When you took up the title of “business owner”, you simultaneously agreed to an annual set of financial and legal obligations.
We’re here to make them a breeze. So in addition to helping you prepare them each year, we’ve built a checklist to ensure your business is set up correctly.
Read on and learn what’s needed to keep the tax office happy – along with any employees or additional shareholders of yours. Below are the procedures you need to be on top of.*
* It could be a great idea to bookmark this.
Scroll on, or jump straight to a topic
▶ Choosing to be a sole trader or a company
▶ Registering for GST
▶ Accounting software
▶ Bank accounts
▶ Income tax
▶ Employing people
▶ Figuring out if you need an accountant
▶ Understanding the expenses you can claim
▶ Common pitfalls for new business people
What’s your long-term plan? If you’re planning to stay small, it could be a good move to class yourself as a sole trader. However, there are real benefits to incorporating your business as a company if you have growth on the horizon.
If you’re not sure yet, you can get a better idea of the ideal choice for you with our article – Choosing Sole Trader vs Company.
And if you’ve already decided to register as a company, here’s where to do it and here’s where to grab a business IRD number (it’s necessary by law). We can also handle the whole process for you for $245 + GST.????
Here’s how to figure out whether or not you should register your business for GST.
Are you (or your business) earning (or expecting to earn) over $60,000 per annum?
Then you’re legally required to register for GST.
You’ll need a GST number – just use your personal IRD number if you’ve elected to be a sole trader, and if you’re going to trade as a company, you can register for a company IRD number here.
Are you earning under $60,000 per annum?
Then it’s your call if you’d like to register for GST. It could be helpful if
- You’d like to claim back GST on a large asset you’ve purchased and you’re fairly sure sales are going to be over $60,000 at some point
- Most of your sales are to overseas entities – you won’t pay GST on the overseas income, but you can claim GST on the expenses you incur in NZ
The key to understanding GST is recognizing what you can and can’t claim. Learn all about that in our dedicated article, here.
As our client, we’ll offer you a full GST service if you’re using Xero. We make sure you’re claiming all your permitted expenses.
You can’t trust a spreadsheet.*
Of all our recommendations, the strongest is that you use some form of accounting software. You can learn all about the benefits with this article of ours.
We’re big advocates for our partner, Xero. They’re the best accounting software on the market in NZ, but there are other providers like MYOB, CashManager, FreshBooks, and Reckon.
If you’re yet to choose a system, it may help your future-proofing to know we’re a Platinum Champion Partner of Xero’s and a certified Xero advisor.
Have a chat with our support team if you’d like to learn anything Xero (including integrations with your current systems). You can also do a 30-day free trial over on Xero’s website.
* The problem with relying on a spreadsheet is that a single mistake in your formulas at any point can cause catastrophic problems in future.
It’s optimal to have two bank accounts. One handles normal trading transactions, while the other takes care of your tax savings.
Despite interest rates being at an all-time low, we still suggest transferring 30% of your sales into a separate bank account. This ensures you have adequate funds at hand when tax time rolls around!
The ideal combination of insurances for you will depend on your business and personal situations.
Here are some questions to consider:
- Should your business assets be insured?
- Do you need professional indemnity insurance?
- Have you thought about personal loss of income insurance?
- Do you need public liability insurance?
- Do you need business interruption insurance?
Discussing your needs and risks with an insurance broker is a great idea.
It’s also worth knowing that some insurances can be GST-deducted for business purposes, while others are only applicable for personal tax returns.
Protecting your data is critical for you and your customers. You may need
- A firewall
- Anti-virus software
- Two-factor authentication
- Separate emails for business and personal use
- Strong password protection – including mandatory changes on a regular basis
- Data backup
- A Virtual Private Network (VPN)
- Secure wi-fi connections
- Tracking apps for mobile devices
- Data encryption
Also have a think about
- Software you need
- Creating a website
- Creating social media accounts
- Protecting your data (so important that it needs to be repeated)
Unless you already have a company constitution, it’s a good move to formalise agreements between shareholders or partners. Your agreements don’t need to be complex and can be written without legal support.
An agreement should detail:
- Each person’s activities
- How profit is shared
- Funding arrangements
- How disputes will be resolved
- Any other terms and agreements between you worth documenting
Simmons Steward is a New Zealand legal firm offering templates free of charge. In addition, we recommend asking your lawyer to take a look at anything you’re about to sign.
If you’d like an in-depth intro to everything you need to know about income tax, go straight to our article, here.
You can do your future self a major favour by keeping your bookkeeping and accounting systems up to date. It equips your accountant to see how you’re tracking and let you know how much tax you should be putting aside.
To ensure you pay your annual tax bill without worry, we always recommend putting aside 30% of your sales in a separate bank account on an ongoing basis.
Before employing staff, it’s important to understand that you have responsibilities as an employer.
- You must have an employment contract signed before an employee starts
- You need to know your Kiwisaver responsibilities
- You must register as an employer with the IRD
- It’s wise to purchase payroll software that calculates your employees’ wages
- You must file PAYE returns with the IRD every payday
- You must pay PAYE to the IRD each month
If it’s only you working in the business, it’s a good move to keep yourself off the payroll for the first year. You’ll still pay tax, but later, and the amount will depend on your profit levels.
Having an accountant by your side allows you to focus on growing your business, while they handle the numbers.
- They take care of the tax balancing act – making sure you pay the right amount of tax that’s also the least amount of tax. On average, Beany saves its clients over $4,000 of tax each year!
- Having an accountant extends your annual tax returns from the 7th of July (after year-end) to the 31st of March of the following year
- They preserve your energy for the productive parts of your business, while they handle compliance
It’s difficult to figure this out. Here’s why:
You can claim any expense directly linked to the production of your business income.
Distinguishing what’s directly linked is hard. Doctor’s bills aren’t linked – even though your work depends on you being healthy. Neither are your boat costs – even when you’ve taken clients out on it.
We have an in-depth article on figuring out which expenses you can claim, here. But keep in mind that as a Beany client, we’ll make sure you claim all of your legitimate expenses.
It wouldn’t be silly to make a calendar notification for three months from now to check this list again. Are you slipping into any of these habits?
- Failing to use technology to make things easier
- Holding back from working with others because you think nobody will understand the business
- Not playing to your strengths and letting others handle your weaknesses
- Being afraid to ask for help
You might also want to check the income tax section one more time ????
Has this article inspired questions? Give us a shout at [email protected] or call us at 0800 755 333