Ready to start?
The time has come and you’re thinking of starting up a business. For many people this is a wonderful opportunity because the rewards can be significant. However, don’t get too excited or too carried away because you need to understand what it takes to start up on your own. Even though starting and running a business can be rewarding, it can also be demoralising if it doesn’t work out. Your success may hinge on simple things such as proper planning or having enough money to start up and operate for the initial months.
There are many questions you’ll need to ask yourself because the answers would confirm whether you are suited to being self-employed and whether the time is right for you to start up.
The answers may indicate that you need to do more market research or that you should wait a little longer until you’ve saved up more capital or that you need to take a business course to learn about managing a business or that your accountant needs to do a feasibility exercise to see if you would make money or not. You may not be ready. On the other hand all the indications may be good and it was clear you were ready to start.
Starting up in NZ
If you are in business or are planning to start a business in New Zealand, this section is for you. We have written it to help you meet the challenges of having your own new or existing business, so that your venture runs as smoothly and successfully as possible.
When setting up a business you should make sure you pay the correct amount of tax, as well as claim the business expenses and deductions that you are entitled to receive. Be clear on the business structure you will use to run your business under so you can obtain the best advantages for tax purposes as well as operate your business in such a way as to provide maximum protection for your private assets.
You also need to understand which tax forms and tax records you will need to complete and maintain and whether you require to register as an employer or to register for GST. There are therefore a number of matters to consider and they are briefly covered here.
Your purpose – to make a profit
For taxation purposes a business is carried on for profit. The important point is that a business operates with the sole purpose of making a profit. The operation must be carried on to such an extent or in such a manner that it could be reasonably expected that the operation will make a profit within a reasonable time. In the initial stages a loss may result. It is assumed that sooner or later a profit must result.
Consistent losses could point to an activity which would not be classified as a business, perhaps because no one in their right mind would operate a business if year after year it did not achieve profits.
The tax law position
All profits or gains derived from any business are subject to tax. Business is defined in the act as – “any profession, trade, employment, vocation calling, manufacture or undertaking carried on for pecuniary profit, including the sale of property acquired to make a profit”. It is possible to carry on a business and yet not be motivated by the purpose of making profits.
The courts have held that a business is not carried on unless there had existed not only the intention of making a profit but also a reasonable prospect of doing so. Another feature is the element of continuity of transactions of a similar type. The act clearly states that it taxes all profit or gains derived from any business. It is irrelevant whether that business is legal or illegal. The question is whether or not someone was carrying on business with the object of making a profit. The test is not whether somebody’s motive was making a profit, but what they intended to achieve.
New to business – steps before starting
If you are a new business owner or you are starting up a new venture please do not proceed without considering the following steps and advice.
- Step 1 – Talk through every aspect fully with an “entrepreneurial” accountant or business adviser. Make sure you also discuss it with your spouse or partner and include members of your close family. Listen and learn from others who you know have run successful businesses themselves.
- Step 2 – Get your thoughts down on paper as soon as possible. This is done by writing up a simple plan (known as a “Business Plan”) which is the document that sets out what your business will be all about, what your products and services will be, what your business goals will be and your strategy on how you will achieve those goals. Include in your plan all the things detailed in Step 3 below.
- Step 3 – Do lots of homework. Before you open your doors and start operating carry out a lot of investigating, calculating and fact finding. Who will be your customers (your target market), what is the potential for sales out there (the overall market), who else is running a business such as yours and are they successful or not, how much money do you have available and how much will you need, where will you get the rest of the finance if you cannot raise it all yourself, what is involved in producing your products or services, who will sell for you, will you need staff, where will you run the business from, what costs are involved in setting up and what costs are required for operations.
- Step 4 – Educate yourself on owning and running a business. Read books, take a small business course, join a reputable business web site (such as StartRunGrow) ask professional advisers, talk with successful business owners.
- Step 5 – Set Up everything including business structure, bank account, premises, furniture, equipment, email, internet, costing & pricing, accounting & recording systems, budgets, stocks, materials.
- Step 6 – Manage the business, Start sales and marketing, manage day to day, control all areas, grow the business.
Perhaps the most important thing is to keep your feet on the ground at all times and weigh things up rationally without too much emotion. And don’t run ahead too fast. Take your time.
Be serious about running a business
Starting your own business is a very attractive option because the rewards can be significant. However, don’t get too excited or too carried away too early because you will first need to understand what it takes to start up on your own operation from new.
Your decision to start in business has to be a serious one. That decision should not be taken lightly. Anything that’s worth anything has risks as well as rewards. Losing your hard earned savings (or your home) is no joke and you would definitely lose if you don’t approach business ownership properly. Think things through before you make any moves. Use your head. Always exercise basic common sense. Being in Business is a serious commitment.
Even though starting and running your own business will be rewarding, it can also be frustrating, demoralising and financially disastrous if it doesn’t work out. Many people prefer to buy an existing business that’s “ready to go”. There are many advantages in doing that. However there are also many advantages for taking the “start from scratch” pathway. You have choices.
