Every cloud has a silver lining, so they say, and Robert Sweeting’s is speed
cameras.
Robert, 47, has picked up a nice little earner helping to run speed-awareness
courses for people who have been clocked on camera exceeding the speed
limit. It is only one of several areas that he is developing for his
three-year-old driving instruction business, Quality Education for Drivers.
He would also like more lucrative contracts with companies to give advanced
training to drivers of their fleet cars.
For now, however, business is a bit of a struggle. The traditional learner
market is “hacked to pieces”, he says. Although profits have nearly
quadrupled since he set up in April 2004, he made a net profit of only
£5,100 last year. He admits that the business is costing far too much to
run.
The biggest drain is the £660 monthly bill for servicing two three-year loans
with Volkswagen Finance and Northern Rock, taken out to replace the two
Skoda cars he uses. With the VW loan costing 9.4 per cent, Robert admits
that this was a very poor deal.
The other burden of which Robert is acutely aware is advertising. Promoting
the business in Yellow Pages costs about £350 a month.
But Robert says: “That outgoing will gradually drop off as I move out of the
learner market. By the end of next year, the adverts will have come to an
end and the payments will have finished and I shall not bother to renew.”
For now, the family’s main breadwinner is Judy Peacock, Robert’s partner, who
earns £27,000 a year working at a primary school near Ipswich. Judy, 47, is
bearing the brunt of the cost of the couple’s endowment mortgage with
Norwich & Peterborough Building Society, which currently has a little
more than £40,100 outstanding.
However, with the rate fixed at 5.89 per cent until 2014, Robert believes that
they have quite a good deal. More serious, however, is a predicted shortfall
of up to £8,300 on endowment policies with Prudential and Norwich Union,
which were intended to pay off the loan. In addition, Judy has a three-year
£5,000 loan from Barclays.
To cover these commitments the couple have savings consisting of £8,700 in a
Prudential investment bond, £3,200 in a Norwich Union cash Isa, £2,500 in a
Barclays personal equity plan and £1,100 in four building society accounts.
Robert and Judy do have some pension arrangements to fall back on. Judy has
been paying into the Teachers’ Pension Scheme for 24 years and has been
making additional voluntary contributions (AVCs) to a Prudential pension for
14 years. Robert has accumulated 12 years of contributions in his previous
employer’s scheme. They also pay £60 a month in AVCs attached to that
scheme.
One thing that they do not have to worry about is a car for their daughter,
Madeline, when she reaches 17. She and Robert are currently building her one
from scratch, although Robert is insisting that Madeline must pass her
advanced driving test before she is allowed out on her own.
Robert and Judy: what the experts say
SAVINGS & INVESTMENTS
Brian Dennehy, managing director, Dennehy Weller & Co
“The main issue for Robert and Judy is that they have £15,500 in savings but
even bigger debts on which they are paying a higher interest rate than they
are receiving from their savings. Debt reduction should be the priority.
“I would recommend that, depending on any penalties that may be payable, they
should consider encashing the bond and building society accounts to reduce
or eliminate these loans.
“They should also review the endowment policies to assess whether they should
be encashed and used to reduce the amount outstanding on the mortgage. For
example, if there are currently no penalties for early redemption, and
bonuses are also very limited or nonexistent, there may be little point
retaining the policies. To begin this review, Robert and Judy should ask for
current encashment values and establish the current level of bonuses.
“They should then ask their lender whether they will be allowed to reduce the
mortgage. They should also consider switching to a straight repayment
mortgage.
“If they do encash the endowments, they need to make absolutely sure that they
have replacement life cover.”
BUSINESS ADVICE
Roger Hetherington, local adviser manager, Business Link East
“The priority for Robert’s business must be to increase sales. Robert needs to
maximise the use of the vehicles and the income they produce. Each car will
have to generate at least £15,000 a year over and above any financing or
other overhead costs.
“Robert has already done the right thing in trying to establish the business
in an ‘added value’ niche market serving special customers who should pay
more for a special service. The problem may be that there are not enough of
them close enough to him. He should perhaps identify his ideal customer and
estimate how many there are in his area. He then has to make an estimate of
the proportion of the market likely to buy his services. Any figure above 1
per cent or 2 per cent is likely to be overoptimistic.
“Robert also needs to determine his promotional strategy. He needs to seek a
more targeted approach than Yellow Pages.
“He needs to consider whether his promotional material conveys the right
message about the business. Does it clearly promote the special type of
driving instruction and education he can give and does it set him apart from
the competition?”
BUSINESS LOANS
Lee Tillcock, head of business, Moneyfacts
“The rate that Robert is paying on his VW loan looks expensive. But without
the full details of the loan terms and redemption penalties, it is difficult
to say whether switching would save money. It is certainly worth Robert
checking the redemption terms and investigating other finance options.
“It may be that he could obtain a better rate from his bank. The bank will see
his accounts, know his credit history and may be keen to keep his business.
“Robert should look at leasing or hire-purchase finance. This could give him a
product designed more specifically for his asset-based business. He may also
find deals that cover breakdown and maintenance costs.
“Before deciding, Robert should seek advice from his accountant. Depending on
his tax status, he could benefit from having finance either on, or off, his
balance sheet.”
PENSIONS
Stuart Bayliss, managing director, Annuity Direct
“Judy is in quite a good situation with her pension. She has contributed to
her teacher’s pension for 24 years and made AVCs for 14. If she works
through to retirement age, she should achieve her maximum pension, plus her
AVCs and full state benefits.
“Robert’s situation is more complicated. He has various pensions with past
employers. If these are final-salary schemes, he should probably leave them
where they are. If some are money purchase schemes, then it may be
beneficial to combine all the schemes. He definitely needs to find out the
situation with regard to the 12 years of contributions that he has made to
the pension through his previous employer.
“The other immediate action that Robert needs to take is to stop his AVCs. He
should have been told by his former employer that any AVCs must cease when
he leaves its employment.
“While Robert’s business gets on its feet he should at least make sure that he
is qualifying for his full state benefits by paying his full self-employed
national insurance contributions. If he cannot afford to do this, Judy and
Robert could consider the option of Judy reducing her AVCs and diverting
this money to Robert, at least for a while.”
Robert’s response
“This exercise has been incredibly useful, forcing me to look at the big
picture.
“Brian is right that there is a lot that we can do to reduce our interest
payments and we will look at using the endowments to pay off a chunk of the
mortgage.
“I agree with Roger that I can work smarter and need help with marketing. I am
looking at driver training for companies and am about to start some work for
a district council.
“After Lee’s advice, we will investigate whether it is worthwhile switching
the VW loan to another lender. We need to look at the tax benefits of
leasing cars when the current ones need replacing.
“My pension arrangements are the priority. We would be reluctant to reduce
Judy’s AVCs, but could really use some specialist advice. In the meantime,
we will check that I am qualifying for full state benefits and stop my AVC.
“Apart from a wet and windy photograph, the whole exercise has provided us
with a list of priorities and some direction.”
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