“If you don’t build your dreams, someone will hire you to help build theirs.”

I like this quote as it highlights the primary reason I work for myself.  Whether it’s your dream to build a career around driver training, or simply an appealing lifestyle choice, the fact remains that it’s all yours to drive forward as you see fit.  You, and you alone are directly responsible for your own success.

The promises of self-employment are clear and appealing. The freedom to work the hours you want, not being accountable to a boss, and being in control of how much you take home each month are three of the strongest reasons, and they’re very valid ones. You’re also put on a pedestal by your friends and family, who laud you for being super-brave in going it alone, and we should all take a ‘high five’ for that one – it does take an incredible amount of bravery to leave the relative security and predictability of PAYE employment.

Bravery and, more importantly, the need for self-discipline, are not always apparent when you first start out.  It comes as a shock to many when they awake on Day 1 and realise their destiny is in their own hands, void of routine, or being told what you need to do each day.  It can be tempting to treat it like a bit of a holiday, but that’s only the first challenge we face.

I’ve met many ADIs who passed their Part 3 and thought “that’s it, time to hit the road and earn the dosh”, only then to realise they required a raft of other skills such as marketing, sales, customer service and business management.  ADI training often ignores this side of things, leaving some newly-qualified ADIs staring out of their window at a motionless car.

I say this, not to put you off, but to highlight the fact that self-employment is a double-edged sword; it can provide absolute power and freedom, but falling upon it can prove fatal to your business if you don’t learn how to wield it properly.  It’s certainly not for everybody, but everybody can do it.  All it takes is a willingness to learn, a desire to succeed and the humility to ask questions.

Don’t Fool Yourself

When I started my company, I had what I believed would be enough money saved to cover the reduction in monthly income while I developed a customer base. The speed at which this reserve disappeared was startling, and I was soon treading murky financial waters. Two rounds of drastic spending cuts and painful restructuring kept us afloat. In the end it’s all been worth it, but if I did it all again, there are two things I would do differently:

Budget for the next 12 months – They say that if you fail to plan, you plan to fail, and they’re right.  Budgeting your household income and spending over the next 12 months will make it much clearer to see where you might hit purple patches, highlight where you could easily save on spending, while also helping you set earning targets.

Cut back on everything you don’t absolutely need – I’ve learned how vital it is to live within your means. I’d taken a massive hit on income, but continued to pay for the luxuries I’d gotten used to – fancy car and full Sky TV package amongst others. It meant the money I’d stored to support my family disappeared a lot quicker than I expected, with the inevitable upgrade in stress levels. Cut back on all of these luxuries immediately, take away the burden. It’s only for the short term after all, and it will reduce your personal financial risk massively, especially if things don’t go to plan (and they rarely do).

And when others question why you’re seemingly going backwards in this materialistic world, remember this great quote:

“Entrepreneurship is living a few years of your life like most people won’t, so that you can spend the rest of your life living like most people can’t.”

Your First Steps

Registering with Her Majesty’s Revenue & Customs (HMRC)

The first new responsibility you have is to pay your own tax.  HMRC needs to know as soon as you’re actively seeking work as a self-employed driving instructor – a sole trader.  It doesn’t matter if you still have another job, and it doesn’t matter when you actually receive your first payment – it’s when you start looking for work that counts, or you could face a fine. It takes a couple of minutes and is free.  Here’s a web link I’ve set up to get you started: tiny.cc/self-employed.

Once you’ve registered, you become a self assessment taxpayer.  If you don’t already, you’ll have to fill in a tax return each year, detailing your total earnings, expenses and resulting profit that will determine how much tax you need to pay.  You only pay tax on the money left once you’ve deducted the (reasonable) costs for running your business.  You will also have to start paying your own National Insurance Contributions (NICs).

A financial year ends on the 5th April each year.  You then have until the 31st January to complete your tax return, submit it to HMRC and pay any tax that’s due.

My advice is not to leave it to the last minute, but get your tax return filed as soon as possible after the 5th April year end, then you have time to prepare for paying your tax. It’s important to note that if you have over £1,000 tax in your first year, you’ll also be expected to pay an additional 50% ‘on account’ towards your next year’s tax liability.  You’ll pay a proportion of your likely tax bill each July and January (estimated from previous bill) in order to help you budget for tax and lessen the burden of one lump sum (though it’s probably just so they can collect tax from you sooner!).

