Miscellaneous Items
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Page 73
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The newcomer to transport operation should make provision in his charges for the several small items of incidental expenditure which will inevitably be incurred
SEGREGATION of the many items of expenditure necessary in the running of commercial vehicles is largely arbitrary and dependent, at least to some extent, on individual choice. But, as practiced in the compilation of "The Commercial Motor Tables of Operating Costs" for over 50 years, it has been proved convenient to divide the expenditure directly incurred in the operation of individual vehicles as between slanding and running costs. Each of these two groups includes five separate items—licences, wages, rent and rates, insurance and interest on capital outlay making up the standing costs, and the running costs consisting of fuel, lubricants, tyres, maintenance and depreciation.
But even when the newcomer to the industry fully appreciates the .difference between, and the significance of, standing and running costs, and the consequent need to achieve maximum utilization if economic operation is to be both achieved and maintained, additional expenditure will also. be incurred. Unless provision for this is made when charges are submitted to customers the operator may well be running at a loss, although it may not be appreciated immediately.
The reason for this is that, as with standing and running costs, many of the items of Additional expenditure, which can be conveniently referred to as overhead costs, may not have to be met at the commencement of operation. Failure to appreciate the distinction between Immediate and deferred costs is one of the most prevalent reasons for some operators (and particularly newcomers fortunate enough to commence with new vehicles) indulging in rate cutting through ignorance regarding their total expenditure.
SUCH a situation is additionally aggravated if no allowance is made for overhead costs. These could be described as incidental expenditure incurred in the running of a transport business, as distinct from expenditure which can be specifically attributed to individual vehicles. Because the owner-driver or proprietor of a small transport business must inevitably combine several functions, there is an unfortunate tendency in such circumstances to discount the existence of many overhead costs which, by their very nature, must be inherent in small businesses. Thus, under the headings of management and office control, some work must be involved even by the ownerdriver with one vehicle. His minimum requirements would be the use of a room or part of a room in his own house, whilst the availability of a telephone would be virtually essential.
Additionally, some notepaper and stationery would be necessary on which to render accounts to customers and comply with the minimum statutory requirements for the recording of vehicle operation. This would apply even though the ownerdriver conducted most, or even 'all, his business verbally with his customers. Because of the high cost of stationery this item of expenditure should not be discounted as negligible, even for a small operator, whilst the daily cost of the telephone will inevitably be substantial.
When only one vehicle is concerned, as in the case of an owner-driver, no problem arises regarding the allocation of tbe total cost of the several items of incidental expenditure incurred. But once further vehicles are acquired some method has to be adopted of ensuring that every item is, in fact, recorded so that due allowance can be subsequently made for this expenditure when formulating charges to be submitted to customers. Te avoid possible omission it is worth while endeavouring to grout expenditure incurred in overhead costs and to check each item in the group against an operator's actual expenditure to date As an example of the type of grouping which may be under. taken, the following list of possible overhead costs is given The total number of items actually incurred by any one operator will naturally vary according to his particular circum. stances, including the size of fleet and type of work undertaken Similarly, the total amount involved would vary for several reasons, but the principle of ensuring that all such expenditure is, in fact, recorded remains the same irrespective of the type and size of operation.
Overhead costs involved in operating, a fleet of commercial vehicles can be conveniently segregated into nine groups. These would be headed management, office, garage and stores warehouse, branch depots, sales, professional services, auxiliary fleet and other expenditure.
In the first group—management—at least two items ol expenditure would normally be involved, namely, salaries ane car expenses. Under the group heading of office would be recorded expenditure on salaries, equipment, rent and rates lighting and power, heating, water and sundries.
Unless expenditure of this nature is itemized in this mannei there is the all-too-likely possibility of the owner-driver, ol small fleet operator who himself continues to drive part-time being unremunerated when engaged on managerial duties. Suet an omission could lead to the quotirrg of uneconomic charge; and so commence, even though possibly unwittingly, a spell ol rate cutting detri mental to himself and his competitors. In this context, whilst private enter prise is largely dependent upon the initiative and industry of individuals, it is a misuse of such industry to be (Contd, on page 719) prepared to accept the responsibility and work involved in more than one job indefinitely. While such conditions would be understandable during the setting up of a business and initial expansion, it is a situation which should not be allowed to persist.
