What are the costs involved
What are the ongoing overheads in a transport business?
One of the most important things to do in order to run a successful transport company is to understand your costs.
Don’t take short cuts and remember quality controls and stringent maintenance to vehicles is crucial,” says Mike Johnston, director of Transport Concepts, a transport and distribution consultancy.
Besides capital outlay for equipment and vehicles, other expenses have to be considered:
- Garage or other facilities for vehicles stored at business premises
- Additional security features – e.g. immobilisers and tracking equipment
- Routine servicing and maintenance of vehicles
- Repairs for scratches, wear and tear (tyres) or accident damage
- Fuel costs
- Cleaning
- Parking costs incurred for business use
- Toll charges incurred for business use
- Accounting/invoicing
- Traffic fines
- Marketing and advertising programmes
- Salaries and benefits for staff.
Vehicles roadworthy
By law, any vehicle using South African public roads has to be “roadworthy”. The responsibility of scheduling and taking a vehicle in for roadworthy testing rests solely on each individual vehicle owner.
Should trucks be leased or purchased?
Regardless of how vehicles are paid for, the cost of financing a transport business is the biggest expense which has to be dealt with. Make sure you do your homework and have an understanding of the different options available when it comes to paying for vehicles. You can consider the following options:
1. Financial Lease
- No upfront cash is needed
- A lease is flexible and can be “tailored” to suit specific cash flow
- Use of vehicles is funded from revenue
- Ownership remains with the lessor
- Rentals must be paid when due, regardless of cash flow start-up
2. Extended Rental Agreement
- Fixed rentals are a hedge against inflation
- Instalments can be paid from the revenue generated by use of the vehicle
- Be clear about exclusions
- Understand what portion of the rental is allocated to the maintenance component of the lease if there is one, and how this is set to escalate over the period of the agreement.
3. Installment Sale (often includes a Maintenance Lease)
- A small amount relative to the total purchase price is paid as a deposit
- Instalments can be paid from the revenue generated by use of the vehicle
- Fixed instalments assist budgeting
4. Outright Purchase – pay cash for the vehicles
- You can negotiate discounts
- Can be financed by employing overdraft fund
- Shows on the balance sheet as an employed asset
- Disadvantage include depreciation and maintenance
Whichever finance option you choose, it will have an affect on the cost of operating your transport company, the taxes you pay and the profits you can make.
What type of insurance is needed for a transport and logistics company?
- Drivers’ liability:You must have insurance for drivers’ liability for injury to others, including passengers, and for damage to other people’s property resulting from the use of a vehicle on a road or other public place.
- Comprehensive insurance:Which covers damage to vehicles as well as third-party liability, fire and theft, as well as sufficient cover for the goods transported in terms of damage and theft.