Roughly
4.6% of revenues can be allocated to depreciation to account for every truck
and trailer a company owns.
- Marketing is minimal at 0.2% of revenues. In many
cases, operators conduct business through freight brokers or through existing
long-standing relationships. Marketing campaigns direct-to-consumer are rarely
Long-Distance Freight Trucking
- Profit in this industry is relatively low at 5.9% of revenues.
This is up from 4.9% in 2014. Companies
are constantly competing on prices to win business, which ultimately hurts
profits. The prices of diesel over the past 5 years explains the jump in profit
- Fuel and purchases are expected to rise as the price of
diesel is anticipated to increase again over the next 5 years. However, with a
strengthening economy and an increase in demand for services, negative impact
on profit margins from fuel costs could be offset slightly. Fuel and purchases
on average account for 29.1% of revenues.
- Maintenance and other costs average 9.9% of revenues. These costs
typically include upkeep on trucks, trailers, and containers.
- Depreciation costs have grown to 6.9% over the past
five years as demand for more technologically advanced and fuel-efficient
vehicles has increased.
- Rent and utilities make up 17.6% of revenues. This
category not only would include warehouses and distribution centers, but cost
of electricity as well as truck or trailer rentals. Lease-to-own financing on truck purchases are
included in this segment of expenses.
- Wages and other labor expenses represent the largest expense in
an airport operators cost structure. Worker role ranges from air traffic
controllers, security guards, engineers, and maintenance workers to managers
and even a police force in some cases. Wages average 36.5% of revenues.
- Purchases represent roughly 10.4% of revenues. Operators
in this industry often need specialized equipment for things such as aircraft
refueling, maintenance, cargo and baggage, ferrying, and other services.
- Profits average roughly 6.0% of revenues, up
from 4.7% in 2014.
- Depreciation costs are a substantial cost for
airport operators, averaging around 33.7%. The construction and operation of an
airport requires substantial capital investment into things such as a runway,
terminal, hangar, and communications equipment.
To bring you innovative solutions, our Transportation Group stays on top of industry benchmarking, trends, tools and technologies to ensure we give you the best possible advice. Smith Schafer professionals have serviced the transportation industry since 1971 and is committed to serving over 100 Minnesota transportation entities. We take great pride in consulting on various industry specific issues, as well as the broader needs of these companies and their owners.
“I have worked with Smith Schafer directly and indirectly since 1979. I’ve always felt comfortable and confident in the work they do. Smith Schafer knows the law, the regulations and the rules that support our business.” Bruce Dischinger, Former VP & COO of Minnesota Coaches Group
a hiring shortage, rising fuel costs and increased competition challenging the
transportation industry, the knowledge and experience of your CPA makes a difference.
businesses, including trucking, school bus, motor coach and aircraft, often
face complex challenges not encountered in other industries. Managing the
demands of a large fleet including drivers, safety and compliance, and the
maintenance of new trucks and other equipment can be quite complicated. To stay
competitive, transportation companies need look for every advantage possible to
win new business, reduce expenses and increase service levels.
industry experts stay on top of changing trends and leverage years of
experience, relationships, and continuing education. Smith Schafer’s transportation
specialization allows us to stay on the leading edge of industry developments,
regulations and opportunities, and permits us to efficiently and effectively
provide services tailored to our client’s needs. A CPA who understands your
business and the industry can act as a valuable consultant on items such as
succession planning, business valuations, bookkeeping and much more. This level
of specialization makes us uniquely qualified to provide the high-quality
services that our transportation industry clients expect and deserve to
Why a CPA?
are trusted professionals offering high-level analysis and long-view
recommendations encompassing every detail of a financial picture. CPAs have
passed a rigorous examination and have met high standards of education. The
American Institute of CPAs works to protect the public interest and the
organization certifies these individuals are able to perform their duties in a professional
manner. The CPA designation is extremely difficult to acquire and is a way for
the financial industry to identify the right people to handle important
A CPA professional working with the transportation industry should be fully immersed in the arena. There is no substitute for industry-specific knowledge and understanding. Whether it’s negotiating fuel surcharges or dealing with leasing sales tax and fleet maintenance, Smith Schafer has the experience and understanding of the transportation industry to make a lasting positive difference in your future success. Our Transportation Group, comprised of numerous professionals, is committed to serving over 110 Minnesota transportation entities. Partner with an experienced team of CPAs to help you create saving opportunities both now and in the future.