Your final choice will be determined by your vision, your goals, your experience, your skills, your funds, your motivation and the type of person you are. Some people prefer to create their own opportunity rather than take over a business that has been built by someone else. People have their own dreams and ideas and it’s not always easy to fit those dreams and ideas into someone else’s pre-owned operation.
Think – why am I going into business?
If you are set on going into business, take time to assess your reasons and your expectations. It’s not something you can decide on a whim. What is your motivation? What are your goals? What skills and abilities do you have?
Here are 8 solid reasons why most people want to own and run their own businesses:
- They are tired of working for someone else and they are attracted to the chance of doing something for themselves.
- They are tired of answering to someone else and want to be their own boss.
- They are tired of doing the standard business hours of 9 to 5 and are keen to have more freedom as to the hours they work.
- They have a product or idea they believe can make money.
- They want to take more control of their financial future.
- They believe that by going into business their income will improve and also their standard of living.
- They desire a total change of lifestyle in order to spend more time with their family.
- They are tired of the “rat race” and are looking at other opportunities to bring greater work satisfaction.
Ingredients needed for a business
Ask yourself a few questions at the beginning because the answers may indicate whether you are suited to being self-employed or whether you should do more homework and wait a little longer.
Some basic ingredients needed for a good business include:
- A good product (or idea) – You can’t have a business unless you have something to sell.
- Determination – Unless you are serious and determined to succeed in business little will be achieved.
- Motivation – As you would no longer have to account to anyone but yourself, you must possess the ability to be self-motivated.
- Skills – You must possess the necessary skills to be able to operate the type of business you are contemplating.
- Confidence – You have to believe in yourself and in your ability to accomplish your business goals.
- Experience – Even though it is not critical, possessing a little experience in accounting or business or finance will be a great help.
- Education – You should know a little about business in the principles of finance, sales and profit. If you do not possess this, then consider taking a course by correspondence or night school, or with the various companies that supply these business courses.
Being in business can be daunting, but with careful planning, listening to those who are experienced and successful, and also to your advisers, the results can be very satisfying and surprising.
3 basic steps to check before doing anything at all
Check 1 – Develop your vision and goals. Educate yourself about business
Make sure your vision and goals are clear. Set up a big file to keep absolutely everything in. Every piece of paper or work paper calculations or news article or report must go into that file. Keep everything. Keep good records because they will stand you and your business in good stead later on. Your papers are worth more than money if it ever comes to a Court case because they could “save your hide” against a dishonest business person or firm.
Get your hands on some business books and other business material and educate yourself much as you can. Make sure you think through your plans again and again and talk it over with your spouse and trusted business friends and associates, especially those who were successful in business.
Check 2 – Be clear on what’s involved in running a business
Be clear on what you are looking at doing. Be clear on what’s involved in running a business including the risks. You must be certain about what your business is all about and that you will start from scratch rather than buy an existing operation. Finalise what products and services you will be selling and whether you will operate from home or from outside premises.
Check 3 – Talk with your accountant and other successful business owners
Set up a meeting with an Accountant that you have selected to be your adviser. Talk everything through and ask him or her to be honest and point out the good as well as the bad to you. Ask him/her to advise on your plans as if he/she was going into a similar business themselves. It is a good idea also to talk with business owners in your trade or industry (but not your competitors) as they may be able to shed light on any problems in the market or point out opportunities that could be valuable to you.
Talk with an experienced accountant
You need to talk to an experienced Accountant early in your planning. Making decisions on your own can be harrowing procedures so don’t do things alone or in isolation. Consulting a good accountant is sensible. It is not a sign of weakness: the better informed you are, the more likely you are to make correct decisions.
When considering appointing an accountant, make sure you get the right person for the job. Choose an accountant suited to your level of business. For instance, if you’re a small business, look for a small business specialist rather than an accountant who has worked mainly with large corporate. An accountant who works mostly with small business clients is more likely to be aware of the special challenges faced by small business owners.
Choose a proactive, forward-thinking accountant, not a historian. Ideally your accountant should work closely with you on a regular basis, providing the specialist financial skills you need to build the profitability of your operation.
What makes your business different?
The acronym USP (Unique Selling Proposition) is one that crops up time and time again in the marketing world. It basically means your uniqueness or that special ‘thing’ that your product or service has. It answers the questions of why someone should do business with you rather than with your competitors.
Many business owners have enough trouble defining what their company actually does and they never bother spending the time to work out what their unique selling proposition could be. Your USP is important, but at the end, to succeed in business you still have to operate professionally and give good value to your customers. Sometimes you need to establish an edge to bring you the attention of your customers back to your business and to the products that you supply.
Talk with successful people in the trade
If possible, talk to others who already have businesses in the industry you are looking at. Talk mainly to successful business owners, but it wouldn’t hurt to talk to someone whose business has failed because it will give you another angle, as well as highlight areas contributing to that person’s failure, that you should avoid.
You will find that most business owners in your trade, industry or profession are more than happy to give you background information of what is happening in the market-place. Some will even assist you by pointing out areas to avoid and the areas you should concentrate on for success.