A decent record-keeping system to track your income and expenses is essential if you’re going to make light work of this task – more on that later.

There is plenty of information on your responsibilities as a self-employed taxpayer at www.gov.uk/working-for-yourself.

Managing Money

As long as you have accurate records of your income and expenses, you can store your money where you like, though I would recommend setting up two, possibly three, new accounts to help you keep track of your business related transactions:

  • Current Account- pay all your instructor-related income into this account.  Encourage customers to pay directly into your account rather than giving you wads of cash; more secure and accountable.  If you have regular expenses like franchise fees or car payments, set up direct debits or standing orders from this account.  Check with your bank if you can use a standard Personal Bank Account, or if they have rules that dictate the need for a Business Bank Account (on which they typically charge fees).
  • Savings Account – at the end of each month, transfer 25% of your current account balance into this account for safe keeping.  It’s probably a little more than you will need to cover your tax and NICs, but it’s better to be safe than sorry.  As long as this account balance remains at roughly 25% of your total profit for the current financial year, you’ll be alright when it comes to paying your tax bill.
  • Credit Card- okay, can be a slippery slope, but not if used correctly; they can even make you money!  Use it for daily expenses, like fuel or car maintenance. But, without fail, you must  pay the full balance off each month, meaning you’ll never pay interest. It’s a handy tool to have in your wallet.

At the end of each month, once you’ve accounted for the ‘Savings Account’ and ‘Credit Card’, you can transfer an amount to your usual Personal Account as your wage, and safe in the knowledge you’ve covered you tax and national insurance.

Keeping Records

Essential if you want to stay on top of your business.  Invest in an admin system that will help you keep track of not only your business finances, but also your student records and your time, as the three things are inextricably linked.  Log your income and outgoings as they occur, at least every week, so you avoid the last-minute nightmare to complete your tax return. It will also help you track and gauge your profit levels and your general financial viability at any given time and, what’s more, you can simply export your transactions data to either complete your tax return yourself, or send it off to a grateful accountant.

An Accountant

For many ADIs, hiring in this expertise takes away a whole heap of stress.  HMRC have no sense of humour, and making mistakes can be costly, so unless you’re familiar with all the rules on income, expenditure and claimable allowances, I’d strongly recommend seeking help from an accountant, at least for a couple of years.

Insurance

You’re providing a service in the public domain, so it is important you protect yourself, your clients and the general public should something go wrong – it can, and probably will, happen to all of us to some extent at some point. Professional Indemnity and Public Liability insurance are a must in my opinion, though your specialist ADI car insurance provider may automatically provide a basic level of cover. Always check, but I’d rather rely on a quality, stand alone policy specifically designed for the purpose.

Local & National Associations

At the very least, join a national association that can keep you up to date with the latest rules, regulation and ideas, but also represent and advise you in times of trouble. I would also recommend joining your local association – it costs little, but gives you local support and advice, camaraderie and networking opportunities. See the directory further on in this magazine to find your local and national associations. The support, advice and guidance they provide will be invaluable.

Social Media

If you’re not already on Facebook, set up a profile, join some driving instructor groups and read a lot.  Not everything people say is sensible, or even nice, but read enough of it and you’ll get a good sense of the common ground.  When you’re ready, why not create a business page on Facebook to help promote your school?  Libby Langley, who also contributes to Intelligent Instructor, can help you there, as well as with Twitter and other social media channels.

Joining a Franchise

Being part of a well-run franchise can be the making of an ADI, especially in the early years when having that support is important.  Just make sure that what they offer suits how you want to run your business and provides proper value for the money.  Compare and contrast a few, ask lots of questions, meet the owners face-to-face if you can, and read the terms and conditions – leaving clauses often catch ADIs out.  And remember, you are your own boss; franchises provide you with support, but they’re not your employer, so don’t rely on them for your success. Try to generate your own new business alongside the franchise to improve your business and your options going forward.

Just The Beginning

Becoming an ADI is not just sitting in the passenger seat and teaching. You are now a business person, and that means you have to consider, prepare, understand and implement many other ideas and tasks if you are going to succeed. It can seem daunting, but it needn’t be as long as you look after the basics and build your success from there. As Henry Ford once said:“Nothing is particularly hard if you divide it into small jobs”.