Wealth Check: Can he kick his martial arts to the next level?
Giuseppe Vitolo hopes to expand Maloca, his south London business teaching capoeira and jiu-jitsu. Our experts discuss his options
Sunday 19 December 2010
Setting up a new business is always a challenge. But for Giuseppe Vitolo, the manager of Maloca, a Putney-based fitness and leisure centre, pushing himself to the limit is part of a normal day's work.
The 40-year-old Colombian is a martial arts instructor who has competed in some of the toughest competitions on both sides of the Atlantic, among them the gruelling Torneo Regional de Capoeira in Colombia.
A purple belt in the Brazilian martial art of capoeira, which he has practised since 1991, and a blue belt in Brazilian jiu-jitsu, Mr Vitolo is used to setting the bar high in both his business and personal ambitions – he trains with the seven-times world champion of Brazilian jiu-jitsu Roger Gracie in his spare time.
Almost a year after establishing Maloca, whose name derives from the ancestral longhouses traditionally used by Amazonians for celebrations, the business is generating a healthy income of £6,000 per month.
Mr Vitolo projects it will have generated £90,000 by the end of 2011. To reach the next stage in his business, he plans to open a second facility.
"The goal is to raise enough money to buy or rent a warehouse where Maloca can build a martial arts centre that is open to everyone, from amateur to professional fighters, adults and children who are looking for an alternative to the gym to get fit and healthy," he says.
To open the centre in the spring of 2012, he will need to raise between £10,000 and £15,000 for mats and equipment, and budget for a monthly rent of between £4,000 and £6,000.
His personal monthly expenditure is approximately £1,200, which covers food, transport, bills and £635 for the mortgage. Mr Vitolo has a business loan worth £26,000 with Lloyds and a personal loan with NatWest worth £1,200. He has personal liability, buildings and home insurance, and has avoided credit card debt.
Budget for a warehouse
Val Harris, a chartered financial planner at Northamptonshire-based OCM Wealth Management, says Mr Vitolo could save up enough for a year's warehouse rent within 14 months, if he is disciplined.
"If Giuseppe is able to set aside £4,800 per month, he will be able to generate £67,200 over 14 months," she says. "To do this as efficiently as possible, I would recommend he contributes the maximum amount worth £10,200 to an ISA so he can benefit from a higher than average level of interest, and put the remainder into a collective investment portfolio."
However, she says he may wish to give himself until the summer of 2012 to allow more flexibility.
"Extending the length of time he is saving to 18 months could lessen the pressure to reach monthly savings of £4,800, and help him achieve a higher target figure of £87,000."
If buying proves more efficient further down the line, Ms Harris says, he may be able to get additional finance cheaply on "Business Link", a government support network for people who run their own businesses. The website for Business Link also provides information on grants, government support and details on which tax allowances an individual business can claim.
When it comes to the purchase, he will also need to factor in an additional 1 to 1.5 per cent of the warehouse's sale price, as estate agents and property developers typically charge a fee for arranging a sale. Beside budgeting, Ms Harris recommends building an emergency fund to cover unexpected events, or periods when Mr Vitolo is unable to work. "A reasonable emergency fund would be based on at least three months' expenditure, so for Mr Vitolo this would be about £4,000," she says.
Feathering the nest
He may be some years away from drawing his pension, but Mr Vitolo would do well to begin thinking about his retirement, says Graeme Mitchell, the managing director of Galashiels-based IFA Lowland Financial.
"It may seem a long way off for Giuseppe, and with his commitments to his family, mortgage and business saving for a pension might not necessarily be a top priority. However, some planning now could go a long way to improving his prospects when he stops working.
"If he wanted to start now, an affordable monthly commitment to a pension plan could be £300 per month initially, with a view to paying more when his income improves. Every £300 that Giuseppe pays will turn into £375 gross with basic rate tax relief, and as a higher rate taxpayer he will get a tax refund equal to £75 per month."
Assuming average annual returns of 7 per cent, Mr Mitchell says this level of contribution would provide Mr Vitolo with a pension pot worth £181,000 when he turns 60 or £277,000 if he waits until he is 65 to retire.
If he returns to Colombia in old age, he should consult a financial planner who specialises in overseas pensions transfers – sometimes referred to as "Qrops" (Qualified Registered Overseas Pension Schemes) – as this will help to ensure he will be able to get his benefits in the most cost-efficient manner.
While Mr Vitolo's primary goal is to grow the business, at some point he will need to think about repaying his business and personal loans. At this point, Mark Reidford, the managing director of Chester-based Innes Reid investments, says he should prioritise repayments in order of importance.
"His business will be getting tax relief on the Lloyds business loan, although the loan is small. He is, however, paying a high rate of interest for his personal loan, which will not enjoy tax relief. So his priority should be to reduce this. But before he does, he should check whether the bank imposes early repayment penalties."
Mr Reidford also recommends Mr Vitolo consider some additional forms of insurance, such as income protection which would cover him against being unable to work because of sickness or an accident.
"The Cirencester Friendly Society will cover people in this field of work, and the maximum cover is 60 per cent of taxable earnings. If Giuseppe is prepared to pay £64.50 per month he could expect cover of £40,000 per annum, which would pay out weekly until he turned 65 or recovered from his illness. But it is worth noting that this cover has a deferred period of 26 weeks, meaning he would need to wait six months before a claim would be accepted."
Mr Reidford also recommends that he consider life assurance, which pays out in the event of death. "It would cost £23 per month to purchase this kind of product from Legal and General, which provides cover of £200,000 up to the age of 65."
Do you need a financial makeover?
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