I want a £100,000 loan, is this possible?

a_j_bingham

Hi BL1,

Thanks for the extra details.

It worrys me a bit that you have not taken into account the VAT on the equipment. Certainly this error is in your favour, but there may be others in your projections which are not.

To briefly and simplistically explain VAT, most businesses will have to register for VAT when their turnover exceeds £60,000 in any given twelve month period. In your case, it is likely that you will want to register for VAT immediately, as this will allow you to reclaim the VAT charged on your initial expenditure. Also, the amount of money you're borrowing would suggest you expect your turnover to quickly exceed £60,000 per annum.

When you register for VAT you are effectively collecting the tax on behalf of HM Revenue & Customs and will have to charge VAT on your turnover. Against this you will be able to offset any VAT you pay to your suppliers.

VAT Returns are usually submiited quarterly, and are due within a month of the quarter end, together with any payment. Repayments will be made once they have been processed.

After the first quarters likely repayment, due to the setup costs, you're not likely to have that much to set off against your output VAT and you would normally expect to be paying VAT in your type of business. Otherwise the business is failing.

I hope you have taken into account that 7/47ths of your gross turnover, or 17.5% of your net turnover, belongs to HMRC?

Remember to adjust your expenses if you've included them gross, whilst on your cash flow you will pay the input VAT out, you will claim it back at the end of the quarter.

If you're VAT registered you need to make sure you know whether you're talking about the gross price of things or the net price.

In the case of a gym the biggest ongoing expense will probably be wages, and I would suggest you do a rota to work out how many staff you will need and what the cost of them will be. Things to consider are your intended opening hours, per day and days per week, how many hours a week the staff will work and remember to include cover for holidays, sickness etc.

Other expenses such as rent, business rates, insurance, loan repayments for the cash flow forecast and interest for the profit and loss account, you should already know. You should be able to reasonably estimate water rates, light and heat, repairs and renewals, advertising and promotion, motor expenses, accountancy charges, bank charges, sundry expenses etc.

As I said previously, any bank will want figures supplied by an accountant and you should now approach one. Far better to let an accountant point out the flaws in your business plan than have the bank do it.

With regard to your specific business, location will be important, check out the competition, your potential market, age, affluence etc. It will take along time to build the membership up, probably slower than you think. Obviously you have to let people know that you're in business, but it's easy to waste a lot of money on advertising and promotion, in other words spending large amounts of money on adverts does not necessarily generate income.

One thing to bear in mind with gym memberships, is that by there very nature they are regarded as a luxury item and will be one of the first things people cut out when times are hard.

Personally, I do not think you will get the funding you require under the Small Firms Loan Guarantee Scheme. Your age and experience will count against you, as will the amount of money you intend borrowing and the amount you're actually investing yourself. The loan would be to the business, therefore you and your business partner would not be able to apply for separate loans.

Ironic as it may seem, banks have a tendency to chuck money at people who have no means of paying it back, but are reluctant to lend money to people with good business ideas.

With regard to the cost of the equipment, a lot of gyms fail early (a warning if ever there was one), so you may be able to source some from bankrupt stock, auctions etc. Also, if you're spending a net £90,000 +, you should be able to negotiate some sizeable discounts from your suppliers.

Regards,
Andrew.

black-saturn

Theres a scheme through the jobcentre who will help with businesses.

I just hope your not biting off more than you can chew. Maybe you should ask the same question to the guys over at Debt Free Wanabee and see what they say

BL1

Hi Andrew

Thank you for the reply. To be honest the reason why i didnt inlude VAT in my financial plan was that I didnt really understand VAT and I thought it would be better to not give myself extra money that I may not get back.

Obviously i should put this into my financial plan which i am currently altering at the moment.

After reading your explanation of VAT it is my understanding that i should register for VAT the day after I have bought the equipment and i will then be able to claim back VAT on all items I buy for the business including gym equipment, chairs, tables, plants, etc. Is this right?


"When you register for VAT you are effectively collecting the tax on behalf of HM Revenue & Customs and will have to charge VAT on your turnover. Against this you will be able to offset any VAT you pay to your suppliers." I'm quite sure about this bit in bold could you explain it again?


"After the first quarters likely repayment, due to the setup costs, you're not likely to have that much to set off against your output VAT and you would normally expect to be paying VAT in your type of business. Otherwise the business is failing."

