Introduction of our guests
On this episode of McLeod Insights, we sit down with Ben Lyon and Jason Miller of Katz, Sapper, & Miller (KSM) accounting firm to discuss an overview of 2019, preview of 2020, and expected FASB changes to Industry Accounting Principles. KSM is one of the leading public accounting firms within the transportation industry.
Ben Lyon is a Director at KSM and deals primarily with tax. Ben has been with the firm since 2006, and his responsibilities include reviewing financial statements and tax returns, along with advising clients in accounting, reporting, and tax-related matters (KSM website). Ben receives his Bachelor of Science in business operations as well as decision technologies. He also received his Master of Professional Accountancy degree from Indiana University.
Jason Miller is a Partner at KSM and has been with the firm since 2005. Jason’s responsibilities include day to day operations for KSM which include, financial statement audits, reviews, and consulting. Jason studied at Indiana University and received his Bachelor of Science degree in accounting. He has also completed a variety of SOS-related courses through the American Institute of CPA’s.
2019 Review of the Industry and 2020 Preview
Ben and Jason have work with over 100 transportation clients nationwide. Their expertise in the field is on display as they walk us through a review of the industry in 2019, and how it will affect 2020’s first and second quarters. In 2019, we saw the Trucking industry take a dip from where it stood in 2018.
Two reasons which Jason explores, are Freight demand slowing down, and the insurance market hardening up. We saw trucking companies within a niche market (such as retail) actually increase in the fourth quarter of last year. This is due in large part to the holiday season. This increase, however, was not as large as the one we saw in 2018.
As we move into 2020, Jason and Ben’s views are that the struggles of 2019 could bleed into the first and second quarters of 2020. However, there is an expectation that truckers will be able to regain control of pricing power of shippers. This, however, is predicated on excess capacity reducing within the market.
Ben makes an interesting point that there are outside factors which some might not even consider on effecting the trucking industry in 2020. One such factor, is how the corona virus will impact Chinese production. This is a reminder that the industry is affected by outside forces that can develop even outside of the country.
What Expenses should owners be aware of & how can they limit them?
Business operators and owners must be knowledgeable of their overhead, and put into practice smart practices in order to limit their overall expenses. Basic expenses for trucking companies include:
- Insurance (2019 so a sharp increase in insurance costs)
- Solution to Limit Insurance Expenses:
- Increase your self retention amount
- Companies could also seek legal counsel to look into restructuring and saving on insurance requirements.
- Solution to Limit Insurance Expenses:
- Maintenance Costs
- Solution to limit maintenance expenses:
- Switch to in house mechanics (adds an expense, but could be cheaper in the long run)
- Solution to limit maintenance expenses:
Ben and Jason also made sure to suggest for companies to regularly review their revenues.
- Ask yourself, Do you really understand your freight network and look for opportunities to improve that.
- Look at your overhead per truck
- Review costs per mile
- Is there an area where you can have an idea of where you should be for maintenance per mile
- Look at fuel costs
- “Are we putting our equipment and drivers in a profitable lane?”
FASB Changes
Ben and Jason end the conversation by discussing changes with FASB regulations and how they will affect accounting practices for trucking companies. FASB changes can cost you if you do not pay attention to them.
When approaching these changes, companies should do the following:
- Have an open dialogue with your banker now. Most large bankers know how this will effect balance sheets, but make sure they are educated on FASB regulations.
- Ask questions: Ask your accountant what you don’t know or what you’re unclear about. Never just assume anything when it comes to your finances.
Extra Notes on High profile Bankruptcies (Just in case you want it mentioned in the blog):
- High Profile Bankruptcy Increases
- Sometimes there are not good enough segregation of duties, and it can be difficult at times. Make sure there are segregation of duties around cash. One person shouldn’t do everything. Have an intervention and have multiple people have contact.
- You don’t want financial reporting to go too quick or long.
- Ask a lot of questions.