Having worked through the previous two chapters, you should now have a clear idea of where you will be working from and the costs involved in working from that location, the minimum amount of equipment you can effectively work with during your initial set-up phase and first year, and will be thinking about whether you want to be working full-time or part-time in your chosen therapy. Now comes the reality check – costing it all out.

Planning for financial success

You may have planned various aspects of your life before, for example, a long holiday or a new kitchen, or you may be a relative newcomer to planning. However, one thing is certain, a lack of planning at this stage may result in financial problems which could easily have been avoided. Do you know how much it is going to cost you to start up your new business? And, do you know how much you will need to be earning from your business in that crucial first year in order that you can meet all your outgoings?

Until you have worked out exactly how much money you will need in your first year of business, you won’t know how much you might need to borrow, and if you can’t produce a solid plan outlining all the relevant details your bank is unlikely to make you any loans that you might require.

Planning your business can be a lot easier than you think. There are six simple steps you need to carry out.

The six-step planning process

Step 1 – How much do you really need for living purposes?

A quick way of working this out is to look back over your last three bank or building society statements (include your last three credit card statements as well, if relevant). Now, calculate how much you pay annually for all your personal and household expenses. This will include rent, mortgage and utility bills as well as personal insurances and clothing. For some items, such as ‘entertaining’, you may need to provide a ‘guesstimate’ and decide what your future annual budget will be. Once you have these figures you can enter them in the following table (Figure 9):

Step 2 – How much do your business premises cost?

If you’re not going to be working from home, then now is the time to start investigating the cost of renting premises and/or the cost of sharing rooms. Try to get at least three sets of costs that you can compare, and then take the average of the three as your guideline. To these costs you may need to add business rates, water rates, gas and electricity charges, telephone and internet costs and cleaning. You may be able to get some of these figures from your potential landlord, others you will need to guess at. As a general rule, round the costs up rather than down, as most people underestimate their outgoing costs.

Don’t forget to add any insurance costs. Although your landlord may not make any charges for insurance related to any common parts, you will still need to be insured for any claims made by your clients or visitors. This public liability insurance will generally be included within your professional indemnity insurance (see step 4 below). If it isn’t you will need to arrange for this separately. You will, of course, also require your own office contents insurance, to guard against the risk of loss in respect of any break-ins or damage.

Once you’ve worked out these figures, enter them in the table below (Figure 10).

Step 3 – What are your equipment costs?

If you’ve worked through the checklist in Chapter 2 you should already have a clear idea of what equipment you will need for your first year. Now it’s time to add in the figures if you haven’t already done so. Ring round suppliers to get quotes for equipment and/or copies of office, medical and specialist suppliers catalogues, and use these for your equipment costings.

Remember to take a strategic view of all your needs, so you may want to complete two lists: one for the essential equipment you will require to start the business, the second for equipment for which you can wait a bit longer before purchasing, for example, items which might help the business run more smoothly or efficiently such as extra chairs for visitors or the waiting room.

As well as the essential equipment, don’t forget to cost your initial business stationery needs such as pens, paper, printer ink, diary, business cards etc. Some office suppliers offer a starter pack which may be helpful, but check that you will be using all the products before you decide to purchase. If you are going to get your letterheads, compliment slips and business cards professionally printed, rather than printing your own, you will need to ring round for some quotes.

Don’t forget that the equipment you purchase when you set up will eventually require replacing. If you can afford it at this stage it’s a good idea to plan for it by building an aspect of this into your budget now. Add an extra 20% to the figures, as most equipment and furniture should last for between three to five years before it needs replacing. Use Figure 11 below to work out your costs.

Step 4 – What are your professional and legal cost?

You may already be a member of a professional organisation, or have yet to join any. But in any case you do need to make an allowance for these costs. Ask around amongst your colleagues and tutors to find which professional bodies offer the best ‘value for money’ memberships. Most professional organisations will have a referral list of their practising members which they make available to the public, which could help with your advertising costs. Also, many organisations offer a cheap deal on professional insurance for their members. Others may also be good for the help and support they offer their practitioners and may also produce monthly or quarterly newsletters which can be an additional resource for techniques, or updating skills and additional training. Included in this support may be contact details for email help and advice, or an egroup for discussion and informed debate on related issues.

