A matter of principles

WHEN it comes to the question of whether to outsource a business’s fleet management practice, the same basic principles apply as with any outsourcing decision. And in most cases, it is pure book keeping principles that apply, according to Barrington Partners chartered accountant and partner Roger Sullivan.

Mr Sullivan said the WA Government deal involving Sydney bank Matrix Finance Pty Ltd, which is likely to cost taxpayers about $500 million, normally springs to mind as an example of why outsourcing is bad news.

However, Mr Sullivan said while the Government’s losses were excessive, they most likely would have occurred irrespective of whether the Government had contracted out its car management systems.

Mr Sullivan said many of the drivers influencing managers to outsource had less to do with dropping costs than with achieving a healthy balance sheet.

“Some of it’s done to get financial liabilities off your books, but then in return you are stuck with a long-term contract for the vehicles,” Mr Sullivan said.

He said a manager’s performance was often measured by balance sheet ratios that matched earnings with capital assets.

If assets don’t add to the revenue stream of the business, companies normally wanted them off the balance sheet and treated them as an expense, which could then bring additional tax deduction incentives.

But while accounting issues were often the motivator for an outsourcing decision, Mr Sullivan believes there is something fundamentally wrong with internal management if an outsourcing firm is able to provide a cheaper service and still maintain a profit.

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