If, when first setting up in transport operation, it is intended that the initial size of fleet will ultimately be substantially increased, it is particularly important that provision for this factor should be made with the knowledge that managerial costs must increase when the proprietor himself becomes solely employed in a managerial capacity with the possible assistance of additional staff. It would be unfortunate for the future prosperity of the business if, in the early stages of operation, inadequate allowance for ultimate management costs were made when submitting quotations to customers. If that were the case customers would become conditioned to exceptionally low rates and after that it would be extremely difficult to convince them of the need for an adjustment to a more economic level as the size of fleet increased.
WHEN the need to make proper allowance for management costs is recognized from the outset, then in the early stages it may be necessary to proportion part of the proprietor's remuneration under this heading with a further division of the balance, possibly between driving and maintenance duties. Except in the smallest business it would probably soon become necessary for the proprietor to provide a car or small van to generally supervise the running of the fleet and to enable him to canvass customers. This expenditure would also come under the heading of management.
As stated earlier, some provision of office facilities would lave to be made available and expenditure under this heading amid be recorded in respect of the seven items already listed. Here again the actual division of expenditure will vary accordng to the size of the undertaking. When only a small fleet is nvolved the proprietor would combine the duties of manager Ind clerk, but at a later stage in development it would become nore economic to delegate at least routine office work, if not ;me managerial duties, in addition.
However small the fleet, it has been emphasized, some ;xpenditure will be involved in management and office work, ilthough it may not be recognized as such by some small werators at the expense of their level of profitability. The text group of overhead costs, namely garage and stores, is not lecessarily universal to all types of operator. Because of the ncreasing availability of servicing schemes sponsored by nanufacturers and their distributors, there is more opportunity or operators to arrange for outside garages to do their naintenance for them. They thus divest themselves of the ubstantial capital outlay necessary for the. equipment of a :omparatively modest maintenance garage, as well as the coniderable responsibility involved in its subsequent organization ind control. Where such a policy is adopted then presumably he expenditure detailed on the invoices received from the anside garage can be directly allocated to individual vehicles .nd be so recorded.
The alternative policy of providing one's own garage may be lecided on foi a number of reasons. The most obvious of hese would, of course, be the size of the fleet concerned. But ven where comparatively small fleets are concerned the remoteiess of the area in which the depot is based might make it tripracticable to be dependent on an outside garage some lista= away—despite the knowledge that most, if not all, the arage equipment provided by the operator would seldom be ully utilized. Another reason might be that the traffic carried ; of such urgency that absolute priority of maintenance acilities is essential at all times. In that event it might be ■ ossible to meet this requirement only by the provision, even hough sectionally uneconomic, of one's own maintenance acilities.
When an operator provides his own maintenance facilities xpenditure could be incurred under this heading on overhead osts, as distinct from expenditure directly chargeable to idividual vehicles on similar items of cost as with office expeniture. These are salaries (or wages), equipment, rent and rates, ghting and power, heating, water, and sundries.
Whilst in this instance garage and stores are grouped together.
in larger organizations it may be more convenient to have two separate groups. But with many small and medium-sized operators the modest stores facilities will generally form part of the maintenance garage itself, so that separation of the two costs will be difficult.
Relative to the provision of one's own maintenance facilities, it is unfortunate that what might superficially appear to be a logical compromise in order to provide at least some such facilities with a limited capital outlay, this may not prove to be a practical proposition. For example, it may seem reasonable to provide one's own servicing facilities in the initial stages of fleet development and to contract out for major repairs. Whilst this may ease the problem relative to the engagement of skilled fitting staff, substantial capital outlay would still be necessary if something better than the facilities provided by the driver's tool kit were envisaged. Thus, an air compressor of a size adequate for any likely development in the near future would be considered a necessity by many operators of medium-sized fleets, as would some form of lubricating equipment.
Whilst these two items of equipment might be considered the barest minimum for the efficient servicing of vehicles, an outlay of at least £200 might be involved. The two items would have a long service life, but the amount of work they would have to perform would be relatively small, even where a mediumor large-sized fleet was involved. Nevertheless, because the time factor can be so vital in transport operation, the convenience with which tasks can be undertaken with such equipment available seemingly justifies the capital outlay. But it is imperative that the incidence of such an overhead cost should be fully appreciated and subsequently correctly allocated. S.B.