Don't Forget Your Wages
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Hauliers Are Apt to Overlook Certain Items of• Expense Which Do Not Appear to Be Direct Operating Costs But Which Nevertheless Are Part and Parcel of Maintaining a Business and Amount to Substantial Sums
IN my previous article I reported part of a conversation with a haulier who had certain figures for cost of operation but was not sure about their accuracy. We had got as far as to deal with his running costs, which were surprisingly low, actually snore than 24. per mile below
average 5.97d. per mile as against an average of 8.07d There is in that an obvious case for further investigation, but before doing that I propose to deal with the other part of his costs, his standing charges and establishment costs. The interview, almost to be described as an interrogation, proceeded as follows.
"Now," I said to him, "let us go into your standing charges and establishment costs."
"What are they?" he asked. "I thought I had finished with costs."
I replied: "Your standing charges are those items of cost which stay unaffected whatever may be the mileage the vehicle runs. They are the same, or nearly the same, whether the vehicle runs 500 miles or only 300 miles per week. You have to pay them: indeed some of them are more important than the running costs. Take, for instance, the cost of the annual Road Fund tax. You cannot avoid paying that. Do you pay for your licence in one lump sum or do you pay it quarterly?"
Year of 50 Weeks
"This year I paid it in a lump sum: the amount was £35."
"In the Tables we are accustomed to reckon a year as being made up of 50 weeks, in that way we can take care of the loss of use of the vehicle, or, alternatively, for the wages of a spare driver during the fortnight of paid holidays. Or it may he that the vehicle is in dock for that period. The provision thus made will cater for either contingency. In any case we are on the safe side and are not likely to let anyone down by assuming too little. One fiftieth part of £35 is 14s., the incidence of the tax per week.
"Next comes the Levy."
"I had forgotten that."
"I guesscd`you would. It amounts to 3s. 11d. per week. As to rent and rates of your garage—what do they cost you?"
"I pay 5.s. per week."
"And insurance?" "I've taken out a comprehensive policy which costs me £40 a year."
That, I presume, is for the vehicle only and does not cover the load?"
"No. Do you think I should insure the load?"
"That depends on the class of traffic you carry and the terms under which you carry it for your customer, Perhaps
he will be willing to cover it. I suppose that on the proposal form for the policy you did take out you made it clear that you were going to use the vehicle for the carriage of goods for hire and reward?"
" Yes, or at least I think so."
Difference in Premiums
'You really ought to make sure. However, judging by the amount of the annual premium I should think you have."
" What's the point in that? Is there a difference in the premium as between the use of a vehicle for haulage and that of a C-licensed vehicle?"
"There certainly is. The policy for a haulier's vehicle costs more than double. Now comes the interest on -first cost of the Vehicle. This, as I showed in an article a short while back, is a controversial matter. Not everyone is agreed that it should be included in a haulier's costs. Perhaps the best thing I can do is to find what it amounts to and -then note how its inclusion or exclusion affects our calculations.
"You told me that you paid £980 for the vehicle when it was new. Now you should realize, that if you had carefully invested that money, it would be bringing you in today about 5 per cent. per annum. Now, 5 per cent. on £980 is, as nearly accurate as needs be, £50 per annum or £1 per. week. More than the cost of your insurance, more than the Road Fund tax and the Levy put together, and much more than the rent and rates of your garage, so that it is not an item which you can ignore.
'Of course, if you do as I so strongly advise, that is, put by every week the amount we have agreed upon as depreciation—£2 7s, 6d, per week—you will save £118 1.5s. per annum and the interest on that can be set against the interest on first cost, so that your annual loss on that account gradually diminishes. If you do that we can Jake
approximately half of that which I have said is the interest on first cost, more than half perhaps because a year will have passed before you deposit enough money into the bank to make the interest worth while. If you agree to put this money away for depreciation, about £27 per annum will be the amount which we must set down as interest on first cost. That is approximately I Is. per week.
That is the last item: we may now add the items up so far as we have gone, to see how we stand."
We jotted the items: tax, 14s. ,per week; Levy, 3s. lid.; rent and rates of garage, 5s.; insurance, 16s.; interest on first cost. I 1 s. The total was 49s. 11d., say 50s. per week. That was without any allowance for driver's wages. Upon this point my friend said:— " Oh, well, as I am going to drive myself there will be no need to reckon anything for that."
"I have been waiting for that."
"Well, you can't get away from it. I am not paying driver's wages so that there is nothing to go down under that heading."
"We shall have to talk this over properly; this is the point at which so many budding hauliers go wrong. The proper wage for a driver of a 6-tanner in a Grade I area is £6 15s. per week of 44 hours, plus overtime pay on a rising scale. Do you mean to say," I asked him, "that you, as driver, look upon wages as part of your legitimate profit?"
"In My Pocket"
" Yes," came the reply. Of course I do. It is money in my pocket, isn't it?"
