OWNERSHIPS’ BUSINESSES

Peter Scott 23 April 2010

In advance of AnthonyTrueman’s analysis, let’s try to understand the structure of Ownerships’ businesses. I am Reliably Informed that they are (or were in 2006) all within the one single legal entity Ownerships Ltd, but they are separable in that there are separate revenue streams and costs, and each could have its own set of accounts to decide its viability. By having all the activity in a single business, that whole business stands or falls on its overall performance.

(1) OS BOAT MANAGEMENT

This is the core business of Ownerships. It is the MANAGING of boat sharing. It does not itself do any boat maintenance but represents the partowners in their relationship with boating-industry suppliers.

Any judgement of OS future needs to be informed by a judgement on the viability and profitability of this business, particularly the costs of running it and the willingness of customers to continue to pay the necessary fees. Also to some extent the strength of the customers’ contractual commitment – for most boats a three-year rolling contract.

It has been presented in the past (not all the time) as a not-for-profit business, along the lines of a mutually owner boat club, paying salaries to employees and contractors but otherwise not making a profit.

Its main tasks are

(1a) administers boat sinking funds on behalf of their partowners

(1b) supervise (or arrange supervision) of Boat Handovers from one partowner to the next

(1c) commission maintenance and other work on boats, (EOH reports or otherwise) and authorise invoices from suppliers for the work

(1d) Run the emergency helpline

(1e) manage the booking scheme

(1f) arrange and run annual Partowner meetings, including preparing accounts, agreeing annual work etc

(1g) supervise winter works

(1h) Identify suitable moorings

(1i) Identify suitable Marine Engineers and other suppliers of boating services

(1j) Administer the Disputes Procedure

For this work OS receives an annual FEE payable on the 1 January each year by partowners, of approximately £4000 per complete boat per year.

When the OS scheme was first created each boat had its own SINKING FUND (also fully financed with estimated expenditure for the year by 1 January by partowners. Depends on decisions of owners but typically £10,000 per complete boat per year. Only OS could authorise expenditure from these Sinking Fund accounts. For administrative convenience these were, for most boats, combined into a single bank account (a couple of boats retained their own separate ones) and this specifically allowed mutual support between boats, when Winter works was completed before Christmas before the next year’s fees were collected. However OS have specifically referred to this account as CLIENT MONEY. Legitimate charges are

(1k) to suppliers for invoiced work on the boat

(1l) to Navigation authorities for Licences

(1m) to mooring suppliers for mooring costs

(1n) to insurers for annual policy payments (including mutual support insurance)

(1o) to reimburse partowners for boat expenses they paid directly

(1p) for the central costs of organising the annual boat meeting

Within this part of the business the OS FEE is for OS to decide for what it is used: this would naturally include

(1q) salaries of permanent staff

(1r) fees for Local managers and other consultants etc

(1s) office accommodation and equipment

(1t) paper postage, websites and other communication costs with partowners

(1u) Goodwill fund – paying for boat costs (ie recompensing sinking funds) to resolve management problems or errors

(2) OS BOAT BUILDING

This has always been an essential part of OS – it was never seen that there would be ‘enough’ boats in the scheme, and the main acquisition of new boats to share was to build them new: this had the advantages both of newness and of a similar design.

It is a conventional management-of-boat-building business, and was recently extended to do a similar task for private owners. It is intended to make a profit.

Activities are:

(2a) raise transitional finance

(2b) Design boat

(2c) Select builder

(2d) Manage building of boat

(2e) Charge customer for finished product

(2f) Pay salaries to employees

(3) OS SCHEME INHOUSE INSURANCE

This is a small scheme to p;rovide discretionary assistance to partowners whose boat is unavailable: it uses other OS boat in the scheme or hires a boat commercially, in exchange for an insurance fee of £100 per year per boat.

This is intended as a not-for profit scheme, and could be considered part of the core OS business: however OS have always emphasised its separate bank account

Activities are

(3a) Receive insurance premiums

(3b) Assess claims from partowners whose holiday is disrupted

(3c) Pay compensation to sinking funds of boats used for mutual assistance

(3d) Hire boats commercially when necessary

(3e) In principle it ought to pay a fee to OS for the use of its people to do the administration

(3f) it once paid for a mutualy owned spare television to be retained for emergencies at Stockton Top Marina

(4) OS BROKERAGE

This is the administration of the buying and selling of shares, including the recruiting of new buyers for new boats, the advertising of shares for sale and the commissioning of commercial brokerage for the sale of complete boats no longer required by their partowners.

This is NOT the buyback scheme, but simply the sales arm of OS

Activities are

(4a) advertising of the OS scheme and website advertising of shares-for-sale

(4b) organising OS annual show and other marketing events

(4c) interviewing new potential partowners

(4d) receiving brokerage fees from sales customers

(4e) passing fees from purchaser to vendor

(4f) selecting commercial brokerage vendors

(4g) distributing sales proceeds to partowners

(4h) paying salaries to OS people engaged in these activities.

(5) OS CAPITAL INVESTMENTS

This is the business of raising capital from partowners in exchange for the remittance of annual fees, the capital raised being used for onward investment in other projects, (while in concept taking on the responsibility of paying the remitted revenue to the appropriate fund.)

In its first incarnation, the capital raised was to be wholly used for financing the building of new narrowboats in the scheme; this was later extended to other projects. Maybe the investments are ring-fenced to be separately risked.

The reasoning behind this scheme lies in the liability to VAT. The tax is payable on the whole of the management fee payable to OS. By raising, say £2,500, as a capital sum from a partowner, their management fee is totally remitted. This reduces the VAT liability as no money is being received, and the availability of £2,500 to OS is NOT taxed, ie it is outside the scope of VAT.

It is a provision of the 2004 Finance Act that schemes such as these (capital for revenue) are registered with HMRC so they may decide whether or not to legislate against them. It is not known whether this was ever done.

The scheme makes finance available to OS where funds from commercial sources (banks) might be even more expensive, or not available at all. To the partowner, the benefit of lodging £2,500 with OS is a reduction of about £400 in annual fees, an apparent return of about 16%.

For OS the cost of raising the capital is a reduction in profit of the core business not of £400, but £340, closer to 14% - at least it is cheaper than a credit card

(6) OS BUYBACK SCHEME

For a fee, now a once-off payment on entering the scheme as a partowner, but in earlier incarnations an annual fee for a fixed period of years then free, OS agrees to buy the partowner’s share on demand. OS the takes responsibility for sinking fund payments until the share is sold by the brokerage service.

The viability of this business depends on the propensity of partowners to leave the scheme on demand, and then the sinking fund contributions quickly make the scheme loss-making

Normally the capital to buyback the shares is one of the Capital investments above

(7)(8) MARINA AND FRADLEY INVESTMENTS

These are investments, which are separate businesses in themselves, have their own capital value, and are financed from the Capital Investment Scheme