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Establishment Expenses and their Assessment

25th September 1953
Page 58
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Page 58, 25th September 1953 — Establishment Expenses and their Assessment
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Which of the following most accurately describes the problem?

Overhead Costs in Running a Haulage Business May Well Total a Surprising Sum : Operators Should Therefore Keep Careful Record of their Outgoings under this Heading and Make Appropriate Additions to their Rates and Charges

IN my previous articles, I have dealt with all the various items of expense which arise with the development of a haulage business, and pointed out that the accountancy involved is more difficult than in most other businesses because the operator cannot for a long time be in a position to state what are his actual costs. For instance, tyre cost and maintenance, particularly the latter, are not ascertainable until a couple of years have passed. The haulier cannot wait all that time: he wants to know what those costs are as soon as he is ready to begin work. 1 have shown how that difficulty can be overcome by the use of estimates.

Nor is it only the actual cost of operating the vehicles which must be taken into account. There are expenses not capable of being attributed to the running of the vehicle, but are none the less important. I refer to what are usually described as establishment costs and really comprise the costs of running the haulier's business. In my previous article, I dealt with the items office rent, rates and lighting, and power, putting forward three sets of figures, minimum, maximum and probable, the last named coming intermediately between the other two, • Continuing with my estimation of what these establishment costs are likely to be, the next three items, heating, water and telephone, will be accepted as appropriate; the amounts quoted in the accompanying table are admittedly arbitrary, but the reader Who has any actual experience is at liberty to amend them. All I want to ensure is that he puts something down on his list and that none of the items is overlooked.

Audit fees also are dnescapable. 1 do not know how auditors reckon their charges, and I realize that I must be careful here because I once pin forward, a charge which was, in the view of an auditor, too low.' • This time I use actual .amounts given Me by hauliers who have disclosed, for the benefit of rny' readers, what they, have paid.

B24 Law costs, the next item, cannot even be averaged: the is a tricky business to the layman who, however much he n try to avoid entering litigation, is still liable to expendit on that account for no fault of his own., At any rate, should certainly not ignore the item, and what I h entered into the schedule of establishment costs can only a guess, with the 'reader's guess as good as mine. Act recorded figures are the only guides to an average outlay Some operators are lucky, but nearly every operator ti it necessary to visit a solicitor for Some cause or od The period of time which may elapse before he finds si aid essential may be long or short; the renewal of licence can well be an occasion for engaging counsel. Spr over`the years, however, the total of legal costs is likely be close to the assessment I have made.

A close watch must be kept on the next item, " sundril It is likely to be much greater than the operator expe Fines, the next item on the list, may be anything: I h entered amounts in -the schedule more by way of tok rather than suggesting that they are the amounts likely be needed. There can be no such figure as would se as an average, the differences between one operator ; another are too great. My object is assured if I persu the reader to appreciate that there may well be such an it and that it must not be overlooked.

Under "travelling expenses," the operator should all for the expense of running a car. It is practically impossi to do without one. I have allowed £1 a week as the exper Lure under that head, with the feeling that I am unc estimating the actual cost. The next item is entitled " der wages" which covers any wages paid to office staff. I rarely indeed that an operator can manage, without so help of this nature. Evenif he is in the fortunate posit of hayinga wife to help him with his business, he m

Still,' if .have any knowledge of wives, make so lowance over and above the housekeeping money on that count. I am quite sure that I am a little on the mean le in assessing expenditure at £130 per annum, with a aximum of £312 and an average of £260.

No comment is needed on the allowance for insurance of Iff; it is another of those inescapable expenses and is fixed oth as to amount and period. The next item is "Managecat," and against that I debit whatever the operator decides fair payment out of the income of the business to himself manager. It is only right that he should pay himself, and, -dist he may be willing to accept as little as £2 per week that account; he is more likely to be thinking in terms £5 per week. /The minimum, maximum and mean are heduled in the accompanying table.

What should be set down on account of depreciation of rage fixtures, etc., will depend, naturally, upon the extent which the operator makes use of such equipment. He is re to have a petrol or oil-fuel tank and pump, powerierated tyre pump, jacks, electric light fittings, lubricating I pump and so on. If I assess the total at £150, at least per annum must be debited to depreciation. In a betteruipped garage the valuation may be twice that amount id the allowance £12 10s. I take the mean as £10, as can seen.

