Planning For Profit
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• OVERHEADS Are Up, Too !
Rating, Postal and Telephone Charges . are Among the Rising Establishment Expenses that Will Hit Hauliers Seriously
W• AGES and fuel account for much of the operating costs of many commercial vehicles, _Increases in the cost of either must inevitably be matters of great concern to operators. Yet they should not be allowed to obscure advances in the smaller items which, in aggregate, mount up to a large sum.
Many such items are recorded—or should be recorded— in the establishment account. Too often, however, particularly with smaller operators, no provision is made for them when assessing charges, either through neglect or because of a mistaken belief that it is not necessary. Alternatively, the operator may consider some of the items too small to warrant recording. That never was the case and is still less so at the present time, with costs rising
almost daily. .
First, however, the meaning of establishment costs or overheads, as distinct from vehicle operating costs, should • he made clear Operating costs include all the items involved in running a vehicle and consist of five standing charge; (licences, wages, rent and rates, insurance and interest) and five running costs (fuel, lubricants, tyres, maintenance and depreciation). The underlying principles and the number of items remain the same whether the operator has one vehicle or a hundred, and are fully discussed in the preface to " 'The Commercial Motor' Tables of Operating Costs."
Wide Variation in Overheads
Establishment costs, however, are those incurred in running the business, as distinct from running the vehicle. The number of items is not limited, as with operating costs, and varies widely between small and large fleets, and between types of traffic (such as local or long-distance haulage) and operators.
Even the owner-driver with only one vehicle engaged exclusively on local haulage and operating from a private house incurs some establishment expenses. The room of the honse requisitioned as an office will require lighting and heating additional to its normal use. However much he may dislike clerical work, some expense on stationery is essential if only to comply with statutory obligations, whilst it would be inconvenient, to say the least, to attempt to operate a haulage business without a telephone.
At the other end of the scale the establishment expenses or the larger operators cover a wide range of payments, and even the 55 items in the list accompanying this article may he insufficient to meet the needs of specialist concerns.
Although establishment expenses are often looked upon as miscellaneous payments which cannot be correctly entered elsewhere, some attempt has been made here to group many of them under functional headings. Whilst only the c31) largest operators Would have payments to be entered against all the items, the list will enable smaller concerns to check whether or not payments have been overlooked when assessing charges.
The first two items shown—salaries and car expenses— concern management. Even the owner-driver will spend some time managing the business in addition to driving, probably in the evenings and at week-ends. • There is no logical reason why he should do such work voluntarily and some portion of his total earnings should be allocated to management. Too often this peculiarity of road haulage —the apparent desire to do two jobs for one pay-packet— has been a cause of rate cutting, unconsciously or otherwise.
Where the organization warrants a full-time manager a car would be a necessity and provision for that expense must be made accordingly. (A series of three articles on staff-car operation appeared in The Commercial Motor on August 16, 23 and 30.) Management /salaries and car expenses, where incurred, may well have increased in recent months. To be efficient. management must have authority. To allow the difference between the rewards of management and organized labour to remain derisory—if it exists at all—is to make that authority merely nominal, and efficiency and profitability suffer accordingly.
To say that paperwork is anathema is one thing—to devise an organization without it is another, hence the seven items under the sub-heading "Office."
Here, again, the owner-driver may himself do such clerical work as is necessitated in keeping even a minimum of records and rendering accounts to customers. The largest operators would require a complete office organization, including traffic and engineering departments. Provision is made for them in items 3 to 9.
Similarly, the same items would occur under the heading " Garage and Stores" (items 10 to 16). For the majority of small and medium-sized fleets the cost of running a stores could be conveniently grouped along with garage expenses, Only in the largest concerns would it be advantageous to deal with the stores as a separate entity.
Warehousing for Customers The provision of warehousing facilities as part of the service given by the haulier to trade and industry in the distribution of their products is becoming increasingly demanded. Part-lotting, and changes in customers' distribution policies, have combined to make it an operational necessity in many instances. But additional services Must mean additional expenses. They must be accurately recorded if subsequent charges are to provide an adequate. margin after covering all costs.
Before opening branch depots, expanding operators may first have to make use of some form of interworking or agencies to enable them to offer their customers a more complete service. By segregating branch-depot expenses, a comparison of cost of operation is readily available both between depots and between the depot policy compared with the former agency method of operation.