Depending on the therapy you are practising, you may be professionally obliged to belong to a particular organisation in order for you to be able to practise, as that particular organisation may be responsible for setting the standards for your profession. Choose your membership wisely. Although it appears more professional to belong to more than one organisation, for initial purposes limit yourself to joining a maximum of two professional bodies.

As well as membership costs, you will need to be insured for your professional liabilities. You will need to take out professional indemnity insurance (this covers you for any legal action being take against you) and public liability insurance (this covers you for any accidents that a client may have whilst on your premises, eg tripping and falling over and any subsequent damages that may be incurred). The minimum cover you should consider is £2 million, with £5 million being the initial maximum. The most I’ve ever been asked for is £5 million cover, and this has been when I’ve been working for government agencies doing training or holding one-day events, so unless you expect to do a lot of this work in your first year I would suggest you keep your insurance costs to the minimum. For more details about your professional and legal liabilities and insurance, see Chapter 4.

Work out your professional and legal costs from Figure 12 below.

Step 5 – Advertising costs

You will need to set yourself a budget for your advertising costs. The total cost will depend, of course, on where you choose to advertise. As a first-time trader you will usually be able to negotiate cheaper deals with both Yellow Pages and Thomson directories. If you’ve decided to advertise via your own website, don’t forget to add on the annual costs of hosting the website and the registration of your domain name. The printing costs for any leaflets, brochures and business cards etc should also be added into your budget. For more information about advertising, see Chapter 9. Work out your advertising costs from Figure 13 below.

Step 6– Business banking, loans, taxes, Nl contributions and accountants’ fees

If you decide to use any of the above facilities you are likely to incur some extra charges. Whilst most business bank accounts do not levy charges for the first year of trading for sole traders, you do need to ensure that you make a note of this in your planning for subsequent years (and as a comparator for when you go shopping for business accounts). If you have already enquired about taking out a business or personal loan, you should add into your plan the cost of the monthly repayments (any set up charge will normally be added to the loan).

Although it may be very difficult to have any clear idea of the amount that you are likely to be earning from your business over the first year, you will still need to make an allowance for tax. A rough guide is to allow 20% of your earnings to be set aside for this purpose. As a self employed person, you will now be responsible for paying your own National Insurance (NI) contributions, and you will need to make an allowance for this to be paid from your personal account, not your business account, as this is not a business cost. For further information about NI contributions, see Chapter 12.

Whether you decide to have your accounts reviewed and consolidated each year by an accountant is a matter of your personal choice, as this is not a legal requirement for anyone working as a sole trader. You can, of course, choose to complete your own self-assessment tax return each year. However, many self-employed people find it useful to employ an accountant to go over their books. A good accountant will not only take some of the work off of your shoulders but will usually, through a judicious review of your finances, manage to ‘save’ you her/his fee. Your accountant can also be called on for business advice. As a general guide, for straightforward bookkeeping and presentation of accounts for a small business, the fees are likely to be in the range of £200-350. Work out your costs from Figure 14 below.

Putting together your profit and loss account

Now you’ve got all the facts and figures at your fingertips, take your planning just one step further. If you find that as a result of this exercise you need to apply to your lender for a loan, you will need to complete a projected profit and loss account for your first year of trading. Even if you find you have no requirement for a loan at this time, it is still a very good idea to complete the final stage of this exercise, as it may help to firm up some of your thinking. Putting your ideas down on paper will help you to clarify your thinking and give you a ‘blueprint’ to work towards. If you don’t have a clear idea of where you want to be with your business in one year’s time, you will not have any particular goals to work towards, or measure your success against, or to challenge or cause you to adjust your thinking or direction.

Completing your profit and loss account is not as scary as it might first sound. You simply need now to work out your projected income for the year. This is going to be very mucha ‘guesstimate’. If you have had the benefit of working part-time in a practice you will, of course, have a much clearer idea of your potential earnings. You do need to make allowances for holidays, both bank holidays and personal holidays when you will not be working. And a good general rule for your first year of trading is that you are unlikely to do much more than break even - so work on the basis that because you will be putting a lot of time and energy into setting up and marketing your practice, it is unlikely that you will be able to work and earn at anything more than a quarter of your potential. Therefore, cost out what your potential earnings would be if only a quarter of your client slots were filled each week.

