There are a number of things to think about that will help you decide what structure is best for your business:
Common structures are:
The social enterprise movement is growing in New Zealand, but is not a business structure in its own right – it is more correctly defined as a purpose driven organisation that operates commercially in order to deliver a social or environmental impact. A social enterprise can fit any of the structures above.
Explanation of Business Structures
This is hard. Very hard. Possibly the hardest decision to make when starting a business.
When starting a business, you usually want a name that meets the following criteria:
Good luck with that. If you find a name that fits all of those you are doing better than most people. You’ll generally have to compromise.
Once you have thought of a name, check it. OneCheck will see if anyone else has registered a company with that name, trademarked it, taken a website, or has a social media presence. Also do a Google search.
If someone else in New Zealand is already using that name, forget it – it’s not worth the hassle. You might want to avoid names used in other countries as well – especially big companies.
There is nothing wrong with choosing a very functional name. Phil Smith might name his business ‘PS Plumbing’. That’s a good functional name that lets a customer know exactly what the business is. Or he might choose to use his business name to highlight a value – ‘Smith’s Quality Plumbing’
Some traps to watch out for:
A New Zealand Business Number (NZBN) is simply an identifier available to every New Zealand business. It makes interacting with government and other businesses easier. It will also make monetary transactions easier in the near future as e-invoicing becomes more widespread.
Do you have to get one? No.
Should you get one? Most definitely.
There are a number of aspects to taxation that you need to know as a business owner. Not doing so will cause you a lot of stress down the line and potentially ruin your business.
We suggest you read carefully through the resources that IRD provide to ensure you meet all your obligations, but we also suggest you get an accountant. Any cost related to your business can potentially be offset against your tax obligation. A good accountant will save you more money than they cost and will help you establish excellent systems for tracking your income and outgoings.
The IRD are actually pretty approachable and have community compliance officers. That sounds scarier than it is – their job is to make sure you understand what the rules are.
Provisional Tax seems to be a common danger for new businesses, particularly as you start paying it very soon after paying your first year’s tax bill. If you have not saved money to pay for your first year’s tax then you will be hit with a double whammy of payments.
We recommend saving 20% of all profit throughout the year so that you are not scrabbling to pay your tax when the time comes.
Again, we recommend getting an accountant. They deal with this all the time and having one will take a lot of stress off your shoulders.
GST is a tax of 15% added to the price of most goods and services. You do not have to register for GST unless you are expecting to turnover $60,000 or more over the next 12 months. If at any point in time you expect to generate more than $60,000 over the coming 12 months (not just the next tax year) then you must register.
If you are not GST registered then you do not have to add a GST component onto the goods and services you provide.
In some cases you may want to register for GST before you actually have to:
If you are GST registered you can claim many of the costs back that are involved with providing your goods and services. We strongly encourage working with an accountant or bookkeeper to ensure that you are minimising the impact that GST has on your business.
We also suggest that you take GST costs and claims into account in your pricing structure and in your cashflow forecast.
Everybody who works or owns a business pays ACC levies. When you own a business it becomes a little more complex. Every business has a different levy rate depending on the type of work they do, and you can sign up for different ACC packages depending on what business structure you have. Make sure that you check that you are assigned the correct levy rate(s) – it can make a big difference to how much you pay.
We also recommend looking at how ACC packages fit with any private health insurance you have. If you are self-employed the Coverplus Extra package can work very well in conjunction with private insurance and you may find you have better cover for a lower cost than if you went on the standard package. Health insurance brokers are well worth talking to if you want to make sure you are well covered at a reasonable cost.
It’s best for every business to have a health and safety policy. How complicated it is will depend on how many risks are involved in your business. An office-based business is likely to have fewer risks than that of a roofer, for example.
A good starting point is to simply list down all the risks that exist in your business and then note how serious the impact of each risk happening would be. Your policy would then outline what you will do if each risk occurs, and what you can do to either remove or minimise each risk.
It’s not about creating a lot of paperwork, but if an accident does happen then you’ll want to be able to demonstrate that you did what you could to identify and mitigate risks in your business.
Worksafe has a number of good guides and templates you can use.
Not every business can just set up and operate. You may need permission to set up a commercial premises, to deal with dangerous materials, to produce food, to sell alcohol, to cut hair or a wide range of other activities.
If in doubt, check with your local council.
Insurance is important to consider as a business owner. There are a number of risks that every business owner needs to navigate and you will need to work out what insurances you want in place to cover those risks. When you start out it is unlikely that you will be able to afford full coverage, so work out what is essential and what you are willing to take a risk on until you have the income you need to protect yourself.
You should consider:
You should also not make assumptions that your business is covered by personal insurance you already have. For instance; if you crash your car while working you may not be covered by your personal vehicle insurance. Check rather than assume.
We suggest talking with a business insurance broker. They are better placed to find the suitable cover you need at a lower price without protection that you don’t need. When you deal directly with insurance companies you tend to get insurance ‘packages’ which sometimes provide worse cover at a higher cost.
How do you track everything? When you are starting out, think ahead to what systems and processes you will need three years from now. If you put those systems in place early it will save you a lot of stress later on when you really need them. As with everything, when you are starting out you need to consider the cost of each system and work out when you can afford to do so.
Some common business tools are:
Some free tools for small businesses are: