By Gladeana McMahon and Antoinette Oglethorpe
This second article in the series identifies the decisions you need to make about whether your coaching practice will be full- or part-time, as well as the all-important financial considerations
Part two: Planning your coaching business
1 Your practice: full- or part-time?
One of the first and most important decisions you need to make in the planning phase is whether to set up a full- or part-time coaching practice.
Many individuals begin their professional coaching career by seeing a few clients in the evenings or at weekends while continuing full-time employment.
Doing this will lessen the early financial risks involved in embarking on self-employment. It also allows
the coach to consider whether coaching is a viable full-time career choice, while providing the time to set up the essential administrative, marketing, networking and financial infrastructure you’ll need (McMahon, Palmer and Wilding, 2005).
Alternatively, some coaches move from full- to part-time employment to secure a certain degree of guaranteed monthly income, while devoting the remaining time to building their coaching practice.
This latter option reduces the financial risk and pressures. However, the downside of such an approach is that it can take longer to fully establish your practice.
2 Financial matters
An understanding of financial planning is fundamental to the success of any coaching practice. The areas you need to focus on include: budgeting, financial forecasting, financial analysis (understanding profit and loss) and financial control (paying Tax
and VAT where applicable; Gail and Walker, 2009).
3 Deciding on your fee structure
Arguably, one of the most crucial decisions when setting up a practice is planning the fee structure. Obviously, the fee rates you choose will have a significant impact on how much you, as a coach, earn.
For example, imagine a coach who works 45 weeks a year, seeing two to three clients a week, or 12 a month.
If their fee rate was £250 per client session, they would earn £31,153 a year. A fee of £350 per client session gives an annual income of £43,615, while a rate of £650 equates to £81,000 a year.
So, the first calculation a coach needs to make is a sensible estimate of how much income they need to cover all their business costs, as well as their personal living expenses.
The second consideration is how much clients are prepared to pay for your coaching services.
Your fee should reflect your experience, the going rate for coaching in your area, the type of coaching you offer and the type of clients you see.
For example, the fees of a personal or life coach are likely to be less than those charged by an executive coach. And coaches that work with junior managers, graduates or those in a supervisory position, may charge less than those who coach CEOs and board members. In addition, fees in the North of England may be lower than those in the South.
You can find some interesting information on trends in coaching income from the 2012 ICF Global Coaching Study at http://bit.ly/UFzRF3
4 Hiring an accountant
Legitimate business spending is tax-deductible and this is where an accountant can help you identify your tax-deductible payments.
Of course, if you already have the necessary skills, you could undertake such tasks yourself – doing the general bookkeeping and business accounting will certainly save you money.
However, an accountant can confirm that you meet all your legal requirements, while also ensuring you don’t pay any more tax or VAT than is necessary. He or she is also likely to be in a better position than you to keep up-to-date with changes in the law or with procedures that could affect your business.
There are many ways you can make financial recording easier, simply by using an accountant. For example, an accountant would advise you to have a separate credit card for business expenses and a separate bank account for all your business transactions. Good advice like this saves you learning about – and then sorting out – such matters yourself.
In addition, an accountant can help you set up your financial records and advise you on what you are required to do when it comes to such systems.
For example, if a simple Excel spreadsheet is enough for your needs, he or she can set it up with the relevant headings to record income and expenditure.
If you need a more streamlined and sophisticated alternative, he or she can provide you with information on different accounting software packages and recommend the one most suitable for your business.
Be aware that HMRC investigates business accounts from time to time. One of the authors of this piece was investigated and, as a result, was asked to pay more than £38,000 in back tax, with penalty interest to be charged weekly. The investigation took nearly four years to complete, yet in the end there was only £200 to pay.
In this instance, an accountant proved invaluable – without professional help this author could not have dealt with the complexity of detail required to refute many of the financial figures.
Needless to say, it was also a very stressful time, which only serves to reinforce the financial value of a good accountant.
5 VAT and National Insurance
Apart from deciding on a fee structure, you need to establish basic financial administration and systems to ensure sound financial management (Hedges and Walkley, 2006).
For example, the current VAT threshold is £77,000. If your taxable income exceeds this amount your business will need to become
VAT-registered. You can find more information about VAT on the HMRC website: www.hmrc.gov.uk
When changing from being a PAYE employee to a self-employed individual you will need to register with the HMRC for tax purposes. Your National Insurance contributions change when you are self-employed. Go to the HMRC website for more information.
Gladeana McMahon is UK chair of the Association for Coaching
www.gladeanamcmahon.com
Antoinette Oglethorpe provides executive coaching, training and facilitation for organisations
www.antoinetteoglethorpe.com
References
J Gail and P Walker, Self-Employed Tax Solutions: Quick, Simple, Money-Saving, Audit-Proof Tax and Recordkeeping Basics for the Independent Professional, Guilford: Globe Pecout Press, 2009
R Hedges and R Walkley, Bookkeeping Made Easy, London: Lawpack Publishing, 2006
G McMahon, S Palmer and C Wilding, Achieving Excellence in Your Coaching Practice, London: Routledge, 2005
Coaching at Work, volume 8, issue 2