Back to business

DIA Insurance ADI News

We’ve been giving lots of advice over the last few months on ways to help steady your finances and generally just try and survive lockdown and being unable to train. In this month’s post-COVID-19 feature we’ll look at getting your  business fit for the road again and ready for a more challenging environment.

Stabilising your finances

What’s the damage?

Businesses need a strong foundation – COVID-19 will have severely damaged most business’s foundations. The first step of recovery is to assess how deeply your business has been affected.

Start with the hard numbers. If you haven’t updated your financial statement recently, such as profit and loss or cash flow statements, it’s helpful to do that now. Compare to last year’s numbers to see how much your business may be down. Establish where your losses have mainly been.

Knowing where you are helps you understand where you need to go. Ask yourself, to recover to ‘normal’ income levels how much do I need to earn, and how am I going to get there? This will inform your business plan – or roadmap to recovery.

Costs to rebuild and recover

To get your business back on the road and running again what costs will you have? Costs could include:

  • Marketing, customer engagement and retention,
  • New costs such as PPE
  • Rising costs – insurance, fuel, repayments on car loans etc
  • Fewer lessons/pupils due to market conditions and need to limit training to limit your exposure to risk

When you have considered your costs, assess what income you will need to generate based on a new normal – i.e. potentially fewer lessons and pupils each month.

Consider where you could lower costs to plug income gaps and offset other rising costs.

Consolidate your finances

To stabilise your business you need to look at reducing outgoings where you can. If you are exposed to debt, you could be exposed to fluctuating and increasing interest rates in the highly recessionary environment we will enter post COVID-19.  So it’s a good time to assess how exposed to debt (such as car loans and credit cards) and interest rates you are.

To reduce your risk, and your costs, you could consider changing providers (for both domestic and business loans). Look into cheaper sources of lending, such as Business Bounce Back Loans that, with no repayments for the first 12 months and a rate of 2.5% when payments commence, make an attractive option.

Business plan

You need a plan Stan! Or to overuse driving terminology, you need a roadmap. If you didn’t have a business plan before, you need one now.

Write and maintain a business plan; there’s plenty of templates on the web of what to consider. Don’t, however, make it into War and Peace – keep it simple so it’s a usable tool.  

What should go in a business plan?

  • Executive summary – what your business is, what it does and where it sits in the market. This should include company and product/service descriptions and helps you write your elevator pitch
  • Market analysis – tied to the above, what does the market look like – current and future
  • Competitor analysis – know your enemy! What is the competition in your area, where are the threats and where are the places you stand out above the competition? Market that difference!
  • Marketing/sales strategy – too often overlooked in a business, critical to any business, full diary or not. How are you going to market and sell what you do?
  • Organisation and management – who does what and how is it managed, quality and management systems, etc
  • Financial analysis – a brief snapshot of your company’s financial performance, key income and key expenditure plus any forecasts for growth (or potential losses) and budgets for the year.

Don’t just create a plan and then file it away. Evaluate your progress against it regularly. Adjust it to take advantage of opportunities or to reflect change in your business or the market

A business plan is also useful to have if you’re ever pitching for business or investment. Some large corporations or tenders will ask for one.

Is the price right?

What you charge needs to change. How you charge needs to change. COVID-19  should have woken those up who were somewhat sleepwalking with lesson-by-lesson income to the need to secure longer term revenue. The risk of the profession is that, unless you lock in longer term bookings, income has the risk of walking away when each pupil exits the car at the end of each lesson.

Now you are more acutely aware of income risk – will how you charge have to change?

Another factor to consider is that your costs may now rise, yet the number of lessons and pupils per week may decrease therefore it’s good business sense to consider that your prices may have to rise.

Have you done the maths?

When pricing a driving lesson (using the cost-based method) there are a number of things to be considered, including:

  • Car (bought or leased)
  • Fuel
  • Servicing, maintenance, cleaning (cleaning costs will now go up)
  • PPE
  • Road tax (where applicable)
  • Insurance
  • Depreciation (on purchased cars)
  • Interest on loans for cars etc
  • Telephone charges and administration fees
  • Franchise fees
  • Accountancy fees
  • Marketing costs
  • Any professional or business related subscriptions
  • ADI licence (DBS checks etc)
  • Pension contributions
  • Personal accident/hospital sickness/insurance/income protection.

You may also wish to allow additional income for holiday or short-term sickness. You will then need to add on your fixed profit percentage.  You may find it easier to work these costs out on a monthly basis then divide it by the amount of hours you spend teaching. Once you have arrived at your figure, compare them to your current hourly rate.

Don’t be surprised if the figure is more than £30 an hour.

WARNING – Costs will go up!