There is nothing to discuss in the next two items, " subriptions to associations" and "bank charges." What he ends on "ferries, weigh-bridges, parking, etc.," may well pend on the locality of his premises. The amount may as little as £1 per annum, but may be as much as £12, fich I have assumed to be the maximum. I think E5 is a asonable figure to take as the mean.

Hire Purchase There may be nothing to declare on account Of "interest t hire purchase," The operator may be one of those wise en who take my advice and look upon depreciation as is fking fund, carefully depositing the full amount in the .nk each week so that when the time comes to buy a new hick he can make his purchase in cash. Such operators e,however, in the minority, .and the amount due on terest may be anything from £10 to £50 per annum with mean. of no.. . . • A-lot of money can be spent on what is referrecI'M as inting and stationery. All depends on what is covered by e term. I make ii 'include not only billheads, notepaper Ld envelopes. . Every operator 'must buy printed log eets. If he uses oil fuel; he must buy a book in which to cord his journeys and his use of that fuel. He needs eOunt books in which to enter-wages so that he can deal lequately. with P.A.Y.E. Ire may need advice notes, Way: its, an& the Eke. He needs the very analysis sheets which have been recommending him to use for recording his hide operating costs, and some similar means for entering s -establishment costs. I think that Tam probably undertimating in putting the amount spent under this heading a minimum of £3 per annum and I am certainly not zessive in my maximum of £10 or my average of £5 for ese items.

Expenditure on insurance and maintenance of buildings :ed not be great. So far as insurance is concerned, I iagine that no one will quarrel with me if I insist that it provided, or that my allowance is excessive. Maintenance buildings, the next item is, like so many of those in this bedule of establishment costs, one which cannot be tirnated with any degree of accuracy. I may be quite a t out in my estimates of £3 minimum, £12 maximum, and . average.

As regards "bad debts," that is an item which in the flier days of the industry I omitted. My attention was Iled to the matter by one of my audience when I was :luring on the subject of cost recording. He was obviously sufferer, but his claim that I ought to make allowance for e item could not be gainsaid. Nevertheless I do not think at there is much of that sort of thing about, hence the tall amount I have entered. I might say the same about ;laims."

As regards interest on capital, that is an item which will necessary only if the operator has borrowed capital. The

rest of the items do not, I think, heed further explanation. What I would like every haulier to do is to give full consideration to the totals together with the reasoned explanations I have just given.

I would like now to give the reader some further food for thought as regards the allocation of the total of establishment costs among the vehicles of a fleet. Furthermore, I can now show good cause for the statement, made earlier in. this series, that the allowance of £3 17s. 6d. per week for . • establishment costs, • suggested to me by a reader, is insufficient. It was-set down at the top of the analysis sheet as applying to a 10-tonner.

I have already mentioned that the figures in the accompanying table relate to 30 tons of payload capacity, which might well be made up ofsiive 6-tonners. Let me assume, however, that the fleet to which the data refer are four in -number, two are 6-tormers, one an 8-tonner and the fourth a 10-tonner, and see how these establishment costs should be distributed among the various vehicles Of this small fleet.

• Take first the minimum annual total of establishment -costs, which is £414 7s, Spread that sum over a 50-week , year and we get £8 6s. per week. Divide by 30 to obtain the establishment costs per ton of payload; it is 5s. 6d. approximately. The costs must be divided between the vehicles in such a way that each takes the burden in proportion to the payload it carries. The 6-tonners, for example, must take six times 5s. 6d_ per week: the amount is 33s. The 8-tonner takes eight times 5s. 6d., which is 44s., and the 10-tonner, calculated in the same way is debited with a sum of 55s.

Now take the average figures. The total is £807 10s. per annum. That is approximately £16 per week, 320s., which when divided by 30 gives me 10s. 6d. per ton of payload. This makes £3 3s. per week for each of the 6-tonners, £4 4s. per week for the 8-tonner and, for the 10-tonner, £5 5s.

If I assume that the maximum figure more nearly meets the need, then taking the total of £1,111 5s., the amount is about 13s. 9d. per ton of payload per week, That is equivalent to £4 2s. 6d. per week for the 6-tonners, £5 10s. for the 8-tonner and £6 17s. 6d. per week for the 10-tanner. S.T.R.


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