New Zealand is one of the easiest countries in which to start a business and become self employed. It’s really as simple as finding something which will generate profit and going for it – well almost. Here’s a quick guide for people who are curious about becoming self employed or those who are looking for work and perhaps considering creating their own opportunities. This article is aimed at people on a lower budget, thinking about taking small steps first.
The beginnings of your business plan
Although officially starting a business is easy you need to have some skill that is saleable or a product that people will buy. It may be providing a service to people, making or sourcing then selling a product and so on. Also you may like to start up a fresh new business or buy an existing one. Either way has its benefits and pitfalls and we definitely advise you to seek professional help to ensure you’re on the right path before going too far.
Initial and ongoing planning is super important and you should at least be able to work out a break even analysis to see if your business will make profit. To do this very basically, to see if your idea is possibly viable, add up all the probable costs, rent, fuel, supplies, power, internet, accounting… everything you can think of for a year – don’t hold back – running a business is usually expensive. Next estimate how many items you’ll need to sell to meet these costs. For example if you hope to make $x per hour or $x per item sold how many hours or items do you need to sell to meet the expenses? This will at least give you an idea of what’s required. Usually it’s quite a surprise how many items or hours will need to be sold each day, week, month to at least meet costs but hopefully you’ll do better and make some extra – that’s your profit!
An important consideration is discovering how many other businesses are already selling what you hope to sell. If the market is already saturated with competitors you will need to either offer some unique benefit that nobody else is doing. Bigger faster better easier etc. Try to avoid cheaper which usually becomes a race to the bottom.
There is some great advice and resources available at business.govt.nz.
The beginnings of your marketing plan
If your plan so far looks doable the next thing is some form of a marketing plan. This will cover how and where will you find customers. You will of course need an offer! What are you offering your potential customers? Why should they buy from you? How will it solve their problem, reduce their pain, make their lives easier or otherwise better?
The key is understanding who your customers will be and how you can get your offer to them so you ultimately make a profit. Will there be repeat customers (like a subscription, regular haircut or daily coffee) and how often will they return to buy more? Alternatively if you’re selling something that’s going to last a long time you’ll need to keep finding new customers or finding a new product to sell to the ones who have bought already.
Checkout Hubspot’s marketing plan examples here.
Getting things sorted with IRD
In New Zealand there’s a few options for business structure. The easiest is using your current personal IRD number, this is being a soletrader. It’s a good option to get started on a small scale but you will be personally liable for business debts should things not go well. Other options include partnerships and companies which are inexpensive to setup, see your accountant or lawyer to work this out properly.
Register for GST?
If your total income (sales) will be below $60,000 per year being registered for GST is optional. You cannot charge GST and you cannot claim it. If you don’t have to be GST registered then it’s usually best not to be unless there’s some specific reason to.
If total income will be going over $60,000 per year you must be registered for GST and file regular GST returns (1, 2 or 6 monthly). GST registered businesses must add on GST to all sales and then pass the collected GST to IRD.
Heres some great info from IRD on becoming self employed.
Keep records of every transaction and save them for 7 years (that’s the law in a nutshell). Paper based is fine i.e. receipts, invoices, bank statements but electronic is far better and easier for your accountant to work with which will help keep accountancy costs down. Kiwitax team can help advise what’s best here and anything you need to know from a tax compliance viewpoint, we can also offer spreadsheets for GST, MYOB and Xero advice. It’s super important to keep records as you’ll have many tax deductible expenses to claim – this is where your accountant comes in, knowing what to claim to save tax.
Accounting and Tax
When you’re in business your income from customers hasn’t had tax removed – unlike being an employee with PAYE removed from wages so you need to have it worked out properly. Your accountant will add up all the income you’ve collected, take out all the possible claimable expenses and therefore arrive at your profit. Income tax is then worked out on the profit. It’s a smart move to set aside around 15-20% of your income during the year to pay your income tax with, more if expecting over $70,000 profit.
Each year you’re required to file income tax returns with Inland Revenue. This involves having financial accounts and income tax return(s) prepared, deductible expenses claimed and so on to keep your income tax low as allowed. Find and see an accountant before going too far, they’ll put you on the right track from the get go. There’s also other things to be aware of like ACC, FBT and if employing people, PAYE.
Once you’re with an accountant or tax agent you’ll usually gain a worthwhile extension of time for filing income tax returns and longer to pay some taxes. You are of course most welcome to ask us at Kiwitax for any advice – we love to help.
This article is a very brief overview and there’s much more you will need to know. Owning your own business is hard work, challenging on many levels but also extremely rewarding. Keep learning, ask many questions, find others in business and ask advice and of course talk to professionals where necessary.
Hope this helps!