  • Factor in new costs such as PPE
  • ‘Cost’ of fewer lessons and pupils
  • Operating costs may go up across the board, including insurance, car prices, and fuel prices Look at the forecasts and factor in price increases on the products and services you need to deliver your business.

You may need to spend more on pupil acquisition and marketing in general.

Value yourself, your business and profession

Valuing what you offer as an individual instructor helps the public value driving instruction more generally. With other trainers in other areas, such as piano teachers and personal trainers charging north of £35 per hour we need to see the life changing and life preserving skill of driver and rider training value itself more.

Even a small increase in hourly rate can result in a bigger gain at the end of the year.

Charging more per hour can help you net back that other valuable commodity – time.

A small hourly increase can make a big difference to annual income. See the example below.

Current price: £24 per hour

Hours worked: 40 hours

Weekly income: £960

Price increase: £28 per hour

Hours worked: 35 hours

Weekly income: £980

Five fewer hours worked per week but a higher level of income achieved.

Lock in income

Change the traditional model of how you charge to de-risk your revenue.

  • Consider block bookings for upfront/minimum number of lessons so you lock customers in.
  • Introduce incentives for block bookings – locked in revenue is more valuable than a hand-to-mouth approach. Offer loss leaders to generate block bookings
  • Contract commitment  – get pupils to commit to X lessons by contract, offer staged monthly payments over a fixed period.
  • Consider how you extend the life and value of each customer, e.g. post test sales – what can you offer to lengthen the relationship?

Also ensure T&Cs don’t leave you exposed cost and income-wise. Ensure you have adequate T&Cs and they cover late notice cancellations, non-payments etc. What happens if someone wants to cancel a block booking, for example?

Engaging with your pupils/customers

You might be raring to go, but are your pupils? In fact – are they even still your pupils?

Trainers should have been engaging regularly with their pupils throughout the crisis. This is good customer service and how you retain business.

Consider what you could/should have been communicating with them throughout this crisis – and what you need to communicate moving towards the resumption of training:

  • Advice
  • Answering concerns and queries
  • Virtual learning to keep them updated, upskilled, engaged and retained
  • Survey them – feelings, wants and needs about returning to lessons
  • Offer reassurance – what will you do to keep them safe?
  • Parental decision makers may need the most persuasion and reassurance
  • Brief them on the new normal – your new protocols and procedures
  • Offers for those not locked in before lockdown to win them back

Marketing out of a downturn/crisis

Understand that your customers are different and will have reacted to the crisis in different ways. This means they’ll want to be communicated with in different ways to be brought back into the fold.

Triage your customers – who are your low hanging fruit who want to get back to learning ASAP and have the wherewithal and motivation to do so?

Motivated pupils

  • Those who will need to drive for work even just in the short term (there’s a predicted increase in commuters by road)
  • Those who fear using public transport and want to make the switch
  • Those less damaged financially by the crisis

Tailor your marketing strategy accordingly.

Risk-proofing your business

A pandemic of this scale is unprecedented, but your business is at risk at all times from a number of factors:

  • Road risk
  • Compliance and regulatory risk
  • Economic risk
  • Competitive risk
  • Reputational risk

Implement robust and risk mitigating actions for all key areas of risk to ensure, as you rebuild your business, you don’t leave it exposed to such a degree again.

Review and implement risk mitigation strategies into your business plans, policies and procedures and contingencies. I go into more detail on risk management shortly.

So, after reading all that – are you ready to get your business back on the road and is your business fit for the road?

Just as important as putting training protocols and safeguards in place to help you return to training post-lockdown, you need to take the same planned and careful approach to your business as a whole

Recognising the risks of running a driver and rider training business

The risks to trainers come at you from all sides, but the trouble is you may not be aware of as many of the risks as you should be. This means you won’t necessarily be mitigating and protecting against them as you should.

Think of these risks like COVID-19. You weren’t even aware it existed at first, and then it was something that endangered other people and other countries first, then it was on your own doorstep – your livelihood, and possibly your life. It’s an invisible threat, but it’s there alright.

We’ve all certainly become more risk aware, and risk averse, in recent times. And if this is a learned behaviour, it might be a positive result of this crisis. But while we’ve woken up to the very real threat of one big risk, like a pandemic, are we also aware of all the other risks which can bring our business to a grinding halt or severely limit its performance?

To act and protect your business you first need to be aware of what could threaten it. In the first of a series of features about risk management, we take an overview of general business risks.

You can get more of our guidance and resources on risk issues related to COVID-19 in our COVID-19 toolkit on driving.org. 

Here we look at the main risks facing most businesses, big and small and regardless of industry.

