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REVEALED: HOW LONG IT TAKES TO BREAK EVEN WHEN STARTING A TRADE BUSINESS

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  • Joinery businesses are the cheapest trade to set up, costing around £6,600
  • Self-employed plumbers recover their start-up costs the quickest – under six weeks

 

Joinery businesses are among the cheapest trade companies to set up in the UK, averaging nearly £2,500 less than other sectors, new research has revealed.

With over 40% of construction firms expected to make redundancies due to the virus[1], tradespeople may be considering going self-employed. IronmongeryDirect, the UK’s largest supplier of specialist ironmongery, has identified the cheapest industries in which to do so.

The study added up the typical costs people pay when entering the UK’s four most popular  trades[2] (joinery, building, electrical, plumbing), with everything from insurance to marketing.

Joiners pay the least, with the average set-up fee totalling £6,642. With the typical daily rate for joiners around £150[3], these initial costs could be repaid within nine, five-day weeks.

Despite being the most expensive businesses to set up, plumbers can expect to earn back their investment quickest, as they are able to charge the highest daily rates. Averaging nearly £350 a day[4], the £9,124 start-up cost could be repaid within six working weeks.

The trade businesses which are the cheapest to set up in the UK are:

1)     Joinery – £6,642 (repaid in nine weeks, £150 a day)

2)     Building – £6,791 (nine weeks, £160 a day[5])

3)     Electrical – £6,873 (six weeks, £245 a day[6])

4)     Plumbing – £9,124 (six weeks, £347.50 a day)

 

One of the most significant outgoings is accreditation. New plumbing companies pay the most in this department, with organisations like HETAS and OFTEC charging substantial sums for membership. Such credentials, combined with the cost of other important courses, like First Aid at Work, the Gas Safe Register and Asbestos Awareness, can set you back over £3,000, which is significantly more than other trades.

Some expenses, however, are necessary across all sectors, such as insurance, marketing, company registration and van hire.

A new trade business can expect to pay over £600 a year to completely cover themselves with insurance. Contractors All Risk insurance is one of the most costly forms of protection, starting at £298 a year, but includes cover against both property damage and third-party injury, so is worth the investment.

Marketing is another significant outlay, but an important one nonetheless. Paying out for business cards, flyers, logo design and a new website usually costs at least £600 pounds. However, such costs will pay for themselves if they lead to a surge in new clients.

Finally, there’s the crucial cost of equipment. A tradesperson may have accumulated tools during their career, but if they are new to the industry, there are tools they will need before taking on work. Joiners pay the most here, with key equipment adding up to £600. Circular and table saws are the biggest outlays, so it could be worth looking for second-hand retailers, whilst ensuring the products are high quality, as income will depend on their performance.

 

The full breakdown of costs per trade is as follows:

 

Type of Cost Joiner Builder Electrician Plumber
Accreditation £1,005.00 £1,041.00 £1,005.00 £3,481.00
Trade Association £117.00 £472.80 £585.00 £231.00
Marketing £610.54 £610.54 £610.54 £610.54
Insurance £638.21 £638.21 £638.21 £638.21
Equipment £599.38 £355.97 £361.87 £490.98
Other (storage, van hire, business registration) £3,672.00 £3,672.00 £3,672.00 £3,672.00
Total £6,642 £6,791 £6,873 £9,124

 

Andy Porter, a self-employed carpenter from Southampton, has given his three top tips for people looking to set up their own trade business:

1)     Look at local adverts and see what similar trades are doing (e.g. services, pricing)

2)     Get quote and invoice terms and conditions in place early and make sure they are watertight

3)     Make sure you have plenty of money saved up as cash flow is incredibly important

 

Marco Verdonkschot, Managing Director at IronmongeryDirect and ElectricalDirect, said: “Many tradespeople will aim to run their own businesses one day, so it’s useful to get an idea of how much it would cost to do so. While these sums can appear quite daunting, most of the expenses will directly improve your service or help you win more work, so are worth the investment in the long run.

“Owning your own business can be incredibly satisfying, so to help those who are considering going it alone, we’ve compiled a list of tips on how to do so effectively.”

For eight pieces of advice from tradespeople who have set up their own business, visit: https://www.ironmongerydirect.co.uk/blog/eight-top-tips-for-setting-up-your-own-trades-business

 

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News

FOMO, FOLO, AND THE VOLATILITY CONUNDRUM

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Katharine Wooller, Managing Director, UK, Dacxi

 

‘There is a lot of surface noise in the cryptocurrency space and most of it is the psychobabble of investor sentiment. One week it is the sound of everybody rushing towards a feeding frenzy. The next the wailing and gnashing of teeth as those near the surface (the ones most exposed) get spooked and rush the other way, falling over each other in the race to escape.’

I wrote the above paragraph on June 11th as the introduction to an article I was asked to contribute to a national newspaper.

The piece was essentially about what drives the roller-coaster of cryptocurrency prices – a pattern I have often referred to as ‘exquisite volatility’.

 

IT’S EASY TO OVERTHINK IT

Day to day volatility is something that market analysts and crypto critics alike are obsessed with on a day-by-day basis. In my view they overthink it. The main thrust of my argument in June, with crypto prices tanking, was that ‘buying the dip’ is a tried and tested strategy. At that time Bitcoin was priced around £25,000. Over the next few weeks, it then ticked down even further to £21,762 on July 20th.

At time of writing, about a month later, it’s around £32,680 or US$44,700. If you follow certain online forecasts, pundits are now suggesting Bitcoin could push the $100,000 barrier before the year is out. But, as I said above, it’s easy to overthink things, and sensational predictions make headlines.

