How to Start a Courier Business in 4 Steps
In a world where delivery reigns supreme, the demand for courier businesses runs high in most places. There are some large incumbents in the space—mostly those brown trucks and white vans with purple and orange lettering on the side—but there is also a massive part of the market that exists alongside these major companies. In fact, most small and local businesses need smaller-scale couriers to help make local deliveries and drop off goods. If you’ve ever wondered how to start a business as a courier, you might be asking the right questions at just the right time.
The U.S. courier industry has grown by just under 5% from 2014 through 2019, and is currently worth $109 billion according to recent research. That means it might be the right time to start a courier business if there’s a demonstrable need in your area, or if there are too few incumbents to get the job done. We’ll go over how to start a courier business of your own, including steps toward registering your business, getting the right equipment, and finding financing that can help you get your business started and keep it moving.
1. Draft a Business Plan
The idea of committing a business plan to paper doesn’t exactly spark joy in the heart of an entrepreneur. Just because you’re looking to be in the logistics industry with your new courier business doesn’t mean you’re overly thrilled with working out a detailed plan for how you’ll build and sustain your business. But the unavoidable reality is that a good business plan will provide you with immeasurable help before and after launch.
Luckily, writing a business plan can be an easy task, so long as you follow the long-used conventions that most plans use. In fact, there are even business plan templates out there that can take out the guesswork of what to include, which details are essential, and what aspects of your business strategy need to be included. Most plans should include:
- An executive summary that gives a top-level overview of the other sections.
- A description of your company, what it intends to offer, and the management or ownership team at the helm.
- Market analysis that sizes up the current need for your company based on broader consumer and industry trends.
- Competitive research that details what your current competitors are doing (e.g. their pricing, business strategy, and weaknesses).
- A marketing plan that outlines how you’ll make your business stand out.
- A sales strategy that discusses your pricing and profit margins, among other details.
With business plans (as with most business-related endeavors, too), you’ll get out of it what you put in. The more detailed you are with your business plan, the more you’ll be able to use this document as a helpful reference as your company takes off. A good business plan does more than just detail how you plan to get started; rather, it serves as a guide for how you will execute on these plans as the company grows. You’ll also need a robust business plan if you intend to seek out small business financing, as lenders will want to be assured that your company will last long enough that they’ll get their money back.
2. Decide on a Business Entity and Register Your Company
If you’ve ever noticed an Inc., LLC, Corp., or other abbreviation at the end of a company’s name, you might be somewhat familiar with what business entities are. Or at least know that they exist. With a few exceptions, every company has to have some kind of business entity to its name (even sole proprietorships technically fall under this umbrella—more on that later).
What you may not know is that you also have to register your company with one or several different local, state, and federal bodies. These requirements vary depending on your location and line of work, but are more common than not in most places.
If registration is required where you want to start a courier business, you’ll have to make sure you go about doing so in the right way if you want to operate above board. Having the right business entity associated with your company means paying and filing taxes the right way—both in terms of following the letter of the law as well as picking an option that works best within your business’s finances.
Choosing a Business Entity
There are several common business entity types out there. The most used are sole proprietorships, partnerships, limited liability companies (or LLC for short), and corporations. There are others out there as well, but they are less likely to be of use for you as a small business owner. Each of these business entities provide certain benefits for your business with regard to ownership structure, taxation, and paperwork.
The simplest business entity to establish is a sole proprietorship. Sole proprietorships allow individuals to do business under their own name, basically establishing themselves as a business. You can also file paperwork to operate under a name other than your own, known as a DBA (“doing business as”) or a business alias.
A straightforward sole proprietorship typically does not require the business owner to file paperwork with local or state bodies, but also provides next to no liability protection. You’ll also have to file taxes on your business income as personal income, rather than being able to handle your business revenue separately come tax time. Although sole proprietorships are easy to establish, these drawbacks make them a less attractive option for businesses that have complex needs or a higher risk of unforeseen liabilities (like accidents, broken goods, and other issues).
Partnerships are similar to sole proprietorships, except they are designed to accommodate two or more people who wish to enter a business arrangement together. The requirements to register a partnership vary by state: Some may require you to register with the state as a business, while others may only require partners to have some kind of agreement in place with one another.
Partnerships of this variety, much like sole proprietorships, exchange convenience for liability protection. If your business goes under, you and your partners are personally responsible for any lingering debts. You’ll also be personally liable if you’re sued or are otherwise in a tricky financial or legal issue as it pertains to your business.
Limited Liability Companies
LLCs offer the convenience of sole proprietorships, but include more financial and legal protection for business owners. This makes LLCs an ideal option for registering a courier business, as you will have more flexibility with regard to paying taxes and handling finances, but without having to sacrifice personal protections.
Last but not least are corporations, which allow small business owners to establish more financial distance between themselves and their company. This mostly relates to how companies and owners pay taxes, and can be advantageous if you want to have your business pay taxes separately from your personal income taxes.
