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#1 26-09-13 15:52:36

Lady-Hynarc
Verified Member
Registered: 09-04-12
Posts: 649

Money behind you?

I have been in business now for almost 4 years and I suppose when I look back I am quite amazed that I have lasted this long.  I've learned a lot on the way about things to do and things not to do.  One thing that I have noticed, which I didn't really consider at the start, was the plethora of ancillary costs which you accrue along the way, things like cleaning materials, car mats, oil, windscreen washer stuff, engine coolant, wet wipes, tissues, pens, paper, ink, replacement magnetic signs (when they get stolen), the car wash etc.  Then we have to add in progress charts, pass plus forms, DSA publications, business cards, web hosting charges, domain name registrations etc. I'm sure there are lots more - I haven't included the big, blindingly obvious ones like fuel, lease fees, insurance, telephone, bank charges and DSA badge renewal fees etc.

I'm not sure I was aware of all these when I started and they do add up, quite quickly, to a substantial sum and some keep recurring.  I didn't have much money behind me when I came into the profession and now I have nothing behind me at all.  I feel rather vulnerable that if something significant occurs I can't actually cover it at the moment.  Do you think you actually need to have capital behind you and, if so, how much?  Do you keep an emergency fund going, just in case?  If so, how big is it and have you ever had to use it?

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26-09-13 15:52:36

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Re: Money behind you?



#2 26-09-13 16:19:25

martin Williams
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Registered: 26-06-09
Posts: 1,144

Re: Money behind you?

All self employed people should have 6 months wages minimum in the bank in case of illness, unless you have some other form of income such as a pension or a partner earning.

Last edited by martin Williams (26-09-13 16:20:05)

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#3 26-09-13 16:27:02

CantThinkofaName
Verified Member
Registered: 01-01-12
Posts: 294

Re: Money behind you?

Your right LH, there is so much that people coming into the profession don't consider and think the money they get for the lesson is virtually all theirs to spend.  I have always tried to keep at least a 3 month buffer of my minimum monthly income. I also put enough away weekly to cover insurance and tax separately. When times are good I keep topping up the emergency fund and now have about a 12 month buffer.

I have been lucky enough not to have to dig into the fund substantially but it has been useful recently when had an unexpected expense for front brake discs that came at the same time as a number of other big costs. I have always been fairly busy and sometimes too busy but I still always feel insecure in this job and that work could quickly dry up or could end up out of work for health reasons so having a buffer really helps.

Last edited by CantThinkofaName (26-09-13 16:28:08)


DKL Driving School Belfast www.drivinglessonsbelfast.co.uk

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#4 26-09-13 18:05:28

Mentor
Verified Member
Registered: 22-10-05
Posts: 381

Re: Money behind you?

I don't think anyone who needs a family raising income should come into this business. The money just isn't there to pay the bills and save for a rainy day.
I have been and ADI for 10 years now, coming into the business after working for 25 years in much more profitable enterprises. Without the benefit of being financially secure at the start, it would have been a struggle to survive. However 10 years on I am still plodding on, no richer, no poorer and importantly no debt.
I think you need to have a healthy buffer, at least 6 months living expenses, preferably 12 months or more. The job is stressful enough without having to worry about money.
I know of other local instructors who are living lesson to lesson, can't afford to fill the tank in their car. I count my blessings I'm not in that boat.

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#5 26-09-13 20:49:32

sofasurfer
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From: Surrey
Registered: 30-07-13
Posts: 310

Re: Money behind you?

Part of the fun of running your own business. I have been running various businesses for
40 years. Each venture has been successful and every time I start up, the golden rule is "don't invest your own money". How many instructors run a limited company or PLC ? Are most sole traders ? All of your business expenses are tax deductible. Worry about profit, not expenses. Have you calculated the break point at which it is not worth working more hours ? Do you have a business plan and is it up to date ? Car repairs are not unexpected, disks wear out. Write a budget for the next 12 months.

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#6 26-09-13 21:43:14

Zipper
Verified Member
From: Darwin, Northern Territory Aus
Registered: 20-08-04
Posts: 2,694
Website

Re: Money behind you?