Included under these last four sub-headings is the item of salaries, which may well have increased recently.
Modern conditions of employment of. permanent staff often include provision of a .pension scheme and the cost of the employers' contributions can conveniently be grouped along with -salaries. Should the pension scheme include drivers, the cost of those contributions would then be more appropriately allocated to operating costs.
Rates are also included under these four sub-headings. Always a complicated subject for the layman, it has become even more so during the past two years, since responsibility for the .revaluation of properties has been transferred fromlocal anthorities to the Inland Revenue. Briefly, the inten.. tion of the change was to eliminate any local bias in. valuation, and to make such adjustments as were necessary to the last valuation as long ago as 1934.
Revaluation came into force on April 1, 1956, with a subsequent reduction on April 1, 1957 of 1/5th or 1/7th in certain' business premises. Direct comparison is made difficult, however, by a simultaneous variation in the rate poundage, which, combined with the valuation, provides the information the ratepayer is most interested in—how much he has to pay.
Taking specific examples, here are the average rateable values of six medium-sized transport undertakings; comprising garages, stores, warehouses and yards for three successive years:. April 1, 1955, £335; April 1, 1956, £711; April 1, 1957, £568. This year's figure shows a reduction of 1/5th compared with the previous year's rate. Even so, it is more than 69 per cent, higher than the 1955 assessment.
Rates 45 Per Cent. Up
Account, however, must also be taken of.the corresponding rate in the pound. Taking the 1955 rate as representing 100 per cent., those for 1956 and 1957 were 70 per cent. and 85 per cent. respectively. The average amount of rates payable as from April I last in these six specific cases, is almost 45 per cent. higher than in 1955, and hauliers should enstire that their own increases are included in their costings.
The items stationery and postage are self-explanatory, but in the welter of recent price increases the rise from 2÷cl. to 3d. in the inland letter rate for 1 oz. (instead of 2) as from October I, may have received scant thought. Expressed in terms of a £20 increase in a postage account of £100 it is more clearly recognized as yet another addition to establishment expenses. Moreover, if the transport department's nightly mail includes such records as consignment notes, the increase might well be in the region of 100 per cent., because the charge for 2 oz. is to be 41d and for 3 oz., 6d. As a matter of interest, an envelope and six sheets of quarto notepaper weigh 1 oz. Increased telephone charges also take effect on October 1, including another 20 per cent, in some subscribers' trunk calls and substantial additions to private branch exchange rentals, according to the number of exchange lines and extensions. Even with maximum co-operation from all members of his staff, and, in pareni.hesis, from his customers, the transport operator, especially long-distance, is strictly limited in the extent to which economies can be effected in the use of the telephone. The more diverse the area of operation the more necessary and expensive is its use, whilst invariably that extra effort on the customer's behalf means still fnore telephoning.
It will be noticed that item 33 reads, "Telephone and Communications," and allows for expenses incurred in installing and operating the Post Office Telex Service and private telecommunication systems. Whilst* admittedly only applying to larger operators, they provide the means for immediate communication so essential to efficient transport management, whether in the control of vehicles in a factory area or in long-distance operation.
Public Transpart
Travelling expenses shown as item 34 are intended to include fares paid for public transport, as distinct from the staff-ear expenses shown in items 2 and 38. A driver may have to be sent to collect a new vehicle or chassis. Alternatively, it may, in some instances, be more economic to transfer crews by that means, whilst senior staff may also use public transport on occasion. The cost of staff uniform will again relate only to the larger concerns, but, where it is provided, account must be made of the resulting expense. In addition to its use by passenger operators, staff uniform is becoming increasingly popular with ancillary users, especially those engaged in food distribution.
The first item in the second column of the accompanying table concerns external loading equipment, as distinct from corresponding equipment used in the warehouse or transit shed. Operators of large-scale tipper contracts, for example, may decide, as a result of carefulcosting, that the eXpense of providing loading equipment •On the site will be more than offset by operational economies Arising from quicker turn-round. Under this item, too, the subsequent expense of fitting loading devices to existing vehicles could also be recorded.
Next week I.will comment on the remaining 19 items of establishment expenses in the second column of the table. S.B.