Whether your transportation company has one or dozens of vehicles on the road, smart management can save you money. Familiarity with tax laws, simple maintenance steps, and high-tech solutions can reduce the costs of operating your fleet and keep it safer.
START WITH TAXES
One of the best ways to save money is to spend some time with financial and accounting professionals. Deductions make a major difference in the cost of operating a fleet. Smith Schafer has the experience and understanding of the transportation industry to make a positive difference in your future success. Our Transportation Group, comprised of numerous professionals, is committed to serving over 100 Minnesota transportation entities.
- Depreciation deductions are allowed on vehicles used for business purposes, including passenger cars, light trucks, and vans.
- The various rules surrounding depreciation can be complex, but Smith Schafer professionals are here to help you simplify your options.
operating costs deductible to the extent of their business-use percentage.
costs typically include:
and License fees
lease payments are deductible to the extent of their business-use percentage.
apply to certain passenger cars, light trucks, and vans.
costs of leased vehicles are also deductible to the extent of their
you buy or lease, it is important to keep good records of business miles driven
for tax purposes.
Beyond tax savings, simple maintenance can keep your costs down and your safety record up. Here are five tips to managing your fleet:
- Check the air pressure of your tires daily when they are cold and fill if necessary. Low air pressure causes stress and irregular wear that can result in loss of control.
- Inspect tires every 30 days for wear and evidence that the suspension isn’t aligned properly.
- Rotate tires regularly to help achieve more uniform wear. The guideline for tire rotation is approximately every 6,000 miles.
- Avoid premium gasoline unless necessary. If your vehicles do not specifically require an upgraded fuel, buy regular unleaded.
- Shop around when you hire out routine maintenance. Costs can vary as much as 50% depending on which shop you use. Consider doing in-house maintenance. Your business can be more productive if your vehicles continue to run during normal hours and are serviced by staff mechanics after hours.
- Keep your fleet in a garage or parked under a carport. As a result, it will help keep them in better condition and if garaged, may lower your insurance cost.
- Shop for insurance. Re-bid your insurance policy to make sure you’re getting the best deal.
- Encourage safety. Run a motor vehicle report on every driver in the company. Revoke driving privileges for those with multiple infractions. Consider rewarding those with good records.
What’s driving your business? You should have an advisor on your side to take a tax efficient, customer-centric approach to managing the top and bottom line and everything in between. Transportation has been a key practice area of ours since 1971. Contact us today to learn more about how we can help while providing accurate, timely and professional financial advice.
Over the past 45 years, we have dealt with several IRS audits involving the fuel tax credit claimed by our school bus company clients.
BELOW ARE FREQUENTLY ASKED QUESTIONS WE HEAR FROM SCHOOL BUS COMPANY OWNERS:
Q: What fuel and what vehicles qualify for the fuel tax credit?
A: Gasoline and diesel fuel used in school buses and qualified local buses qualify.
Q: What is the definition of a school bus and a qualified local bus for fuel tax credit purposes?
A: Many states have their own definition for what is a school bus. For example, Minnesota’s definition of a school bus is published under Minnesota statute 169.011 subdivision 71. However, the federal fuel tax credit does not use a state statute for their definition.
The Federal statute does not give a specific definition as to what a school bus is. However, over the years, it has become apparent that the bus looking vehicle with accordion doors is the starting point. The fuel tax credit is available for vehicles registered as a school bus with the state where the vehicle is licensed.
The school bus fuel tax credit is not available for traditional passenger vehicles, such as mini vans or other automobiles registered as a van or private automobile. The smaller vehicles must be modified by installing the accordion doors and other safety modifications, in order to qualify for the fuel tax credit. For example, a standard Dodge Grand Caravan painted yellow is not a school bus for federal fuel tax purposes.
Note: the publications do not define the fuel credit as available for fuel used in any vehicle used to transport school students; it specifically says bus (school bus). “In a school bus means fuel used in a bus engaged in the transportation of students or employees of schools.”
In a qualified local bus means fuel used in a bus meeting all the following requirements:
- It is engaged in furnishing (for compensation) intracity passenger land transportation available to the general public.
