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Starting a new business is an exciting time, where years of planning and dreaming finally come to fruition. Once the decision to start a business is made, there's an overwhelming desire to get it started as soon as possible. However, it's during this phase that many, including myself, have made mistakes by not seeking professional advice.
Lawyers may seem costly upfront, but they can save you a significant amount of financial and personal expense later on. It's crucial to get your leases checked thoroughly to ensure you understand what you're committing to, especially when it comes to personal guarantees.
In my first solo venture, I signed a lease without legal advice and overlooked a clause that resulted in my rent increasing at CPI or 3%, whichever was greater. This oversight cost me thousands of dollars over nine years. A lawyer would have likely caught this, allowing for negotiation or removal of the clause.
It's essential to keep your business and personal affairs separate. This may include setting up a trust to protect your personal assets.
Accountants should be considered from the start. Creating a first year planning budget and maintaining proper records are vital.
Ensure your taxes are set up correctly and make provisions for paying them. Budgeting for GST and ACC (if you plan to employ staff) is necessary. One thing I did correctly was saving for my various taxes in a separate interest-bearing account until they were due.
Determining the most tax-effective way to pay yourself is often overlooked but is an important aspect to consider. In New Zealand, there are several tax-efficient ways to pay yourself as a business owner. As a sole trader or partnership, you can pay yourself by withdrawing cash from the business, which is then taxed as profit at the end of the year. Company owners often pay themselves a salary, which is taxed as personal income, or they may choose to take a modest salary and top it up with dividends from profits. It's recommended to seek tax advice to find the best method for your situation, as there are extra administrative costs and considerations when operating as a company.
Working with a mentor can be a transformative experience, yet it took me a long time to realize this.
Mentors ask the hard questions, point out the obvious, and are as valuable as any investment your business will make.
Here are some mentor resources to get you started:
https://www.businessmentors.org.nz/
https://www.mymaorimentor.co.nz/mentors
It's worthwhile to speak with a financial adviser. Many of their services are free, and they can provide solutions tailored to both your business and personal needs. They cover a range of areas from general insurance to business risk, medical coverage, lending, and investment advice. Professionals take the guesswork out of starting your business on the right foot, which helps ensure your business's longevity.
James.
About James:
Hi, I'm James, a qualified Financial Adviser with Velocity Financial. With an extensive history as a business owner in Wellington's hospitality industry for almost thirty years, I've gained a wealth of experience in how businesses run and what financial support business owners need. My focus is on providing clients with down to earth, practical advice and services they need to thrive financially. The highlight of my work is devising strategies that address the unique financial situations of business owners. Outside the office, I'm a family man with a love for the outdoors, mountain biking, and exploring new local culinary delights. Feel free to connect with me for a genuine conversation about your business and financial future.
Disclaimer: James Henderson (FSP1007200) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see James’ disclosure statement on our website.
Always get professional advice
The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation. As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures https://www.velocityfinancial.co.nz/disclosure-statement.