But on that basis, considering the contract you have told me of, the result will be that your total profits may be no more, possibly less, than a driver's wages. Arc you agreeable to that?"
"I certainly am, and why not?"
"The only point is that if you are satisfied with the equivalent of the pay of a lorry driver, why bother to go intO business on your own?"
"I must admit I had not thought of it in that way."
"What you must do, if you are to enter this business in a proper manner, is, as driver, to pay yourself driver's wages and then, but not before, to look for a profit." At the very least, you must agree, your venture is only just paying its way if it has paid your driVer's wage. When it begins to show a revenue sufficient to pay that wage and something more, then you are getting on to the right road, but certainly not before, and even at that you are only just beginning. You probably will have troubles of your own in the near future, from which you will emerge successfully only if you have that extra margin of real profit behind you to enable you to pull through.
"I Pay Nothing"
"We have not finished our examination into costs. There are the establishment costs to be considered."
"What are they? There can't be any further items of expenditure. You will allow me to state that I pay nothing out for establishment costs. They do not exist."
You may make that statement, but it doesn't affect the 1r fact that they still exist. Let us, first of all, agree ab'out the pperating costs of this vehicle. We can discuss establishment costs after that. I am going to include provision for the driver's wages.
Standing charges without wages have been shown to be 50s.; wages, £6 15s.; premiums for National insurance and workmen's compensation on account of the driver, 6s.; total, £9 us. The running costs have been shown to be 5.97d. per mile, say 6d. The cost of 500 miles is thus £12 10s. The total of operating costs is thus £12 10s. for running costs. plus the standing charges, £9 1 Is., making 122 Is. in all.
"The traffic was offered at 6s. per ton. Two loads per day from Monday to Friday and one on ,Saturday makes 11 journeys per week, or 66 tons, so that the weekly revenue is £28 ls. and the profit exactly 16 per week."
" There you are," he said with a sigh of relief. "I thought I was not far wrong. The profit is £6 per week ard that is ample for me. You usually reckon profit at the rate of 20 per cent. on cost, don't you? Well, 20 per cent. of £22 Is. is only £4 10s. I am actually making more profit than you usually recommend."
I let him alone for a minute, waiting for him to calm down. Then: "Do you really imagine that the whole of that £6 is profit?"
"Of course I do. What else can it be?"
" There are still the establishment costs to take into consideration."
." What arc these establishment costs? I have no recollection of any payments other than those we have been discussing."
Separate Figures "1 will soon give You p.roof of their existence, but first of all I will explain to you why it is that I have not included any of them among the operating costs. I always insist that they must be dealt with separately because it is not fair to charge the vehicle with them and, in all these articles, I am always careful to keep the costs of operation as a separate but nevertheless entire set of figures. Now what do you spend, or what have you spent apart from the items we have enumerated?"
Nothing. I will go further and state that I have hardl■ spent as much as you have already covered. I am surprised that the operating costs are so many and so much."
"Is that so? Then how do you get traffics?"
"What do you mean by that?"
"Well, how did you get the offer of the contract we are discussing?"
That set him thinking.
"To start with, and before you rush to give me an answer, I note that whilst you have your premises in Coventry, your prospective ctistomer_lives in Birmingham.
"1 happened to hear that he was not getting satisfaction from the operator now doing the work and I . went to Birmingham to see if I could get the job."
Journey By Lorry
How did you go? "
"I ran over there on the lorry."
" There and back, about 45 miles in all."
"Yes, of course."
"And all for nothing?"
"Yes, I suppose so."
"But your vehicle costs you 6d. a mile for running costs alone. For that run of 45 miles you actually spent at least 22s. 6d. Did you enter that in your books?"
I don't keep books or accounts."
"All the same, you will have to find that 22s. 6d. from somewhere. And, incidentally, had you made an appointment, or did you go on speculation?"
"Not exactly. I wrote to him in the first place," "Where did you get your notepaper from? And where is the 24d. stamp recorded?"
"Rut as I got no reply I telephoned him."
"You did, did you? Yon spent 24d, on a stamp. You used some of your printed notepaper and an envelope, and on top of that you have to make a trunk call from Coventry to Birmingham. We are getting along quite nicely with our establishment costs, aren't we? And you've not got the job yet. I suppose that it is more than likely that you will have to run over and see him again yet, before it is settled. Another 22s. 6d., another 21d. stamp, probably another trunk call. And where did you eat?
"In Birmingham. I took him out to lunch."
"It is fairly obvious that by the time he has signed on the dotted line you will have spent quite a sum in trying to get the order. Are you beginning to see what I mean when I say you must have other expenses than just the bare vehicle costs?"
Unfortunately, there are many operators of this type who think that they are doing very nicely so long as they do not reach the stage where their banking account is overdrawn. By ring more attention to the book side of their business, they could turn what is now a mere living into something '
far more prosperous. • S.T.R.