06 Jul Thinking of Starting a Business?
Time to be the Boss?
So, you’ve decided the entrepreneurial lifestyle is for you. As New Zealanders, we’ve always had a ‘can do’ attitude. We split the atom first, climbed Mt Everest first, and of course gave women the right to vote first. It’s only natural that as a nation of go-getters, a lot of us want to start our own business, be our own boss and take our future in own hands. The statistics back it up as well; according to the MBIE, small businesses make up 97% of all businesses in New Zealand and contribute nearly a third to the GDP of the nation. That’s a lot of entrepreneurs in a small space!
Whatever your reasons are for getting a business off the ground, getting to and over the start line can be confusing. There is so much to consider, including:
- What’s the best structure for your business?
- Do you have the capital to purchase assets and/or stock that you need?
- Will you have sufficient working capital to pay staff and suppliers?
- Can you turn your idea/skills into a genuine business with real long-term growth prospects?
- Should you set it up by yourself or is it better to get some help setting things up?
- What’s the catch to owning a business? You’ve noticed how many company owners seem to have a nice car or boat. Did that just appear one day?
Whilst there is so much that goes into planning a new business venture, the 5th Green team has compiled a bit of a snapshot of the key things you need to think about:
Getting the structure right
For those of you that remember Accounting at school, you’ll recall there are three types of business set-ups – Sole Traders, Partnerships and Limited Companies. The one best for you will depend on what your plans for the business are, how risky your business is and how you intend to run it and each structure has its pros and cons. But which one is right?
A sole trader is typically someone working for themselves and contracting out their skills to other organisations. The costs are minimal, and you can get up and running quickly, but you are personally liable for all debts of the business as a sole trader. If something goes wrong and a creditor is seeking payment for an outstanding debt, everything you own including your house and car could be taken from you to pay the debt. In short, there is no difference between you and the business. You are one and the same to a creditor and the IRD.
Like a Sole Trader, a Partnership is when two or more people go into business together and have a Partnership Agreement drawn up. It’ll set out how you’ll share the profits, workload, and costs of the business. These structures are very common with organisations such as accounting firms and law firms. The beauty of this structure is you share the workload with others who may have different skills to you. That’ll mean (hopefully) more work and more revenue and profit.
The most complex of the three, but for many people, it’s going to be the best and only choice to really make. Why? Well because a Ltd Company is a separate legal entity to the business owner(s) who are the shareholder(s). This is important because a shareholder is only liable for the debts of a company but only up to the value of the shares they own in the company. Their liability is limited to that amount, hence the name Limited Company. Put simply, if you start a company and you invest $100 as Share Capital and the company gets into trouble, nobody is going to ask you as the shareholder to put in any more money. You’ll lose that initial $100, but no more. Essentially your house and car can’t be taken from under your feet in the same way they can in a Sole-Trader or Partnership structure. You can also experience lower a company tax rate, easier access to loans, and more credibility within your industry but there is also compliance to be considered, annual accounts and company tax returns.
Plan, plan, plan
The questions posed at the beginning of this post are usually addressed within a well-constructed Business Plan. Which really begs the question, “have you got a well-constructed business plan?”
A Business Plan is like a road map that explains your business in detail and covers:
- Why the business exists and what gap in the market it’s going to fill
- What the existing market looks like
- Who you’re going to be competing against
- Your strategy
- Your financial plan from a budget perspective as well as a cash flow perspective (and yes, those two things are different!)
- Complying with laws and regulations – often overlooked as it’s not the sexiest part of owning a business, but could keep you out of a lot of trouble in the long run
Once developed carefully with a full understanding of your industry, your Business Plan should be a living document which shouldn’t be left gathering dust on a shelf. You should be pulling it out on a regular basis and reviewing it. Use it to compare how you’re doing with how you expected to be doing. Are you on track or are things going better (or worse) than you expected? And more to the point, what can you do about it?
Call in the experts
Consider using an Advisor to write your business plan either for or with you. They’ll be experienced in writing this type of document and will know the detail required to make them meaningful and useful to you long term. They should be skilled in developing realistic budgets and cash flow forecasts – just some of the tools you’ll need to get started on the right foot.
They’ll also provide devil’s advocacy – even if you think you’re the next Google, Tesla, Amazon or Rocket Lab, an advisor will keep things impartial and grounded. A good Advisor will challenge you, make valuable suggestions and ensure your business plan stands a realistic chance of success. And if it doesn’t, they will advise you on how to pivot it.
Know what you’re in for
Running a business isn’t easy. It may seem easy or glamorous at the top, and whilst you should have big dreams, you’re not necessarily in for an easy ride. The realities of running a business include:
- Dealing with unhappy customers
- Being responsible for staff and their unique concerns
- Feeling stress about loans
- Taxes – need we say more?
- Growing your business through new customers and marketing
- Chasing up late paying customers
- Being up to date with laws, bylaws and regulations that might relate to your business
- Co-ordinating logistical or operational matters
- Negotiating with landlords about premises
There’s a lot more. The point here is that when you’re blinded by all the great parts about owning your own business it’s easy to gloss over the less shiny details, but knowing how to navigate these factors will prepare you mentally and emotionally. The businesses that succeed have owners behind them that put in hours, days, weeks, months, and years building up their business. And to the victor go the spoils.
So now that we’ve pointed out all the negatives, why would anyone want to start their own business? Because of all the potential upsides. And they are GOOD. You get to be your own boss, there’s no long-winded approval processes needed if you want to buy something substantial and office politics is a thing of the past. You have the freedom to attend your child’s school athletics day or work from a mountain top or the beach. And let’s not forget or undervalue the immense sense of satisfaction and pride that comes from building something up yourself and seeing it succeed – it really is priceless.
Our key message here is to do it right and be prepared from the outset. It will save you a lot of heartache further down the line!
So, in summary:
- Have a detailed plan that acts as your road map to success. Know it cover to cover. Continually refer to it and let it be your navigator
- Lean on experts to assist you in getting off the ground. Great support and advice right from the beginning; it can be the difference between success and failure
- Be aware that the road ahead is not paved in gold. Not initially anyway. It can be more of a minefield… but that’s ok because we’re here to help.
If you would like the advice of a qualified and experienced Business Advisor, contact us now for a 30-minute no-obligation discussion about your business plans. And if you have an established business and could benefit from some advice, we’re all ears too! 5th Green have an experienced team that will give you confidence in the direction your business is heading along with realistic plans and strategies for achieving your business goals.