- It operates along scheduled, regular routes.
- It has a seating capacity of at least 20 adults (excluding the driver).
- It is under contract with (or is receiving more than a nominal subsidy from) any state or local government to furnish the transportation.
We have several clients using traditional automobiles for the services to transport students. We have not taken fuel tax credit for school transportation on traditional automobiles, but do for school buses and qualified local buses.
Q: What is the difference between a qualified local bus and a school bus?
A: A qualified local bus is eligible for the fuel tax credit when it is a vehicle other than a traditional school bus and is used to transport people. A school bus is generally the traditional “yellow bus” which has the distinctive accordion doors and school bus safety features you would recognize such as a 65 or 77 passenger school bus. A qualified local bus is a bus which does not qualify as a school bus, but has a seating capacity of at least 20 adults excluding the driver.
Q: What information is needed?
A: We begin each year by asking our clients about the gasoline gallons and then the diesel gallons used during the prior year in their school buses, what we call a “yellow bus.” Then we ask the same question for their qualified local bus fuel usage.
Q: Why do the gallons and type of fuel matter?
A: There are different rates of fuel tax credit available based upon if the vehicle is a school bus or a qualified local bus and the type of fuel used.
Q: Do you need a vehicle fueling log and/or receipts to obtain credit?
A: As we have gone through the audits over the years, the IRS has asked for a listing of the company vehicles, the fuel type and the seating capacity of each. If there are vehicles other than school buses or if qualified local buses that may have used fuel out of the tanks at the terminal, fuel cards or logs by vehicle have been asked for. The process typically includes providing fuel invoices from bulk deliveries plus fuel receipts for fuel purchased at the pump to prove that federal fuel taxes have been paid and reconciling the gallons claimed as a fuel tax credit against the total gallons purchased.
Q: How do I claim the fuel tax credit? What is the deadline for filing a claim?
A: Generally, the filing is done annually along with your company’s business income taxes using Form 4136 (for tax credits), but you may also file annually on fuel and any other applicable excise taxes (for rebate payments) using Form 8849 along with the appropriate attachment (schedule 1 in your case). If you want to file quarterly you can use Form 720.
Transportation has been a key practice area of Smith Schafer’s for more than 45 years. We have qualified professionals to assist you with identifying and claiming these credits. For more information on tax strategies that may benefit your business contact the Smith Schafer Transportation Team. We look forward to speaking with you soon.
The new lease accounting rules will have a significant impact on the financial statements of transportation companies leasing real property, equipment, vehicles and other fixed assets. The new lease rules apply to all leases with a term of more than one year and go into effect for nonpublic companies with fiscal years beginning after December 15, 2019. Below are five ways the new lease rules may affect transportation companies:
1. Existing leases will present differently.
Under the current rules, many leases are recorded only as rent expense on a transportation company’s income statement. However, under the new rules, lessees will be required to record an asset and corresponding liability for substantially all leased property.
2. Existing leases will be incorporated in the change.
The terms of current leases are more than likely going to continue into 2019 and beyond, meaning every lease entered into is going to be presented differently on future financial statements.
3. Current loan agreements will be affected by the change.
Banking relationships are important to transportation companies. Agreeing to loan covenants now, without understanding how this standard is going to affect a transportation company’s financial statements, may put a strain on this relationship that could be avoided.
4. Buy versus lease decisions on equipment could change.
Many factors are involved when deciding between leasing a piece of equipment or purchasing the equipment out right. If showing debt on the balance sheet is a consideration, this will need to be re-evaluated to verify how the lease will be presented in the future.
5. Comparative statements need to be calculated.
The standard needs to be implemented for the earliest period presented, which will require calculations and new presentation for all years presented. Transportation companies should determine if the bank requires comparative statements. Single year presentation will remove a year of lease liability calculations and restatement, which may save time and money, but may reduce the usefulness of the statements.
The best way for your transportation company to prepare for the new lease accounting rules is to plan ahead. Below are three things your transportation company should be doing now to prepare:
1. Identify and classify leases.
Review all existing lease and rental contracts and create an inventory list, including rent, interest rates and security deposits. Lease documents will become a necessary item for accounting professionals, so start collecting and retaining these documents now.