When I started I had a paid-for car but no capital to speak of, it was a gamble but this was during a solid recession and I was desperate for an income.
Luckily for me I didn't get sick or have a crash in the formative period.


Zipper ("G'Day Mate!")
I'm not 65! I'm only $59.95+tax
www.drivingnt.com

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#7 26-09-13 22:53:15

MAZ
Verified Member
From: N/Wales, Cheshire
Registered: 13-06-06
Posts: 838

Re: Money behind you?

This, Lady H, is one of the reasons many stay franchised as the majority of those  "ancillary" costs in your op are covered in the weekly fee that you can budget for with certainty. I have cover for very little cost that gives me 500GBP per week after 2 weeks of an illness or injury that prevents me carrying out my job as a driving instructor. Other than that I could probably survive a month without work but it would possibly take a year of decent business to get back to where I was.

After 32 years of self employment you get used to the ups and downs. Last year and the current year have been the best for me so far after improving my diary management. Fortunately I have been able to accrue what is now 70% equity in my house which is my virtual safety net and gives me the confidence to carry on without too much worry, as I should never be in a position were I owe more than I am worth.

Maz.

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#8 27-09-13 05:24:06

reddragonbus
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From: Edinburgh
Registered: 05-02-06
Posts: 1,655

Re: Money behind you?

I used to have a buffer of cash and steady income, this year no matter how much I work I never seem to be any further forward? Going into the winter with no savings at all.


LGV PCV Instructor DVSA ADI Fleet

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#9 27-09-13 06:32:32

sofasurfer
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From: Surrey
Registered: 30-07-13
Posts: 310

Re: Money behind you?

Johnathan, there is a cut off point beyond which you are working for nothing. Put your finances into a spread sheet. I do a sheet for each year on a page in an Excel workbook and a summary sheet showing the overall position. From that you should be able to see your optimum number of hours. For me it is about 30 hours per week, beyond that profit is zero. Don't assume that more hours means more profit.

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#10 27-09-13 06:37:24

collywobs
Verified Member
From: Tonbridge Kent
Registered: 07-08-06
Posts: 479
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Re: Money behind you?

It's scary! Many people just don't realise the level of cost involved when running a driving school business. There are, of course, the fixed costs but also many hidden costs and they can add-up to significant amounts over the financial year. I've used a big chunk of my savings to financially subsidize my business. I'm lucky enough to own my property, but I can safely say if I'd had a mortgage I would of been out of business long ago!

Last edited by collywobs (27-09-13 06:40:51)


Colin Kentish
Grade 6 DSA Approved Driving Instructor (car)
www.colinkentish.co.uk

Dream as if you'll live for ever
Live as if you'll die today

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#11 27-09-13 07:27:05

Lady-Hynarc
Verified Member
Registered: 09-04-12
Posts: 649

Re: Money behind you?

sofasurfer wrote:

Johnathan, there is a cut off point beyond which you are working for nothing. Put your finances into a spread sheet. I do a sheet for each year on a page in an Excel workbook and a summary sheet showing the overall position. From that you should be able to see your optimum number of hours. For me it is about 30 hours per week, beyond that profit is zero. Don't assume that more hours means more profit.

Sofasurfer, I may be being extremely thick - quite possible - but I cannot conceive how there can be an optimum number of hours beyond which you are working for nothing.  I do not disbelieve what you say but I can't understand it.  I would have thought (and tend to evaluate my finances on this basis) that if a percentage of every hour's instruction is profit, then working more hours just means a larger amount of money (representing the same percentage) at the end of the month.  You seem to be suggesting that the profit margin decreases with the increase of income.  I think, in graphical terms, this means that my understanding is a linear graph of profit versus income, whereas yours is of a hyberbolic curve?

Would you be able to explain further - preferably in terms that a 'bear with little brain' can understand?

