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How FP&A Makes Transportation Companies More Effective


How FP&A Makes Transportation Companies More Effective?


The transportation and logistics sector are dynamic and fast-paced industry characterized by cycles and a mix of large and small players. With high volume but low-profit margins, the industry is sensitive to factors like fuel costs, tariffs, and changes in the US Gross Domestic Product, posing financial challenges for stakeholders.


Transport trucking plays a crucial role in the global supply chain, facilitating the movement of goods worldwide to ensure businesses stay stocked and consumers receive their products promptly.


Despite its longstanding presence, these industries grapple with evolving challenges. As the industry landscape transforms, so do the obstacles faced by transport companies.


FP&A Obstacles Faced by Transportation Industries


1) Managing Cash Flow


Margins are thin in the field of transportation, and that’s why keeping an eye on the company’s cash is important. With tight profits and lots of bills and invoices flying around, it's easy to get caught off guard by delayed payments or issues like lost shipment papers and damage claims.


The trick? Being on top of the game with customer payments - send those invoices fast, make paying online easy, and don’t let up on following up. Also, playing nice with vendors and syncing up payment terms can really help keep the cash flowing smoothly.


2) Keeping Profits Up


Making a profit in this industry could sometimes feel like squeezing water from a stone, it's all about running a tight ship. Ensuring the trucks are out there as much as possible, in tip-top shape, and taking the smartest routes.  A bunch of participants is small sole proprietors that are thinly capitalized and many of its assets like trucks are constantly moving.


Another key thing to do is to cut unnecessary costs. The industry sees more than the usual cases of bad debt and theft. Truck drivers tend to come and go quite often. The same goes for transportation businesses. All these factors make it tough for industry folks to get affordable working capital.


3) Business Financing


Finding money that doesn't cost an arm and a leg is a big headache in transportation, thanks to things like the high chance of customers not paying up and many businesses just not having enough cash on hand. The usual cheaper loans might not be an option, pushing some to go for pricier options like factoring.


Most of the time, the financing used in this industry is factoring, which can be a helpful financing option in the right scenario especially for a new business that's growing quickly. However, it can get quite pricey when compared to traditional bank financing. For instance, a traditional bank line of credit may have an Annual Percentage Rate (APR) of 5% to 7%, while factoring can range from 12% to 36% APR. This costly financing can really eat into business profits. As business owners, it's important to work on positioning your business over time for traditional bank financing by boosting business profitability, liquidity, and solvency ratios. 


To get on the good side of banks and score better loan terms, businesses need to show they're in good financial shape, making profits, have cash ready to go, and are growing steadily.


4) Avoiding Bad Debts


The transportation industry has a lot of small players like truck drivers and freight brokers who are running on razor-thin cash reserves and are exposed to bad debts. And bad debts can quickly spell game over. If things go south just a bit, as a load gets damaged during shipment, it can really hit them hard.


The way out? Be careful about whom to give credit to. They can do simple things like check the credit of their vendors and customers, set strict credit limits, stay on top of collections, and maybe ask for a security deposit for those with shaky track records. Once credit is given to someone sketchy, it's tough to get the money back. Legal actions can be a headache and even court wins don’t guarantee payment. If the other party can't pay up or goes bankrupt, the business could be left hanging.


5) Staying on Top of Reporting


Keeping tabs and reports in the transportation sector can be quite a headache, right? Especially with so many small owner-operators and trucking companies out there. A bunch of them don’t have the right systems in place to give accurate and timely information about their business or shipments.


This not only means headaches for the transportation companies they deal with. Tax reporting to the IRS and states can get all muddled up. Plus, shipping companies moving items might end up dealing with tax reporting in multiple places - talk about a headache! So, companies need to stay on top of things by keeping solid records of sales and detailed information on customers and vendors. Dealing with these issues can take up a lot of time and even lead to hefty fines and penalties.


How does FP&A Make Transportation Companies More Effective?


Adopting Financial Planning and Analysis (FP&A) empowers transport and logistics companies to thrive in the rapidly evolving, competitive market. When companies match financial goals with their strategic objectives, they set themselves up for long-lasting growth and get the most out of their value. With careful planning, FP&A helps businesses allocate resources in the best possible way.


There are many different ways FP&A has eased the burdens of these businesses like budgeting. For example, look at Saddle Creek - a big player in logistics in the US. They handle warehousing, fulfillment, transportation, and packaging. To step up their game, they incorporated FP&A to streamline their processes.


Paige Williamson, the Associate Director of Fixed Assets and Systems at Saddle Creek, shares how the company's budgeting process posed a big challenge.


With about 50 warehouse locations, each managing budgets in separate Excel sheets, combining them all into one cohesive budget for the CFO and President was a tough task. This inefficiency took up a lot of the finance team's time, leaving little room for analysis or strategic adjustments. Now that Saddle Creek has streamlined the manual consolidations, the finance and accounting teams no longer lose sleep over budgets. Templates are prepared and ready for review with four weeks to spare before the submission deadline, allowing executives to dedicate more time to detailed cost center analyses.


Another imposing problem in the financial reports of these companies is erroneous mapping and consolidation of their financial close processes. To eliminate errors in reporting, the company MyCarrier tried to find a way to address this problem.


Before MyCarrier adopted an FP&A solution, they dealt with some serious hurdles during the financial close. Manually moving data from QBO to spreadsheets was a pain - it took forever and mistakes happened. Plus, it just didn't fit the fast pace of their business. MyCarrier, the platform matching shippers with carriers, was growing like crazy, hitting a whopping 2.5 million automated shipments. With this growth spurt, their financial processes needed an upgrade. The tedious task of verifying and adjusting balances each quarter pushed the company to find a better way to speed up budgeting and do scenario planning, all while keeping Excel's flexibility. By using FP&A solutions to automate data consolidation, they now breeze through month-end closings. They've also jazzed up their board reports with better visuals, turning what used to be a time-consuming chore into a smooth operation.


How did FP&A Empower these Companies?


Drawing from the experiences of the two mentioned companies, integrating FP&A into their operations proved immensely beneficial. Here are some potential ways FP&A can enhance a company's efficiency:


  • Aligns financial goals with strategic vision, enhancing sustainable growth and value creation.

  • Optimizes resource allocation, maximizing ROI and profitability.

  • Identifies and mitigates financial risks, enhancing stability in volatile environments.

  • Improves financial performance and health through benchmarking and financial indicators.

  • Enables precise budgeting, aligning financial targets with strategic objectives.

  • Manages and controls costs, ensuring operational efficiency within financial means.

  • Proactively identifies financial opportunities for investment in profitable ventures.

  • Facilitates accurate forecasting, preparing for market changes and customer demands.

  • Evaluates technological innovations, maintaining competitiveness in the digital era.

  • Supports sustainability and social responsibility, achieving targets.

  • Provides insights for informed decision-making, leveraging data and technology.

  • Identifies and prepares for financial risks, minimizing negative impacts.

  • Enables scenario analysis for strategic planning in various potential futures.


Final Thoughts


FP&A not only aids in navigating the complexities and dynamism of the transportation and logistics industry but also enhances a company's efficiency, stability, and growth. By integrating strategic financial goals with day-to-day operations, companies can allocate resources more effectively, mitigate financial risks, improve performance, and ultimately achieve sustainable growth and profitability. The experiences of leading logistics companies underscore the transformative impact of FP&A, highlighting its critical role in empowering businesses to thrive in a competitive and rapidly evolving marketplace.


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