Market risks

  • Lack of/loss of customers
  • This can include failing to reach critical mass when starting a new business or when launching a new product or service.
  • Loss of customers is also another huge area of business risk and can be caused by other risks such as reputational risk (bad worth of mouth, exposure in the media for a negative issue), competitor risk, product or service failure (including system and technical failure which mean services and products can’t be delivered).

Competition

Competition risk is the risk of potential losses due to competitive prices. An aggressive competitor, or an aggressively competitive environment overall, can mean you lose customers and that revenues and margins are reduced due to price wars.

Disruptors

Assess your industry right now. What are some of the potential start ups/technology that might disrupt your market? Identify them and decide what you can do about it.

Examples of disrupter risk include Uber for the taxi market, Netflix for traditional TV viewing, Air BnB for the holiday rentals and hotel market. It can be a brand or an entire product or a way of delivering a product that can post disrupter risk in a market place.

Economic risks

Changes in the overall economy will affect your business.

The recession after the banking crash of 2008 caused many an ADI business to flag or fail. It is forecast that we are about to enter a recession bigger than what we saw in 2008. Think about what a recession will mean for your business and how you will manage those risks.

Financial risks

Financial risks refer to risks that are cash-flow related. Poor cash management is often cited as causing business failure.

Credit risks

A common practice for businesses is to extend credit to your customers, especially B2B. Extending credit can lead to increased sales.

But you are also taking credit risks. Your customers might not pay up after receiving the products and you could spend time and money chasing those debts.

A customer default can make a huge dent to your cash flows. If you are extending credit, think about how those risks can be best managed.

Financial leverage

Financial leverage refers to how much debt you have in your business. The higher your debt, the greater is your leverage.

Leverage will amplify both your profits and losses. In good times, you will earn more. In bad times, you will lose more.

A high financial leverage will make your business vulnerable to interest rate changes.

You should think about how you can service your debt in a high-interest rate environment. Are you able to repay them? Or do you need to refinance them? This could be the case straight after an economic downturn, i.e. a recession, such as we expect to enter now.

Higher interest rates mean higher costs to you. A good way of tackling this issue in the current crisis is to tap into cheap debt, such as the government backed Bounce Back Loans, to help consolidate debts and lower your exposure. With no repayments for the first 12 months and a very low 2.5% interest rate over the remaining six years of the loan (and no financial penalties for early redemption of the loan) this scheme is already being used by many trainers to help stabilise their finances and lower the cost of debt.

Operational risk

People risk

Employees are your greatest assets – but, there are also risks when it comes to managing employees – theft and fraud, leaving to set up their own business and taking customers, damage to property, equipment, reputation and employee mistakes.

A risk is also not having enough people – which could leave you unable to satisfy demand for your services.

Other operational risks

Operational risks refer to mistakes or lapses which occur in the day-to-day business operations. It can result from inadequate procedures or policies, or human mistakes e.g poor quality control.

Operations can be disrupted by equipment or service failure – a fault with your car, booking system, customer database etc.

Premises damage or disruption

Supplier failure or disruption – goods and services you need to service customers are not supplied when or as needed by third parties.

Technology risks

Technology risks refer to the losses related to the failure in information technology.

Cyber security risks

One of the biggest technology risks is cyber security. Your customer and employee data should be confidential. No one without proper authority should access it. As we have seen from the British Airways and other data loss scandals, data breaches are common. Keeping data secure should be your priority.

Technology is also a risk in terms of database, web application, software or server breakdown.

Compliance and regulatory risks for ADIs

Most businesses have a set of regulations that they will have to follow, for example, all ADIs have to comply with ADI regulation. Key regulatory risks for trainers are:

  • Standards check failure
  • Code of Practice and Fit and Proper
  • Non-compliance might lead to penalties
  • Some extreme cases might even lead to licence suspension and legal action
  • Non compliance with other regulation and legislation (outside of DVSA) may impact your licence and livelihood
  • CCJs, motoring convictions, ASA, data breaches, criminal convictions

Reputational risk

You can become an overnight sensation – equally you can lose your business overnight. The age of social media and consumer reviews can make, or kill, a business.

Negative word of mouth spreads faster and reaches further on average, than good word of mouth.

We deal with many cases of reputation risk where pupils or other ADIs are causing issues for members.

Managing reputational risk is as much about mitigation (reducing the risk of it occurring and limiting its impact) as they are about risk management – actively managing and reducing the reputational impact and boosting your reputation again.

This feature has really been a walkthrough of the main business-related risks to start your thought process about the wider risks of running a small business. This is a time when an unforeseen risk has caused massive disruption.

In future issues we’ll take the individual areas of risk and look at how to mitigate and manage them. And we’re also developing a specific course in this area. In the meantime have a look at our webinars on the subject in DIA Academy

The post Back to business appeared first on Driver Trainer.


Source: ADI News

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