Thanks

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#12 27-09-13 07:29:17

Lady-Hynarc
Verified Member
Registered: 09-04-12
Posts: 649

Re: Money behind you?

collywobs wrote:

It's scary! Many people just don't realise the level of cost involved when running a driving school business. There are, of course, the fixed costs but also many hidden costs and they can add-up to significant amounts over the financial year. I've used a big chunk of my savings to financially subsidize my business. I'm lucky enough to own my property, but I can safely say if I'd had a mortgage I would of been out of business long ago!

Collywobs,

Therein lies the problem.  My business plan and cashflow forecast take account of the fixed costs, including fuel, but the hidden costs are...erm...hidden so therefore I don't necessarily know about them until I know about them.  This is what is threatening to trip me up and I am now very aware of it.

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#13 27-09-13 07:41:44

DonT
Verified Member
Registered: 08-10-11
Posts: 141

Re: Money behind you?

LH,

I believe what Sofasurfer is saying is there are a minimum number of hours per year that you need to work to cover the overheads (Car, servicing, petrol, insurance, etc.).

eg if your overheads for the year are 4600 and you charge 23 per hour then you need to work 200 hours before making a profit for the year.

The good thing is, all income after that point is profit. It makes you feel better. roll

A similar example often used is the franchise where you have to work say 10 per week to pay the franchise fee before making a profit.

Hope this helps.

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#14 27-09-13 08:18:26

Roadmaster
Verified Member
Registered: 04-03-04
Posts: 5,670

Re: Money behind you?

sofasurfer wrote:

Don't assume that more hours means more profit.

Once you have reached the hours required to pay the expenses, any extra hours will produce profit, less an amount to cover the extra fuel used.   So the more hours you do, the more profit you will make.    I'm not sure what you mean with that statement.

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#15 27-09-13 09:46:15

MAZ
Verified Member
From: N/Wales, Cheshire
Registered: 13-06-06
Posts: 838

Re: Money behind you?

The only thing that goes up on extra hours is mileage, but even with excess mileage charges of 15p per mile I can not see a loss coming from those extra hours, I would be interested to see how Solosurfer has worked this out.

Maz.

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#16 27-09-13 10:23:37

Roadmaster
Verified Member
Registered: 04-03-04
Posts: 5,670

Re: Money behind you?

In that case Maz you would actually be making more, because while excess mileage charges are 15p you can claim 25p allowance.  And if you own the car mileage excess doesn't apply.

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#17 27-09-13 14:42:47

martin_t
Verified Member
Registered: 30-12-06
Posts: 357

Re: Money behind you?

But that 25p allowance you're claiming results in a reduced tax bill of 5p only.

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#18 27-09-13 15:46:36

sofasurfer
Verified Member
From: Surrey
Registered: 30-07-13
Posts: 310

Re: Money behind you?

First of all there are no hidden costs, only bad budgeting. Tyres wear out, disks need replacing, fuel goes up in price, cars get damaged, pupils don't pay etc. You should not have hidden costs.

A graph showing profit increasing against hours (or turnover) is not a straight line, it levels off at a certain point. That point will vary from instructor to instructor depending on your circumstances.

For example, income tax kicks in when you reach your personal allowance. If you lease a car, excess mileage starts at the point specified in your agreement. If you own a car, at a certain mileage depreciation starts to exceed the rate allowed for tax purposes and then rapidly increases as you clock up the miles. Maintenance on a car increases exponentially past a certain age/mileage. The Law of Diminishing Marginal Returns.

If you have not taken all these factors into account when setting the cost of your lessons, you may work extremely hard all year and not make much of a profit. Then the tax bill arrives and suddenly you are out of business.

If you need to subsidise your business from your own cash (savings in a personal account not subject to any tax) because there is insufficient money in your business account, you are not making a profit and you need to look at your business plan urgently. If anyone is using the equity in their house to give them a secure feeling, I suggest you transform your business into a limited company or PLC.

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#19 27-09-13 19:29:54

AUTAX
Verified Member
Registered: 22-07-11
Posts: 1,032

Re: Money behind you?

Hmmm I do see where you are coming from.


Be Fear-less, go GEAR-LESS!

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