Thinking of Going Into Business

by Shawn O’Grady
4 Minute(s) to read

Thinking of Going Into Business


While you’ve been hiding away in lockdown and realising that your current employer is likely to make you redundant, you’ve come up with the idea that perhaps it’s an opportune time for you to become self-employed.

Personal evaluation

Evaluate yourself, what are your strengths and what are your weaknesses.  If you think you have commitment and willingness to work long hours for very little money initially and the belief that you can succeed. (Believe me, when I first started I was working for as little as $5 an hour)

Business plan

The old old adage of those that fail to plan, plan to fail is true for many businesses.  I suggest you draw up your own business plan, this is where you go online to form your own ideas and comprehensive cash flow forecast of how you will do over the first 12 months and be honest. (You will note that there is no room for a brand-new motor vehicle)

Finance 

If your business plan requires an injection of capital and you have some assets that will enable you to go to the bank, the first thing they will require is a business plan to see that your business is viable.


Entities

It’s important to understand which entity is right for you. They have differing degrees of protection, however depending on the entity will also depend on the cost of compliance. If you intend to enter into large contracts which have a degree of risk or you intend employing people then I would suggest you trade under a company structure. This therefore affords you limited liability.  However this is the most costly compliance wise.

If you are a husband and wife going into business, a partnership may look attractive where your accountant can spread the tax burden to best advantage.  However being a partnership does not afford you the same protection as a company, if you are sued or made bankrupt you could lose the shirt off your back (Assets you own).

This comes to the final and cheapest entity, a sole trader.  You can trade under your own name.  This suits most Tradies that don’t employ staff, however if there is a claim from an unhappy customer then you have to make amends out of your own pocket.  Tax-wise, the tax burden falls squarely on the Tradie’s shoulders.

Bank accounts

It is preferable to have two bank accounts dedicated to the business, one for the day to day transactions of income and expenses and the other to set aside money for GST, income tax and ACC levies. I’ve seen people in business use their personal bank accounts to try and save costs, this is a misnomer as the accountant will have to wade through all the personal transactions such as McDonald’s and the local clothing store, which takes time that will be charged to the client.  Also if there is an audit from Inland Revenue they get to see your personal spending as well which could make life difficult if they see more expenses than income.

Accounting software

Any good business owner will invest in accounting software to run the business, we use Xero like most accountants and we find this is easy to use and being a cloud-based program we can interface with clients Xero ledger without having to use cumbersome memory sticks.

GST Registration

The question is, do I register for GST or not.  My suggestion is that if you intend purchasing large assets at the start of your business then, by all means, it is preferable to register for GST.  On the other hand if you have the assets already such as a motor vehicle or tools then I would wait until you reach the GST threshold of $60,000.  Be reminded that some organisations won’t allow you to contract to them unless you are registered for GST.

Insurance

This is generally a must if you’re going into business, you need to consider things like public liability, insurance on your tools, motor vehicles and income protection.  Obtaining a good insurance broker is essential.

Above all, this is a brief bit of advice and you should consult an accountant before going into business.  We generally don’t charge for the initial interview if you come on board with us.

 


HAVE WE GOT YOU THINKING?

 

Give us a call on (04) 563 6965 or email: dennis@taxman.co.nz or shawn@taxman.co.nz

Keep an eye out for September’s article!

 


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