FINANCIAL ADVICE: It is all about Controlling Costs

432

In this time of crisis the most important requirement is timely and accurate financial information. As seen in our control of this epidemic, people’s perception of the measures the health system and Government are doing is all based on information that we can trust and act upon. Knowledge and information is power, but it must be accurate to be effective for any business to survive the present crisis

At this stage in the month transport companies should have the April Management Accounts completed with projections compared. Many transport companies are holding up well in relation to profit margin even with turnover reduction, and many firms have improved their liquid cash position primarily to safeguard against future potential financial difficulties. Finance houses and banks have assisted in this process and the Government has been strong in direct support. The drop in diesel prices and the significant fuel rebate from Quarter 1 2020 have all helped the situation. Those companies that are weak on financial control and business planning can now be assisted by sector experts working with Enterprise Ireland. The importance of transport and logistics in the current crisis and in recovery from what will be a global recession has never been so strong.

What is concerning transport owners now is how can they track their businesses performance on a daily/weekly basis, without being tied up in mountains of paper and ridiculous working hours and cautiously having to wait for each month end? Even in a week, significant costs and losses can be incurred, let’s take a look at KPIs (Key Performance Index) that will help track the business.

Example

Diesel  =        % Turnover                                                                 26%

(factors; price of diesel/mpg/fuel surcharge/rate for work)

Labour    =                                                                                      25%

(factors; labour rate/rate for work/Government subsidy/productivity)

Overheads       =                                                                             6%

(factors; turnover/cost control)

Finance Overheads  =                                                                      11%

(factors; capital in business/interest rate/ sset profile)

Depreciation/Contract Hire      =                                                     12%

(factors fleet age/ productivity)

Maintenance/Tyres   =                                                                    8%

(factors; fleet age/work type/cost control)

Insurance/Revenue/Tax/Tolls     =                                                   7%

Profit                    =                                                                      5%

On a weekly basis company management should be able to access if any of these KPIs are falling out of sync. With a projected margin of 5%, it’s very easy for that to slip to a negative but if monitored accurately and be able to benchmark against others in the industry that should be enough to stay on track.

It’s an unusual industry in that companies that are best managed also receive the most support, for instance, grants and refunds for fuel saving measures, assistance from a business mentor, and even COVID-19 financial strategy grants from Enterprise Ireland. Along with the monitoring of costs and margin, a key financial aspect is the control of cash and proper planning so that the business has all options open to it in the short to medium term. As we all know there will be fundamental changes as a result of this crisis, especially for the transport industry as new norms develop.