Coaching Commitments
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Further Advice to Potential Entrants to the Road Passenger industry Concerning Outlays under Various Headings of Expense : Initial Capital of £2,000 Required for Safe Margin During Early Working Period.
REFERRING again to the two letters which inspired this series of articles on coach opera,tion, one is concerned with the capital required; the other, specifying a used vehicle as the kind of machine with which the writer proposed to begin—states that, in the beginning at any rate, "an owner-driver-mechanic set-up is proposed for a start."
I cannot suggest a figure for the initial capital iequired with any confidence. So many successful coach operators started with no capital at all, and there is no standard by means of which the need for capital can be measured: I am tempted, too, to point out that use of the hire-purchase facilities can be a big factor in reducing the amount necessary for a start. In the absence of that, or if the prospective coach owner is desirous of keeping clear of hire purchase, I suggest that as initial capital he should have at least £1,000 over and above the price of the vehicle.
In the case of one inquirer, who has in mind the purchase of a used coach at about £800, the initial capital should be not less than £2,000. Most of the capital sum remaining will be needed to tide him over the early days of his enterprise when his vehicle is standing idle because he has not been able to find work for it to do.
Both inquirers have in mind one particular use for the vehicle, which in the beginning will be offered as available for the conveyance of private parties. That method of commencing is all that is open to a newcomer, as it is the only one of the four uses I described last week which is permissible without a road service licence. What may be the prospects in the district where the start is to be made are best known to the man himself.
Within the Law , Neither of the inquirers seems to consider that it will be possible to exist on private-hire work alone, and with that I find myself in complete agreement. If the reader will re-read that part of my previous article and consider how stringent are the rules which govern the use of a coach for private parties, he will, I am sure, come to the conclusion that he is going to be extremely careful not to enter into any agreement to cater for private parties unless he is quite sure that the trip is permissible and within the law. Although I have no evidence that it is so, I should imagine that a man who comes before the Licensing Authority for a road 'service licence to regularize some illegal aspect of private-hire work would meet with a cold reception: he has already broken the law and would presumably do so again if the opportunity arose: In that connection it should be borne in mind that the Authority, in coming to a decision regarding the grant of a licence for tours and excursions, must take into considerationthe character of the man who is making the application. Now for the economic aspect of the subject. In the first place I propose to ignore the possibility that my correspondent will make a start with a used vehicle; I am going to calculate the costs and assess the charges for hire on the basis of a new vehicle costing £2,750. Actually, the entrant into the coaching business will do well to start with a new vehicle, even if he has to resort to making use of hirepurchase facilities to enable him to do so. If he does that he is not likely to be, called upon, in the first year or two, to foot any sizeable bills for repairs and maintenance., In calculating the cost of operation and the charges to be 1324 made in connection with the use of this coach for conveyance of private parties. I must bear in mind ti the charge to be made must bear some relation to the mi age involved in the trip. It is not that the operator hims wishes to base his charges 0.1 mileage alone; he is w aware that the element of time enters largely into i matter.It is just that his prospective customers, knowi nothing of the intricacies and peculiarities of the costi system as applied to the operation of motor vehicles, thi in terms of miles run and nothing else. The fact thal short run, together with a wait of many hours at the ou end of the journey, may cost the coach operator much nu than a run for twice the distance but with little waiti time is entirely beyond the understanding of the travel!
Interest on Capital
First in our investigation into the cost of running a cos and the amount which will have to be charged for a particular job if the operator is to make a profit, comes I price of the vehicle itself. I have already mentioned figure, £2,750. From that I get the first of the items operating cost, the interest on capital outlay. Assumi that the rate is 3 per cent. per annum, the item is £82 1 per annum or 33s. per week.
Next, still using that £2,750, we can assess the allows," for depreciation. To calculate that we need to know ; cost of the tyres which are fitted. If I assume ti they are 8.25-20 the cost per set will be, in round tigur £120. That I must subtract from the £2,750 to give me I net cost of the vehicle less tyres, £2,630. I take that s' because provision is made elsewhere for entry of the t! cost. Next I must make provision for the ultimate sale the vehicle when it has done its time. In other words want to provide for the residual value. I take that at £2 and, deducting it from £2,630 gives me £2,400 as the : figure from which can be deduced the allowance depreciation.
I propose to split depreciation, so that one half of goes among the standing charges and the other among running costs. That means that I must take half the a namely £1,200, as the basis for the standing charge, and six years' life the amount for depreciation is £200 annum or £4 per week. For that part of depreciation wh goes among the running costs I must assume a life 180,000 miles and spread the £1,200 over that, so that allowance is 1.60d. per mile.
Maintenance is another item which I like to split betwi the standing charges and running costs. There is that p of maintenance which is done periodically, like washi cleaning, greasing and a general check-up. There sho also be provision for repainting or at least touching-up paintwork as and when required. I include paintwc because it is an operation that should be carried out specific intervals of time rather than mileage, and if it based on time it is obvious that it is a standing char This part of maintenance is a standing charge and I s take it into these calculations a little later when I come the details of the standing charges.