You will then need to list what your estimated or known expenditure will be for each month, and then calculate for each month whether you have made a profit or loss (see the table below).

The next step is to take your total for the year (whether profit or loss) and compare this against your projected total expenditure for your personal living costs – this will allow you to calculate whether you will need to arrange a loan in order to manage your first year. If you do need a loan, then you should do this exercise again, this time filling in the figures for the next one to two years. If you are going to take out a loan, you should make sure that you have reviewed all your business requirements for the next two to three years in order to cover your costs until such time as you can safely predict that you will be making a reasonable profit.

Jan	Feb	Mar	Apr	May	June	July	Aug	Sep	Oct	Nov	Dec
List your estimated earnings for each month
List your estimated or known expenditure for each month broken down into five main headings (take your figures from the tables in the six-step planning process)
business premises costs equipment costs professional and legal costs advertising costs business banking, loans, taxes, and accountants fees.
Remember it is generally easier to average out your expenditure across the months. However, if you know when certain payments are due, for example your professional insurance is always due in February each year, or if you have budgeted for some special expenditure such as a major marketing campaign in a particular month - let your monthly figures reflect these amounts.
Calculate whether you have made a profit or a loss for each month
Calculate your overall profit or loss for the year

If you do need to approach your bank for a loan, your business banking manager will want to see your profit and loss account so be realistic about what you think you can achieve in your first year. Your bank manager will expect you to have put a lot of thought into your planning so be prepared to answer some searching questions about your projected business finances.

Costing the venture

Having completed your first year’s financial plan you will now be able to check whether you need to raise some extra money to finance your venture, whether you have sufficient savings to survive the first year or whether you would prefer to work in another occupation part-time in order to offset the costs and generally ‘feel’ your way. How would you answer the following questions.

• How much money will you need in your first year?
• When you will need this money?
• Do you have any savings which you can afford to invest in the practice?
• Do you have insurance plans, PEPs or TESSAs which you could cash in?
• Do you require a loan?
• Do you have any other ways of financing the venture?

First year financing

Once you know how much money you will need for your first year in practice, you can start to break this down further. Do you need a large injection of cash at the outset in order to fund the set-up costs, or will you be able to afford to start your business by using savings or some of your own personal funds? And whether or not you’ve managed to fund the initial set-up costs yourself, will you require an extra top-up towards the middle or end of your first year? What does your financial plan reveal?

If as a result of your planning you know you need to raise some extra cash during your first year in practice, you may want to consider the following:

• business or personal loans
• grants
• using your savings
• funding from friends and family
• cashing in insurance plans, PEPs, TESSAs
• remortgaging
• using your credit cards.

Business or personal loans

If you need a loan it’s generally best to try your own bank first. You will have built up a credit rating over the time you have banked with that company and your own bank is likely to give any request a sympathetic hearing. If you already have a business bank account, or are thinking of setting one up, check out the differences between the personal versus business banking loan rates. A business bank loan may be more cost effective, it will also help you to keep your business finances separate from your personal accounts and therefore make record keeping slightly easier. Whichever route you choose – do your homework first. Be realistic about your needs and be prepared to demonstrate how you think your business will progress in that first year. You will be asked questions about local competition, marketing, set-up costs and working capital – be sure to have your answers ready and be prepared to back these up with your projected profit and loss forecast for the year. If you are offered loan payment protection to help you meet your repayments if you are unable to work due to sickness or injury, check that this protection covers you in your self-employed capacity – this is particularly important if you are taking out a personal loan.

Grants

Depending on your age, the nature of the business you are engaged in and the area in which you are located, you may be eligible for certain grants. The Prince’s Trust offers financial help and support for young people aged 18 to 30 (18 to 25 in Scotland) who are setting up in business. They will not consider certain complementary therapies, such as massage therapy, but they will consider others on a case-by-case basis. The Trust can offer low interest loans of up to £5k. They also offer self-help kits, have free advice lines and can provide you with a mentor for up to three years. For further information about the Prince’s Trust, see Chapter 12.