2. Educate transportation company’s banker.
Educate investors about the new lease accounting rules and how they impact financial statements. Ensure they know what to expect in future financial statements.
3. Consider purchasing equipment before the end of the year.
If there are plans to enter into a new lease for equipment, consider purchasing it instead. For 2018, the section 179 depreciation deduction is generally $1,000,000 and the bonus depreciation rate is 100 percent.
Implementation of new lease accounting rules may be a relatively simple process with the help of a CPA with an expertise in your industry. Smith Schafer is a recognized leader in providing accounting, auditing and consulting services to the transportation industry since 1971. Our Transportation Group is committed to serving over 80 Minnesota transportation entities and stays on top of industry issues, trends, tools and technologies to ensure we give you the best possible advice.
For additional details on the new lease accounting rules or to learn more about how we can help, please contact a Smith Schafer professional.
Many growing transportation companies struggle to create well-tuned accounting processes, especially as systems need to change to support increased activity. We have provided the guide below to help transportation companies better understand some basic accounting procedures:
1. ACCOUNTING METHOD
There are two principal options for accounting for revenue and expenses:
- the cash method
- the accrual method
The cash method of accounting is exactly as it sounds – revenue is recorded when cash is received, and expenses are recorded when cash is spent. This is the simplest accounting method. However, it does not always give a complete and accurate picture of a company’s operations.
Example: A large job is completed in December 2018, but payment is not received until January 2019; expenses related to the job were paid in 2018. Using the cash method of accounting, the revenue will be recorded when payment is received in January 2019 and expenses recorded in 2018 when paid.
Under the accrual method of accounting, revenue is recognized when it is earned, regardless of when the cash is received and expenses are accrued even if not yet paid. The accrual method of accounting provides a more complete and accurate picture of a company’s operations and matches the expenses to the same period as the revenue.
Tip: If a third party, such as a bank or bonding company, is requiring a transportation company to have CPA-prepared financial statements, inquire about the method of accounting they prefer.
2. FUEL AND PARTS INVENTORY
Inventory is often associated with retail businesses and is generally a product to be sold to customers. However, transportation companies may also have inventory but it’s in the form of products consumed in the production of services. These may include fuel, parts and other supplies. Under the accrual method of accounting described above, inventory is an asset to the company and is not recorded as an expense until it is used.
3. LEASING ASSETS VS. BUYING
Many factors are involved when deciding between leasing a piece of equipment or purchasing the equipment. Leasing equipment has predictable payments that are typically 100 percent deductible as an operating expense. Generally, companies do not pay for maintenance on leased equipment. However, companies are charged interest as a component of the lease payment. This interest results in an overall higher cost than an outright purchase.
When purchasing an asset the overall cost may be lower but this transaction generally requires a higher initial cash outlay at the time of purchase. In a purchase situation, the transportation companies have complete control over the asset.
4. TAX CONSIDERATIONS
There are two major tax considerations specific to transportation companies.
- Meals provided to employees. The general rule is a company may deduct 50 percent of business-related meal expenses. However, transportation companies receive a higher deduction. Employers can deduct 80 percent of the cost of meals provided to employees whose work is subject to U.S. Department of Transportation hours-of-service limitations.
- Credit for taxes paid on fuel. The government essentially taxes all fuel purchases, but then allows a credit for nontaxable uses of this fuel. Nontaxable uses include, but are not limited to, farming, off-highway business, such as refer fuel, use and transporting students. In order to claim the credit, a Form 4136 must be completed with the tax return. A tax credit reduces income tax dollar for dollar. Whereas a tax deduction reduces your income subject to tax. For example, a Form 4136 is completed and calculated at a $1,000 credit, income tax is reduced $1,000.
Need help managing the daily routine?
Transportation company owners manage and balance many duties including the accounting department. One strategy to reduce the burden is to hire additional staff. This strategy can be ineffective without the proper expertise, oversight and guidance. Smith Schafer offers customizable accounting services. Whether you need help managing the daily routine or assistance with more strategic decisions, such as software analysis and selection, our accounting professionals can give you back valuable time and resources so you can focus on growing your transportation company.
Contact us today to learn more about how we can help while providing accurate, timely and professional financial advice.