Accounting Errors that Drive up Freight Broker Bond Costs


accounting

The freight brokerage business requires bonding as part of the licensing process for new brokers and the ongoing operation of a brokerage that has been running for several years. A bond can be a significant expense for brokers each year, given that the minimum bond amount is now $75,000. Although the full cost of a bond does not fall entirely on the shoulders of you as the broker, the out of pocket expense from the business can take away from other business needs. Part of the issue with increased freight broker bond costs, especially for those who are new to the industry, involves misunderstanding best practices in accounting.

Here are the most severe accounting errors freight brokers make that drive up bond costs each year – and how they can be avoided.

Excessive Liabilities

The process of securing a bond as a freight broker involves an evaluation of your personal credit history and score. In this analysis, a surety company reviews the liabilities you owe, including credit card balances, loans, mortgages, and other credit accounts. These liabilities, while not necessarily a negative in all cases, do have a significant impact on the level of risk you pose to a surety agency. Having excessive liabilities can increase the cost of your bond because these reduce the capability you have to pay should a claim be made against your freight brokerage business.

Work diligently to pay off liabilities prior to applying for your next freight broker bond to balance your business and personal financials. Using less of your available credit, resolving accounts in collections or tax liens, and paying off loan balances all work in tandem to increase your credit profile, and ultimately, provide an opportunity for a lower bond cost.

Inaccurate Assets

Above and beyond your personal credit, surety agencies also conduct an in-depth review of your business assets. The overall financial status of your freight brokerage depends heavily on your business balance sheet, which including the following:

  • Cash
  • Equipment
  • Business vehicles
  • Accounts receivable

Failing to have an accurate balance sheet that highlights assets on hand may be a red flag for a surety bond application. Surety agencies want to feel confident in your ability to pay a claim should one arise, and assets are one tool used to cover this need.

Business Cash Flow Mistakes

One of the most common accounting errors among freight brokers is the lack of steady cash flow, or at least evidence of it. In some cases, minimizing cash flow through accounting methods is beneficial from a tax perspective, but without adequate revenue, surety agencies may increase the price of your bond due to a higher perceived risk. A strong cash flow worksheet gives surety agencies more peace of mind that the freight brokerage is able to sustain business operations over time, leading to a reduced bond cost each year. It can be difficult for freight brokers just getting started to determine cash flow, but projections created with the help of a consultant or tax professional can be beneficial in this case.

No Financial Management Strategy

Having a firm grip on liabilities, business assets, and cash flow are all crucial to securing the best freight broker bond pricing, but so it having a sound financial management strategy. Failing to put certain processes and systems in place for managing accounts receivable, tracking liability payments and balance, or asset values is a surefire way to increase bond costs.

Employing the help of a certified accountant, a financial planner, or a business consultant can take away the potential for errors in financial management strategies, no matter how far along you are in your freight brokerage business. Accountants are able to offer assistance in preparing audited business financial statements, while planners and consultants can help with shoring up cash flow issues and overhead expense management. Consider your need for a business advisory team to ensure your operations are sustainable and profitable, and that they lead to a reduced surety bond cost over time.