Business Link runs a nationwide scheme offering free advice on setting up your business, which operates at a local level. They can help you write a business plan and sort out your tax and National Insurance contributions. Business Link has an on-line directory which will allow you to see if there are any government grants or schemes which may be available in your local area. For further information about Business Link, see Chapter 12.

If you are treating specific medical disorders and your therapy has a good track record for helping treat those particular medical conditions, then an approach to a relevant medical charity may also bring in some form of help or support. Even if financial help is not on offer, they may hold your details on their database or directory of suitably qualified complementary practitioners – which means you may get some referrals. For further information, see Chapter 12.

Don’t forget to check whether the organisations you trained with make any form of grants or awards. These groups could also provide you with a good source of further contacts.

Using your savings

You may regard this as your preferred option rather than taking out a loan. The advantages are clear – no interest rates, no set-up charges, nothing to pay back. However, you should think carefully before investing some, or all, of your savings in the business. What were the savings originally intended for? How will you, or your family, feel if the money for that longed for foreign holiday or new kitchen is now transformed into business premises or equipment? If you decide to use your savings determine how much you can leave untouched, either for emergencies or to put towards that holiday or dream kitchen. Maintaining a healthy balance is everything – don’t sacrifice all your savings for the sake of your new venture.

Funding from friends and family

Although well-meaning friends and family members may be only too happy to offer you some cash towards setting up your practice, this is not without its problems. A lot of friendships break up over money issues, and family rifts are common. That said, there are advantages in choosing this route:

• minimal or no interest rates being charged
• no set-up charges
• no penalties for early settlement of the loan.

However, for everyone’s peace of mind it is best to have a contract drawn up which details how much has been loaned and by whom, when the loan needs to be paid back, what, if any, interest is to be applied and how the loan is to be paid back, eg £100 a month by standing order to Uncle Bert’s personal bank account. It is not necessary to have a solicitor draw up a formal document, but to give it a legal standing do ensure that the agreement is dated, signed by all parties and that an independent party witnesses the signatures. This document should clearly outline all the responsibilities with regard to the loan and therefore should prevent any confusion or disagreements from arising.

Cashing in insurances and long-term savings plans

Although these clearly provide a means of raising extra cash, just like using your savings, if you choose to cash in on any of your long-term savings plans you should first carefully consider your motivations and priorities. Would it be more beneficial for you to spend your ‘nest egg’ on that long foreign holiday that you’ve always been promising yourself rather than just keeping the business buoyant? It could also be a comfort to know that you have some money in reserve so that should the worst happen you can manage financially for a few months while things settle down or you get another job.

In reality, setting up your own business is not a good time to cash in on any life insurances. Instead it’s a time when you would be better advised to think about increasing any insurances you may have, or combining your insurance in some way with a pension plan – if you haven’t already made suitable provision.

Remortgaging

If you already own property this is another potential source of funds, particularly if you are thinking of working from home and looking to extend or modify your property for this purpose. For example, remortgaging in order to fund the building of a conservatory which can double up as your practice room; knocking down walls to increase the size of a room, building a new wall to section off your new work area; widening doorways to accommodate wheelchair users or building a downstairs toilet to save your clients having to negotiate your stairs. Approached carefully, these modifications could also add to the value of your property as well as making it more comfortable and practical to work from home.

Even if you are not considering working from home, if you haven’t changed your mortgage for a number of years you may be pleasantly surprised by the deals that are currently on offer. These could save you money on your current mortgage and therefore allow you that bit extra to put towards your new business.

Using your credit cards

Credit cards are often overlooked as a form of small short-term loans. It could be that as a result of your financial planning all you will require is a small amount of financial security over the coming months, and therefore the flexibility of a credit card ‘loan’ which you can use as and when you need to, and which you can pay back in varying amounts, should not be undervalued.

If you don’t already have a credit card, now’s the time to investigate the options and perhaps take out one or two cards. Alternative therapies, just like other businesses, suffer from cashflow problems from time to time, and having a credit card facility can be a very flexible way of handling this situation creatively and providing a welcome boost to your working capital.