The other part of maintenance relates to expenditure repairs, overhauls, engine reconditioning and so on. '1 expenditure on this work is likely to be comparatively sty during the first year, but will grow in the later years of t For the time being I can offer the reader only an estim
hat he will have to spend on this kind of work and I st that he should assume that it will cost him at least ,er mile. That 2d_ goes down among the running costs. trot consumption is likely to be at the rate of 9 m.p.g. e operator buys his fuel in bulk, as no doubt he does, price today will be about 4s. 2d., per gallon and at p:g that is equivalent to 5.55d. per mile. • le cost of lubricating oil will be small while the vehicle w but will increase as the machine agesuntil such time e engine undergoes a thorough overhaul or is replaced reconditioned unit. It should be understood that in sing nil consumption I do not merely mean oil for ing up, but also those quantities of oil which are ed to .replenish the crankcase from time to time as mrnended by the manufacturer of the vehicle, On that ; I take 400 m.p.g., so that if a gallon costs 6s. the cost mile for lubricants is 0.18d.
have already quoted the size and cost of tyres, so that ye want to know about them just now is the probable age per set, That is so that we can discover a figure . the cost per mile of tyres, an item for our schedule inning costs. I have by .me information which indicates 30,000. miles is a likely figure. On that basis the cost mile for tyres is £120 divided by 30,000, 0.96d. per mile. t is all so far as running costs are concerned and the 1 is 10.29d, per mile.
s for the standing charges, I have already dealt with c of the items; the one still outstanding is maintenance I propose to take that at £1 10s. per week. The standcharges (excluding wages) can now be enumerated. They licences, £1 3s. 3d.; garage rent, 13s.; insurance, £1 10s.; rest, £1 13s.; maintenance (d), El 10s.; depreciation (1), The total is £10 9s. 3d..
have not included anything for .wages. That is because healing with private hire it has'always seemed to be more zticable to take wages as a running cost and to charge it he rate of 4s. per hour.
low I come to the establishment costs. I have dealt at ;th with that subject in the issues of The Commercial for for September 18 and 25. I must refer readers to se articles for a full and thorough eiplanation. The ible about this item of expenditure is that, in the case in inexperienced operator-and this article is specifically tten for such-there are no items of expenditure which need record as establishment costs: he will tell me quite ntly and straightforwardly that his way of working is Is that he will need spend nothing at all on administra1. The business will cost him nothing apart from the t of operating the vehicle and, furthermore, he is not iure that he need budget for all the itemS I have described :onneetion with costs of operation. • n this article I propose to refer only to the principal ns, and to take the actual amounts from the books of a md. He has two vehicles and the total of his establish at costs is £831. .
am taking this example, which is in relation to two tides whereat I am actually concerned with the operation one only, because the figures are actual and not theoreti. No one can dispute them.
Here then, are the amounts, giving the principal items only with a comprehensive provision for sundries, designed to cover a number of small amounts. First, office expenditure, covering the wages of a junior clerk, rent and rates, heating and lighting, £185. Travelling expenses are heavy, because the operator .will. have to make personal contacts. if his existence is to becoirie known; a car will be needed and that runs away with quite a lot of money, probably more even than the £250 which is the amount spent in this case. I shall expect the owner to draw a salary,. and in this example he takes £200 as his wages. Bank charges and interest on hire purchase absorb £46 and sundries £1•501
The total is £831, but as that is the amount involved in the ownership of two vehicles and whereas I am concerned with only one, I must make an amendment. I Shall take one half, although I am of the opinion .that the establishment costs for one vehicle are likely to be more than half of thole for two machines. Debiting this vehicle with one half means that I am assuming that the establishment costs total £415 10s. per annum, or £8 7s. per week. I have already shown that the standing charges total £10 9s. 3d. per week. The standing charges and the establishment costs go together, making the fixed expenses £18 16s. 3d. The running costs are 10.29d. per mile.
The reader should now fully -appreciate the meaning of
these two figures: 118 16s. 3d. and 10.29d. What they mean is that the total expenditure per annum is such that the average expenditure per week is 08 16s. 3d. and that does not include either wages of the driver or running costs. It is the average figure throughout the year. Some weeks the amount may be more and some weeks less. Even so, it is incurred quite apart from the running the vehicle may do. As soon as the vehicle begins kr work, additional expenditure is involved in connection with the running costs of 10.29d. per mile.
These are the basic figures. If in any one week the vehicle
runs 1,000 miles the cost isthe aniourirof the fixed charges. f18 16s. 3d., plus 10.29d. times 1,000, which is £42 17s. 6d., plus wages for the driver at 4s. per hour for the time he has
worked, say 50 hours, or £10. The all-in cost is thus £71 13s. 9d. That is the amount the operator should use as the basis for his charges.
There is still the question of profit. It is usual, in the
early days of the business at any rate, to assess minimum -profit as the percentage of expenditure and, in cases like this, where the use of the vehicle is rather irregular, td take 25 per cent, as the appropriate allowance for profit. That means that for the week in which the vehicle runs 1,000 miles, the cost of which has been shown to be £71 13s. 9d., the net profit must be at least £18. To earn a minimum 25 per cent. profit, he must so set his charges that his revenue is at least £90 per week, which is equivalent to
Is. 9.6d. per mile run. That is the charge which must be made for the use of the coach alone. If there are meals, entertainments, theatre tickets, hotel bills and other things involved they must be added to the £90 or that Is. 9.6d. per mile in order to arrive at the proper charges.
S.T.R.