Understanding Registration and Regulation
Once you’ve determined which business entity makes sense for starting your courier business, you’ll have to work on registering your company with state, local, and federal bodies. Most local governments require businesses to register their formation and keep their information current every year (with the exception of sole proprietors and partnerships, of course). Others may be more lax in their requirements. For better or worse, there’s a ton of variation on the local level with regard to keeping your business in good standing
States vary in process and requirements with regard to registration as well. Some allow you to file common business entities online for a nominal fee. Others may require more from would-be business owners, such as higher fees or even published notifications of business formation. Check with your state’s business registration authority for more specific advice.
While wading through your local and state requirements, don’t forget to file for an employer identification number, or EIN for short. Having an EIN allows you to hire employees, gives your business the equivalent of a social security number, and is usually required when opening a business bank account. It’s free to obtain an EIN and the application process can be completed entirely online through the IRS website.
Make sure you’ve gotten any additional licenses and permits you need in order to operate your courier business. These also vary by city and state, which means some places may require a ton of licenses while others may not require any. Be sure you have all of the right permits and your business is on the right side of regulations before you take on your first client.
3. Insure Your Business
Couriers handle their customer’s products and goods on a daily basis, which means comprehensive insurance is a must. So too is employee insurance (such as worker compensation and disability insurance), given that your staff is going to be out on the roads and making deliveries every day.
There are a ton of insurance options out there for small business owners to consider, but a few staples to keep your business safe from the unexpected can help you get started without buying policies that don’t cover what you need (or, alternatively, cover too much and cost you more money than you need to spend).
There are several kinds of business insurance you’ll want to think about for your courier business. Some of these are optional but highly recommended, such liability insurance and commercial property insurance. These policies protect your business from the financial repercussions of general business accidents, such as broken goods or damaged deliveries. Commercial property insurance helps protect your assets, such as automobiles, bikes, or your office.
There are several mandatory insurance policies you’ll likely need for your business as well. Workers compensation, disability, and unemployment insurance plans are mandatory if you hire employees. These plans cover you in the event that your team is injured on the job, suffers a short- or long-term disability, or loses their job through no fault of their own. Each of these kinds of insurance can make it more affordable for you to pay out these claims, which means robust plans can help pay for themselves.
4. Fund Your Business
You’ve determined the right business entity for your courier business, registered with all of the appropriate agencies, and have the right insurance plans in place. Now, you’ll want to think about financing your business in the short- and long-term. If you’re looking for a bit of supplemental cash to get you started, keep your business going, or even help you expand, there are a handful of great small business financing options that can help you get the cash you need in order to keep your business humming.
Small Business Administration loans—also known as SBA loans—help small business owners access the money they need to start, maintain, or expand their operations. With SBA loans, borrowers get access to lower interest rates, higher sums of money, and longer repayment periods than other financing options typically provide. These loans are not doled out by the SBA; rather, they come by way of participating banks and are guaranteed up to 85% by the SBA. This means banks take on less risk when lending to small businesses, and can therefore offer better rates.
These preferential terms also make SBA loans highly competitive. Most SBA loans go to established or serial entrepreneurs, or businesses that have been in operation for a handful of years and can show profitability. Make sure your SBA loan application is robust, includes plenty of information about your business acumen and financial success, and concrete plans for the money if you were approved for the loan. Doing so can help you stand out from the crowd.
Business Line of Credit
If you need periodic access to cash and don’t want to have to take on a lump sum of debt, a business line of credit could be a great alternative to a term loan. Better yet, it may also be a smarter financial solution than a credit card, while still retaining the flexibility that business credit cards offer.
With a business line of credit, borrowers can pull from a set amount of money made available by the lender. The borrower then pays interest on only the amount withdrawn from the line of credit. So long as the borrower is in good financial standing with payments, they can pull from this pool of cash as often as they want. This makes business lines of credit a great option for companies that only need sporadic funding, or who want to be prepared in case of an emergency.
If you need to finance large projects and an SBA loan is out of reach, you may consider a term loan. Many conventional lenders—such as banks and credit unions—may be less willing to approve a term loan for small businesses that are in their early growth stages. However, alternative lenders will be more willing to work with younger businesses. While there terms may be less favorable than a bank, you can still find some affordable options.
Business Credit Card
There’s also the option to finance business purchases with a credit card—particularly a card with a 0% introductory APR period. By using a credit card to finance portions of your business expenses, you can get access to the money you need much more easily than with traditional loan types.
This plan has its pitfalls, though. If you don’t qualify for a card with a 0% introductory APR, you may end up paying twice as much on your interest (or more!) than you would with a conventional business loan. Or, if you fail to pay off your balance in full before your introductory rate expires, you’ll be left on the hook for the interest on the remainder of your balance. Be sure to think strategically if you think this is the right move for you.
The Bottom Line
Being in the logistics business means thinking about the most efficient ways to get the job done. This is particularly helpful when starting a courier business, as there are tons of moving parts and decisions to make along the way. So long as you put in the effort to get your business off on the right foot, you can make it easy to start your courier business and grow it into a successful enterprise. The right business entity, licensure, insurance, and financing goes a long way.