What to Consider When Undertaking a Review of a Road Transport Business

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Accountants for road business

By Mark Thompson

account for transport business

Sometimes, assessing the earning capacity of a Transport Operator is not as simple as a mere examination of the business’s financial statements.  Consideration of the following is “key” when examining the earnings of transport operations businesses.

  1. Operator’s source of payment – How is the Operator paid (Eg. kilometres driven, cargo delivered, etc)?.  Have these rates changed from year to year?
  2. Existence of large contracts – Does the business operate under contract?  Is the contract fixed income (ie. no increase in income during the “contract bound” years)?  Renewability of contracts?
  3. Fuel price changes – Have there been dramatic changes in the historical prices of petrol and diesel?  If the business operates under a fixed income contract, is the gross profit margin decreasing (due to static income and increasing fuel costs)?
  4. Depreciation – Use of accelerated depreciation rates during the early years of asset ownership?  May be appropriate to “normalise” depreciation.
  5. Change of primary vehicle – Was the primary truck of the business written off as a result of the accident?  If so, was it replaced by a comparable vehicle?  Is the claim for property loss or economic loss?
  6. Repairs and maintenance – Fluctuations in repairs and maintenance costs?  Have large scale improvements / additions occurred that have been classified as repairs though, more correctly, should be capitalised and depreciated?
  7. Travel and accommodation – Has the business claimed significant allowances for travel and accommodation?  Are the amounts reasonable?  May be necessary to compare the allowances to ATO, ABS and benchmarking data.
  8. Fuel tax credits – Fuel Tax Credits included as income?  In reality, these amounts represent a reduction in fuel expenses (ie. a negative expense).

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

 

 

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