By Jeff Brocklebank.
From trucks to tugs to planes, Walsh King’s clients in the transportation industry span air, land and water. Each mode has its own commercial, technical and operational characteristics, but whether they carry passengers, freight or both, transportation businesses share common challenges. Here are 10 that every owner and senior manager should keep in mind.
1. Significant capital requirements
Tanker trucks, passenger aircraft and tugboats, to name just a few examples, are big-ticket items. As a result, transportation companies must make significant capital investments. Also, their equipment needs regular and costly repairs and maintenance, plus major overhauls about every five years.
2. Complex financing
Because they’re capital-intensive, transportation businesses often have elaborate financing arrangements with banks, owners and other lenders. These deals typically call for multiple credit facilities, regular equipment appraisals, frequent and extensive reporting requirements, and restrictive financial covenants.
3. Cash flow planning
Cash flow forecasting is a necessity for transportation businesses to plan for capital investment, maintenance and overhauls. They also rely on this planning to account for the business cycle, anticipate future revenues and cash inflows, and prepare for contingencies.
4. Business and financial risks
Transportation businesses have significant business and financial risks, thanks to the cyclical nature of the industry, fluctuations in fuel costs, and the possibility of accidents. Companies can minimize such hazards with extensive controls, safety and maintenance policies, and other risk reduction procedures.
5. Complex organizational structures
Securing financing and safeguarding assets from business and financial risks often requires transportation companies to set up complex corporate structures. These structures tend to get more complicated as the business grows.
6. Labour issues
Good people aren’t just expensive, they’re hard to recruit and retain. All transportation businesses struggle to attract and keep qualified and experienced captains, pilots, drivers and other staff. Also, transportation workers are often unionized, so collective bargaining agreements add more complexity to business operations.
7. Capacity and logistics planning
Capacity and logistics can be a headache for transportation companies, given equipment capacity and a shortage of qualified labour. Maximizing the use of costly equipment is critical. Transportation management software and other technology tools, which are rapidly changing, play a key role here.
8. Government regulation
Highly regulated transportation businesses must comply with a variety of transport and environmental laws and rules to help ensure that they’re safe, secure and ecologically responsible. Federal, provincial and municipal governments all administer regulations that can be complicated and subject to change—and they come with heavy compliance burdens.
9. Tax and accounting complexities
Transportation businesses often have complex technical tax and accounting issues that need analysis to deliver optimal tax and/or financial reporting results. The causes of these issues are: overhaul requirements, financing covenants, intricate organizational structures, and other factors particular to the industry.
10. Estate planning
In transportation and other industries, planning for the orderly transfer of business ownership to the next generation presents challenges. For a smooth transition, companies must take a long-term view.
HOW WALSH KING CAN HELP
At Walsh King, our depth of industry experience allows us to provide proactive, relevant tax, accounting and business advice to owners and senior management of transportation companies. Got a question about your business? Contact us today.
Posted in Strategic Insights