Again im not quite sure what you mean here, what and why would I have to set off against my output VAT.

"I hope you have taken into account that 7/47ths of your gross turnover, or 17.5% of your net turnover, belongs to HMRC"

I have not taken this into account does this mean say after all expenses I have earned £20,000 i will have to give 17.5% of that to HMRC

Can i claim back VAT on everything to do with the business like phone bill, etc?

What is the difference between gross and net price?

Yes i have planned for staff and have included them in my expenditure.

Will I have to pay an accountant to look at the business plan?

I understand about location, i am currently researching sites all around the country, location is not a problem for me? My main selling points to compete with the corporate gyms such LA Fitness, David Lloyd etc will be

1. My prices will be half of the competitions
2. I will have similar equipment to them but I will charge half there fee for membership. The only people who i might miss out on are the people who want a swimming pool, but they are not the type of people i am catering for
3. I will offer sports specific equipment which none of the large gyms have
4. I will offer a personal service, i will get to know the customers chat to them, include them in making decisions about the facility (ultimately it will be my decision) so they feel that they are involved. I want to create a community feel. This will be a big selling point. I have trained in gyms all my life and have never fully experienced this.
5.Boxing is a sport that you will find many males aged between 16-30 would love to take part in but their is an intimidation factor about visiting a boxing gym because people think it will be full of hardmen and cliques. It took alot of bottle for me to walk through the doors of my first boxing gym, once i got there i didnt know why i'd worried so much. I want to make boxing accessible for the general public instead of people having the image of it being done in dirty gyms with people getting hurt.
6. I will also use my backgound and experience to create business, I am currently boxing professionally but will retire before the facility opens. I hate to say but i know people will join the gym just because i have been a professional boxer. There are alot of hangers on in the boxing world and alot of people want to get close and experience the life.

I know gym memberships are a luxury but i am not trying to trade upon people as the bigger facilities do whereby they sign u up to a contract and then dont care if you only come through the door. My customer base will be people who are interested in fitness in boxing not the ones who join the gym because they think they should not because they want to.

To get around the loan could we not say that i am building a gym, he is building a boxing club and that we are sharing the premises?


It really does annoy me a friend of mine has just taken out a £15,000 loan to buy a new car and go on holiday, but i actually want to use the money to do something worthwhile. I also want to help young kids who've had a troubled life, through boxing, but i seem to be being stopped so people like my friend can go on holiday and buy things for themselves. What i really need is someone rich to give me the money and would make my whole life alot easier!!!

The equipment price is for all new equipment, i thought it best to include new prices as I would not know how much things would be until i actually strated to buy pieces, but i will save money here.

Hope to hear from you soon

Cheers

BL1

a_j_bingham

Hi BL1,

I pm'd you earlier in the day, please check your private messages, towards the top of the screen on the right hand side after you log in.

I'll get back to you on the other points later.

Regards,
Andrew.

Pennywise

Re output VAT you have to pay over to the HMRC 7/47th of your "income" - i.e. what your customers pay you - it is nothing to do with your profit. So if your total income for the year is £100k, you pay over about £15k in VAT to the tax man, less, of course, the VAT you pay to your suppliers. Don't feel bad about missing this point, it is a very common mistake that people make.

Re your charges being half of your competitors. Gyms and health clubs can be notoriously unprofitable - the large chains are apparently doing spectacularly badly at the moment and lots of smaller ones close down after a few months/years. You need to explain in your business plan exactly how you can charge so little and still make a profit - to do this properly, you need to get hold of the accounts of other comparable gyms to see what they are spending that you won't. You can get copies of accounts from https://www.companieshouse.gov.uk for just £1 per company.

Re an accountant - who do you think will pay them for their time if you don't expect to pay yourself? Most accountants will give a free initial consultation but that won't be adequate to deal with the detail of financial projections.

BL1

Hi Pennywise

Thanks for the reply. Can I just make sure I fully understand this. Lets just say i generate £100,000 is VAT not 17.5% why would i not pay HMRC £17,500 of my income?

I have worked out my financial plan and i will make a profit if I achieve my target numbers. I would like to thank you for informing me of all the potential potholes along the way, but id also like to say that this has been a dream for along time and even if my facility does shut after a few months/years at least i will have tried. I think one of the most important things a businessman/owner can have is passion for what he is doing and i cetainly have. Also i have a passion to provide quality fitness services for my members not just to take money from them, i think that is one of the reasons my business will be successful.

