If you love your hobby so much you’d like to make a business out of it, then read on… If you are tired of working for someone else and you think starting your own business could be your ticket to freedom, then read on…
An excellent website for any business, whether you’re a start-up or established is: www.business.govt.nz there you’ll find templates and information on almost every topic related to business activity. Here are some other points though to consider to round out your thinking:
Does the business activity align with your own personal values and beliefs?
If you intend the business to be your main income earner; then write down how much income you need to cover your basic living costs. If your business is to provide your primary income you need it to generate an after tax profit of at least this figure.
How many hours a week do you actually want to commit to operating your business – including administration? Do you have the support of your significant other? Will they be involved in the business too?
Thinking about the financial management of your business, what skills do you have in this area? Can you do this yourself or will you need help? Cash-flow is king and can make or break your business – to ensure financial success you will need to keep a very close eye on your key financial data including collecting any outstanding debts.
Will you need to hire staff? If so, you will need to understand and comply with all relevant employment and labour laws, including health and safety.
Is this business to be a short term proposition or a long term one? What will happen to the business when you decide you don’t want to be involved anymore?
Is your product or service a seasonal one, or driven by fashion or trends? How much longevity would you expect to get before the next fashion or trend comes along making your product or service less desirable, or even redundant?
Do you have a product or service that you can claim has intellectual property (IP)? Are you absolutely sure the IP is yours to claim? If so, how will you protect your IP?
Do you need capital to get your business up and running? If so, where will this funding come from, and how will you pay for it?
What structure will you operate as? Sole Trader, Limited Liability Company, Partnership? Will you need to be GST registered? If you’re not sure I urge you to talk with a qualified accountant who is able to give you good tax advice.
Remember that in year one you won’t pay tax; but year two will require year one terminal tax payments, year two provisional tax payments and probably part of year three provisional tax payments. All this is a significant burden on your business cashflow in year two. So right from day one, make sure you plan to put aside at least 20% of every sale into a separate account to fund future tax commitments.
If you intend working from home, check what impact your business activities will have on your home, contents and vehicle insurances. You may need to change some to commercial policies. Also check if you will need any public liability insurance.
If you intend working from home, do your local council by-laws support such an operation in your suburb? If so, check if you need resource consent. This is particularly relevant if there is a significant increase in traffic movements and/or noise from suppliers, clients or your business operation. (Your neighbours could complain to the council and have you shut down.)
If you need a special premise to operate from, what are the ongoing expenses related to this premise? Will you need to sign a lease? What are your ongoing liabilities related to this lease? Talk with a good lawyer and have them review any contracts, leases etc. before you make any commitments.
What is the worst that can happen with your business in the first few months or year? Since you will have drafted your operating budgets by now – run them again with an absolute worst case scenario, ensure you can meet your business overheads, tax and personal drawings commitments through the duration of this scenario.
Write down all the possible risks you will encounter with going into business, and what risks you could encounter once operational. Where practical write out your mitigation strategy for each.
Always get good advice, if you don’t have the expertise - then hire, contract or buy it. It is money well invested in the long run.
This list is by no means exhaustive, and depending on your product or service there will certainly be many other specific aspects to consider. If you want some help to work through your options, then contact me!!