EARNING A LIVING BY MOTOR HAULAGE.
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The Question of Profit on a Haulage Contract. What Is Profit and What is Not.
I T is not so easy as some people may think •to 1-determine what is exactly the profit on a haulage contract, Small hauliers make mistakes about it ; they have some excuse, so far as concerns a great many of them, for they have had no business training at all but have taken to motor haulage as a means of earning a living, having as their only asset the knowledge of driving and maintaining a motor vehicle —sometimes even of only the former. Quite large concerns get wrong ideas, too, on the subject, as may be proved by reference to the case of a North Country . business which, having buses to the value of, say, 220,000, debited the profit and loss account, at the end of a year, with 24,000, as being depreciation of the buses, writing the buses themselves down in the books to 216,000. The last-named item is, of course, correct, but the 24,000 is so entered into the P. and L. account that it goes out as dividends, and there is nothing put by towards the purchase of new vehicles. When the end of the five years comes along, the buses will, of course, stand in the books at nothing, but if and when they need renewing, as they inevitably must, it will be necessary to raise new capital to buy them. And what will the shareholders do then, poor things ? It will be the directors who will want to hide their heads under their wings or in the sand. At least, that is my view.
Still, if large companies with 220,000 to 230,000 capital know no better, or appear to know no better, than to proceed on those lines, there is, as I have said, some excuse for the one-man business with a capital which is represented by a lorry which is being paid for on the hire-purchase system or. by one of the W.D. disposal lorries, bought for a mere song, when it is carried on in a similar fashion.
The Deceptive Gross Revenue.
I promised last week to deal with this vexed question of profits, and, in turning it over in my mind, that ease, which is really a very old one, was suddenly remembered. .Consider, for example, a man who has bought a new lorry, a four-tonner, and who is going on with that hypothetical or imaginary contract, to run it 300 Miles a week, which we have been considering in its various aspects during the last fortnight. His lorry was -bought new, complete with tyres, for 2950. lie paid cash for 'it, and also found the 230 for the year's licence and the 21 for insurance. He feels that he is, or should be, secure from any considerable expenditure for some time to come, and chooses to forget, that if he had put •• that 21,000 out . in some sound • commercial, .venture he could be getting a nice pound a week f rein it, without moving a step farther to earn it.
He sets out on the aforesaid contract. His lorry is not the particularly economical one which we cited last week, but is one which costs very much the same as our average estimate for vehicles of this capacity. At the end of a week the owner, who has been fortunate enough to get the contract also at our suggested price, namely, is. 4d. per mile, draws 220 for his week's work. He has spent 22 135. 6d, on 43 gallons of petrol—his lorry does seven miles to the gallon— and 7s. 3d. on a gallon and a half of oil. The rent of his garage may have been 10s. ; it may have been us., or perhaps it was 12s. Twelve shillings a week is probably the top -irice which a man in a provincial town would pay. We will let it go at 12s., anyhow. His total expenditure for the week is 23 2s. 9d., say 23 5s. all told. He thinks of that, and he looks at the money in his hand, and he feels at last that he has found the job he has been looking for all his life-216 15s. a week ; it is a fortune! Even if he does not forget all about tyres, he most certainly overlooks all the other expenses with which he will eventually be faced. He feels that he is sure of a clear 215 a week at the least-2750 a year—and goes to bed on the Saturday night with something more than akin to J. Pierpont Morgan, or Rockefeller, or Carnegie, or some other of those fellows.
• Breaking Away From a Fair Rate.
At the end of the next week his client, being a man of the world, shall I say, and having a wide experience of men and of their shortcomings, realizes the state of affairs, and begins to throw out hints of the probable early cessation of the job. "It isn't paying as it ought,' " Carriage is costing us very dear, " There is some mistake about that contract, and Soand-So, of George Street, would do it for less." Our simple-minded friend falls for it. He thinks to himself : " Well, perhaps there is some mistake, and I don't want to lose the job. A tenner a week profit will do me all right," and he thereupon revises his price accordingly, to 213 10s. a week, which is 10.8d. a mile. Only 10.8d. a mile, and he is still making a profit of over 210 a week ! Where's the fallacy? Well, there is the matter of tyres, for a start. A four-ton lorry which is running 300 miles a week is using, on the average, 24 shillings'-worth of tyre a week. A good many of the parts of the lorry are wearing, the cylinders are getting carbonized, things are coming loose, sparking plugs are getting done, the accumulators of the electric lighting se f will want
renewing, or the lamps will want attention ; the body will get shabby. These, and a whole host of things, will all demand attention all too soon. Where is the money to come from/ At quite a moderate estimate, the vehicle will cost, on the average throughout its life, 22 a week for these little attentions. 22 a week is. a lot.
In the end, too, the vehicle will wear out altogether. What is going to be done about that / The sensible man will realize all this, and wilt make provision accordingly. In our balance-sheet we should call that provision the depreciation account. On a lorry of this type another 22 a week, or at least 21 15s., should be set aside for the purpose. Bang goes a matter of £5 (all but a shilling) in that little lot. Then the insurance and the licences will have to be renewed at the end of the year, and the money for that will not be picked up out of the street. Another pound a Nveek should be set aside for that, so that already the it0 a week has been brought down to 24, which is a different proposition altogether, and when the owner of the vehicle also recollects that the money quietly invested would have brought him in 21 a week, without any exertion at all, he should realize that all that he is really getting out of the job is a very precarious 23 a week, which he could have got anyhow, and more besides, very much more if he is worth his salt, if he had just got a job as an ordinary lorry driver. Many drivers are, as I knbw for a fact, getting more than that, more even than twice that, what with
bonuses and other emoluments. The " profit " on this job begins to look very small indeed.
Now, suppose this particular haulier happens to fall a little behind on his schedule some week. Bad weather, difficulty with the boding or the unloading, ill-health or some other little thing, unforeseen, perhaps, but none the less likely for that. For a week or two only 200 miles are covered, and the remuneration received drops, in proportion, to 29 a week, or perhaps the owner of the lorry is really ill for a short period—say a month—and has to engage a driver to do the job for him. He has to pay the driver 24 a week— it is always more for a casual job—and this man, not having his heart in the job (it is not his lorry), only does 250 miles a week all the time, thus turning in only 211 Sc., less his 21 a week wage-27 5s. For that month the lorry is really showing a very definite and serious loss.
"Yes, but" (the reader will say) " that is only to be expected—that if a man is sick he is going to lose." Yes, quite so ; but he need not lose if he would get a proper idea of the net and gross profits he is making. If he has a proper realization of these things at first, then the customer will not be able to bluff him into taking less than he requires. That is why it is so necessary for a man who is trying to earn his living by motor haulage to understand a little about the financial side of the business ; why he should appreciate where his expenditure ends and
his profits begin. THE SKOTCH.