 

IT’S INVESTOR SENTIMENT THAT REALLY DRIVES PRICES

Cryptocurrency in general is currently trying to find its identity. Is it a currency or is it a commodity? Is it something you ‘trade in’ or is it something you use to ‘trade with’ – i.e., use to buy other goods? Currently short-term prices are being driven by traders not users – nothing wrong with that, the function of any market is to allow people to buy and sell and make a profit through matched bargains.

The value of any commodity is only what somebody is prepared to pay for it, or what they can sell it for. On a speculative basis, rising values are driven by fear of missing out (FOMO) when the price is on the way up, which ramps the price up.  Downward values are driven by fear of losing out (FOLO) when the price starts dropping and the feeding frenzy turns into a selling frenzy.

Interestingly, traders measure their success not by what they can afford to buy with their crypto wallet, they measure success in terms of converting gains back to their local fiat currency – which rather misses the point of why Satoshi wanted to create a DeFi world in the first place.

 

THE RISK OF GAMING THE MARKET

The fact is that most traders are gaming the market. The risk is that there are some really big swinging crypto traders out there who can influence the market. Playing ‘coin’ like a computer game has inherent risks – rather like trying to predict when a murmuration of starlings over Brighton pier will change direction. I believe that as the market continues to mature and cryptocurrencies follow their destiny to become the enabler of decentralised finance on a global basis, the margins for traders will inexorably tighten.

At Dacxi we take the long-term view. We are firmly ‘buy-and-hold’ investors who, having looked at crypto’s growth curve and analysed the true sense of purpose of DeFi, don’t over-react to the short-term metrics. Dacxi is a wealth building platform and experience has taught us that very few people get rich quick – and more than a few of those that do, get poor again just as quickly.

For most of us building wealth takes a measured view and a measured time frame. From my point of view there’s nothing at all wrong with that!

 

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News

HOW CHANGES TO PROVIDENT FUND ANNUITISATION AFFECT APPROVED LUMP-SUM DISABILITY BENEFITS

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By Dolana Conco – Regional Executive – Alexander Forbes Retirement Consulting

 

New tax rules on the annuitisation of provident funds and lump-sum payouts made at retirement took effect on 1 March 2021. Fund members should be aware of additional implications for approved lump-sum disability benefits.

On retirement, members of these funds who were under age 55 on this date (known as T-day) may still take amounts which accrued prior to 1 March 2021, plus the fund return, in cash. Members over age 55 on T-day will have access to all amounts in the fund in cash when retiring from that fund. This is referred to as “vested benefits” as opposed to “non-vested benefits” where annuitisation rules apply to amounts above R247 500.

 

Approved lump-sum disability benefits paid by a pension fund

The approved (provided by the fund) lump-sum disability benefit in a pension fund was previously included as part of the fund benefit. It was normally treated in its totality as an ill-health early retirement benefit from the fund. The cash amount was limited to a maximum of one-third of the benefit, while the balance was used to buy a pension.

 

Dolana Conco

Approved Lump-sum disability benefits from provident funds

Those under the age of 55 will have the same limitations on their lump-sum disability benefit and how this is treated in terms of annuitisation as applies to pension funds.

  • Members over age 55 on 1 March 2021

The lump-sum disability benefit will be part of the vested benefits in the provident fund of which the member had membership on T-day. This means that the member can receive this payment in cash, after tax.

But if the member transfers to a new fund after T-day, and is then disabled, any lump-sum disability benefit paid out of the new fund will be a non-vested benefit. This means that annuitisation rules will now apply.

  • Lump-sum disability benefits under 55

Only amounts which have accrued before T-day fall into vested benefits. If a member is disabled after T-day, the lump-sum disability benefit payable will not fall into the vested benefits. The payment will be treated as a non-vested benefit. This means that the annuitisation rules, where the total benefit exceeds R247 500, will now apply to the lump-sum disability benefit.

 

Reform

While the above may be an unintended consequence of the annuitisation rules, we should take a step back and reconsider the real intention of reform.

Various stakeholders in the industry introduced and agreed upon reform as it became evident that current regulations were failing the member. Almost 50% of members retire on less than one-third of their final average salary, which renders a large part of people poor and dependent on the state. This is unsustainable and needs to change.

Reform has brought in different forms of laws to increase the savings culture and provide certain incentives – like a tax deduction if a member saves more, up to a certain limit.

With the lump-sum disability benefit now subject to annuitisation, funds need to consider this question: Would an income structured benefit still meet the intention and expectations by members, the fund and the employer in terms of their incapacity procedure?

The trustees and employer will have to revisit why the approved lump-sum disability benefit was selected in the first place. Was this to ensure that there would be a lump sum to:

  • meet the cost of additional care or adjustments to the home to assist the disabled employee, or
  • provide cash support ultimately to members who are found to be totally and permanently disabled?

If the above intent of providing a lump-sum benefit still stands, the trustees and the employer may need to consider changing the tax status of this benefit from approved to unapproved. This will ensure that the initial intention and expectations are still met.

Caution is made that changing to an unapproved benefit would mean that the employee would need to pay fringe benefit tax on the monthly premium. However, the benefit would be paid as a tax-free lump sum separate from the retirement fund for total and permanent disablement.

These discussions must therefore include decision makers on the employer side to:

  • help facilitate the messaging to the employees
  • manage any payroll impacts
  • align with their incapacity procedures

Any benefit structure implemented must be well considered to best suit the needs of the members. This could enhance the financial well-being of employees and lead to the best retirement outcomes.

 

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