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What is the cost of starting a Freight Brokerage?
You're probably thinking about starting your freight brokerage, and so you want to know how much money it will cost you to get started. As with many things in this life, there is no simple answer to this question. However, we are going to break down a few things to make it easier for you to understand what you can expect and prepare for that.
First and foremost, there are fixed costs to setting up your freight brokerage. For starters, you'll need to pay an application fee and a few other filing fees, which are usually around $500-600. Then you will need to obtain a surety bond, something we discussed in a different post. If you have read it already, you may know that the cost of a surety bond will vary depending on your financial and credit situation.
But let's assume that you have decent credit and the cost of the bond is somewhere under $1,500. Maybe you also want to set up an LLC or incorporate, so there will be another few hundred dollars for filing your company registration. If we’re going to add everything up, let's say your initial cost could be under $2,500. Again, it can be a little bit higher, or it can be lower, depending on the cost of your surety bond.
Those are your fixed expenses to establish your freight brokerage. However, you'll probably need some equipment and software as well.
In terms of the equipment, in most cases, if you have a decent computer and a cell phone, you are somewhat set. You will need an internet connection, obviously, but you don't really need to own anything else. Today, you don't even need a fax machine and scanner because you can usually get documents scanned with your smartphone or printed into PDF to save files in a digital format.
When it comes to software, you will need a few things like an office suite, potentially a TMS software, and a good PDF editor. Again, all those options exist in a freemium model. You can start using them for free, and you don't have to pay anything for them until you need certain features.
We discussed these questions in greater detail in our Freight Broker Training course, but for now, let's just remember that in most cases, you probably already have all the equipment that you need, and all the software that you may need can be found for free.
Now you know what it will cost to form your freight brokerage and get your license and what you may need for your equipment. Is that all you need?
A lot of people make this mistake. They assume that this is all they need; they only have to spend $2,000-$3,000, and they are going to be set up to start operating their freight brokerage. And while that’s technically true, there are a few things that need to be considered.
There are two other expenses that you need to factor in.
1. Operational Expenses
If you are actually going to end up doing business right away, you may need some cash just for the operations. As we discuss in our freight brokering course, a cash flow gap can be created when you pay motor carriers within 30 days for transportation services. But you do not receive payment from your clients for 60 to 90 days.
Basically, you have to pay motor carriers out of your pocket. And if you're not prepared for that, it can create a problem — a cash flow gap. You can cover it with your own funds if you have them, or you can cover it with funds from a factoring company. But if you're not prepared for this, it can get you into all kinds of financial troubles.
2. Marketing Expenses
A lot of people don't think of that, but if you are new to this business, you will have to market your service, and marketing will usually cost some money. How much money is it going to cost you? Again, that depends on the skills and knowledge you already have — the skills and knowledge you are willing to acquire and your ambition in general. Someone may start with some basic gorilla marketing strategies, which will cost only a few hundred dollars a month. Somebody else may want to go big and do a lot of advertisements, and they may want to hire freight agents to help them with sales. And all of that is going to cost money.
You need to remember that if you're trying to set up a large operation right away, you may also need an office. And with that office may come a need for some sort of furniture. You may have to pay utilities and so on and so on. So, a lot of that startup cost depends your general business plan.
To summarize, the fixed cost of establishing your freight brokerage and getting your license will really depend on your surety bond’s cost. That is going to be your main expense, and again, it can usually range between $2,000-5,000. In terms of equipment, if you're just operating on your own and not hiring anyone, you probably already have everything you need to get started.
When it comes to operational capital, again, it depends on how many transactions you’ll do when starting out. If you are doing none, then that's not a problem you need to worry about. If you're doing little, it still may not be a problem. However, if you expect to do a lot of business right away (because you may have already established some contacts or contracts), then you need to think about this problem and make sure you are properly funded.
And last but not least, remember about marketing. Marketing is going to cost you money; how much is up to you, but it will cost you something, so plan for that as well.
We hope this knowledge helps you prepare when establishing your freight brokerage. If you have any questions, please reach out to LearnFreight support team.
Are you thinking about becoming a Freight Broker or a Freight Agent? LearnFreight offers Online Freight Brokering Training Courses which are suitable for people not familiar with transportation industry. Learn more about our training by visiting Training Details page or choose your course here.