Thank you again

BL

a_j_bingham

Hi BL1,

Regarding your earlier post, yes you should register for VAT immediately to claim the VAT back (input VAT) on your equipment.

When you register for VAT you charge VAT on your sales, this is known as output VAT, and in your case would be 17.5%.

For example, if you charged somebody £117.50 gross, this would be made up of sales of £100.00, the net amount, and output VAT of £17.50. At the end of the VAT period you would pay the £17.50 to HM Revenue & Customs.

However, you claim back any VAT you have paid on your purchases, the input VAT. If say you pay telephone charges of £47.00 gross, this would be made up of telephone costs of £40.00, the net amount, and input VAT of £7.00.

If the above transactions were your only ones during the VAT period you would owe customs £10.50, this being the £17.50 output VAT less the £7.00 input VAT.

To calculate VAT on the gross amount you calculate what 7/47ths of it is, £117.50 *7/47 = £17.50. To calculate VAT on the net amount you calculate what 17.5% of it is, £100.00 *17.5% = £17.50.

The gross is the amount including VAT, the net is the amount excluding VAT.

These are just the basics, there are other things like cash accounting and flat rate schemes, but I won't complicate things.

In your first VAT period it is likely that your input VAT will be greater than your output VAT, this would result in HMRC making a VAT repayment to you.

You can only claim VAT back on those business expenses which include it. As I said previously, most of your ongoing business expenses would not include VAT. Obviously, there is no VAT on wages or loan repayments, nor business rates, insurance etc. There may be VAT on rent, if your landlord has opted to tax, and there would be VAT on telephone, electric etc.

What pennywise says about your charges is correct. When you decide what rate to charge it often seems like it will be extremely profitable, however it isn't until you factor in all the costs of running the business that you realise where the money is going and why the competition are having to charge twice as much.

I think you should initially concentrate on the gym and try to develop the boxing from this. You need to aim at the largest target market rather than just males aged between 16-30, after all how much disposable income do they have? You could have one evening a week where the gym is just open to women, apparently some women are put of going to a gym because there are men around.

Your first priority is to make a profit, that will then give you the opportunity to take the business in the direction you want.

Regards,
Andrew.

BL1

Hi Andrew

Thanks for clearing VAT up for me, are the VATs seperate (input and output)? So in my case In the couple of months i will purchase all my equipment lets say it comes to £100,000, HMRC then owes me £17,500 and say i make 20 sales of my different services that comes to £2,000 which means i owe HMRC £350 would they pay me £17,500 and i pay them £350 or would they subtract the amout i owe them from the amount they owe me? Also how do they know what i owe them, do i have to fill forms in? How many times a year can you claim VAT back? So if Im telling them every 4 months or so how much they owe me and how much i owe them, surely i then dont have to give them 7/47ths at the end of the year as well this will have been covered in the things ive told them about? Or is it just best to take 17.5% at the end of the year of what i have earned? Sorry about all these questions, my for some reason is finding this very difficult to grasp.

When i mentioned the boxing that is not just what i will be focusing on, i have considered all target groups that i will cater for. I hope after some years of operational to install a womens only area of the gym.

Cheers

BL

Robert_Sterling_3

a_j_bingham wrote:

Hi BL1,
Ironic as it may seem, banks have a tendency to chuck money at people who have no means of paying it back, but are reluctant to lend money to people with good business ideas.
Regards,
Andrew.

I disagree with the above statement

Apart from the bit of your post which I have quoted above I think that your advice is most excellent and represents MSE at its best and could serve as a reality check for BL1.

a_j_bingham

Hi Robert,

I work in accountancy and can tell you that on many occassions people applying for loans to start businesses have been refused, but the banks have told them that if they were to say the money was being used for other purposes, such as for home improvements or to purchase a new car, they would receive the loan.

They don't tend to lend money to businesses without security by means of a charge on business or personal assets, hence the Small Firms Loan Guarantee scheme for people without sufficient assets to borrow money.

I would suggest you check out the debt-free wannabe forums and see the staggering amounts of unsecured debt some people manage to accumulate.

Regards,
Andrew.