In part 11 of this Business Planning for Successful Expediters series, we noted that, unlike corporations, sole proprietors have unlimited liability; and that most one-truck expediters are sole proprietors. If you are a sole proprietor and someone makes a claim against your business, it is a claim against you, and your personal assets may be at risk.

In this part, we discuss some of the things sole proprietors do to minimize their risks and liability exposure. Let's start by looking at what big companies do.

Publicly held corporations issue quarterly and annual reports in which they disclose the risks these companies are subject to. These reports are instructive to read, especially those of trucking companies.

They are concerned that fuel prices may rise (a risk). So are you. They say there is a risk that the company may not make money this year. The same is true for you. They are concerned that the freight may slow down (economic risk). So are you. They worry that a competitor may take away some of their business. So do you. They know a government rule change may hurt their business. So do you. They worry that premature equipment failure may increase their cost of doing business. So do you.

Large trucking companies identify their risks so they can be prepared to deal with them if the risk event occurs. If the freight was abundant and rates held firm, fuel prices declined, no new competition entered the market, no government rule changes occurred and their trucks all ran great, they may have a profitable year. And so might you. But if everything that could go wrong did go wrong, the results would be different.

When you write your business plan, people who read it will be pleased to see that you have identified the risks you are taking as a sole proprietor, and managing them. The term "risk management" sometimes refers to the insurance coverage you have. Used in a broader sense by a sole proprietor, risk management is the process of asking yourself "What can go wrong and how can I minimize the chance that it will?"

A tire can go wrong by going flat. You can go wrong by getting injured and unable to drive. Something at home can go wrong requiring you to return for an extended stay. Your carrier can go wrong by changing the rules such that you cannot stay. A motorist can go wrong by crashing into the side of your truck. Your heart can go wrong by ceasing to beat.

Cheery, huh?

Many people avoid thinking about such things because it is depressing. Sole proprietors who muster the courage to think them through are better off for doing so. Say you have to return home and stay there for six weeks. If you have planned for unexpected down time and set aside funds to cover it, you go home for six weeks and head out again. If you have not managed your down-time risk, those zero-revenue weeks may bankrupt you.

Let's talk about insurance. You are required by law to have some on your truck. You are not required by law to have it on your life and health. People buy insurance to manage risks. If you have an accident, insurance helps pay for the repairs. If you are hospitalized, insurance helps pay the medical bills that could otherwise wipe you out. If you die, insurance helps your family replace your income, keep the house and pay the bills you left behind. None of these events may occur, but insurance is maintained in case they do.

The more thought you put into risk management, the better prepared you can be; but there is a point at which common sense says to stop. We could write out 1,000 things that can go wrong in a one-truck expedite business. That is too much detail for a business plan. Mentioning the major risks and how you plan to deal with them is all you need to do.

If you look not at risks but at the consequences of the events, you will find they fall into just a few categories:

• Events that slow or stop the truck (breakdown, accident, theft)
• Events that slow or stop you (injury, illness, death)
• Events that slow or stop your revenue (change of carriers, loss of co-driver, economic recession, new competition, decline in freight rates)
• Events that increase your expenses (fuel price rise, fee increases, tax increases)

Note that some events fall into more than one category. If you get sick, it is an event that slows both you and your revenue. Note also that some events can be instantly resolved and others may take months and even years to resolve.

When a banker or accountant looks at the health of your business he or she wants to know how well the business is capitalized. In other words, if, for whatever reason, your revenue slows or stops, how long would you be able to continue? Whatever the event may be, the difference between success and failure is having the capital (money) to see you through.

That means more than salting your profits away. It means spending some money now to reduce the probability of and protect yourself against future negative events. An example is buying insurance that will see you, your family and your creditors through your injury, illness or death. Another is buying new tires before the old ones are totally worn, to reduce the risk of blowing a tire and needing expensive road service.

In the end, risk management is all about capital. You might get sick for a year and go to zero revenue as a result. That is a risk. But if you have money saved with which you can continue your truck payments, your banker won't feel the need to repo your truck. On the other hand, if you don't have a well-capitalized business, your banker will repo the truck and you will have nothing to drive when you are back on your feet.

We have been talking about risk management. Let's turn to liability. Limiting your liability is a risk management component. You limit your liability for the same reason you manage all other risks — to protect your capital.

The word "liability" is used in several ways. If two basketball players are facing off and one is six inches shorter than the other, the short player has a liability or disadvantage in the contest. If you purchase tires with a credit card, you create a legal obligation to pay the credit card company. That obligation is a liability. The kind of liability that strikes fear into many business owners is the kind that develops when property is damaged or people are injured or killed.

Say you park your truck at a truck stop on a slight incline and go inside to shower. When you come out, you see the front of your truck has crashed through the wall and is now parked half in the lot and half in the convenience store. Oops! You forgot to set your brake. No one was injured. Property damage occurred. Someone has the liability to pay for the damage to the store and the truck. In this case, you are the one.

If you have good insurance, the liability to pay is assumed by the insurance company. By managing your property damage risk (the risk that you may damage someone else's property), you protected your capital and can get back in business as soon as your truck is repaired (assuming your carrier's safety department clears you to drive).

In accidents involving commercial vehicles in which people are hurt or killed, things get very serious and stay that way for a long time. Whether you are at fault or not, it may take years to sort things out and determine what kind of damages occurred and who is liable for what.

How do you manage this kind of liability risk? You do it the same way the large trucking companies do. You maintain good liability insurance and you drive safe. As a sole proprietor, you have something going for you that large companies do not. You have total control over your actions. Large companies have thousands of drivers to worry about. You have one driver to worry about, or two if you are a team.

Purchasing insurance is one way of managing liability risk. Managing your behavior is another. In other words, follow the rules. Drive legal under the hours of service. Maintain a safe truck. Obey speed limits.

A truck driver who obeys speed limits is less likely to be in an accident than one who does not. The less likely you are to be in an accident, the lower your liability risk will be. The lower your liability risk is, the better your capital is protected. And the better your capital is protected, the healthier your business will be.

In part five, we presented a suggested business plan outline. This completes the business form portion. The next item is business owners/managers. We will take that up in part 13.