FAQs for starting a business

Answers to the most popular questions asked by those starting a business for the first time.


Do I need business skills or experience to start a small business?

No. But it helps. You'll greatly improve your chances of success if you do. Industry experience is crucial, as every business type has its own characteristics (if you're starting a café and never run one before, managing staff, food costs and menus isn't as easy as it sounds). Business experience is also handy, primarily around cashflow management, making sure more money is coming in each week than going out. If you're unsure, there is plenty of online information, workshops, and courses to take to get you up to speed.

Do I have to form a company to start a business?

No. You don't need to formally register as a company to start a business. There are three main business structures to choose from when starting. A sole trader, where you run the business under your own name (and tax number). A partnership where two or more people share ownership, though you report earnings under your own name and tax number like a sole trader. Or the company structure, where it's a separate legal entity, and its own tax number. Find out more from the New Zealand Companies Office on what to do before you start a company.

Do I need to develop a business plan to get started?

No. But like going on a car trip, it’s useful to have a map of where you are going. A business plan will help define your goals, marketing strategy, and customer targets. It helps you allocate resources properly, handle unforeseen complications, and make the right decisions. If you’re raising capital or borrowing money, a business plan is often needed, to help the lender understand your business potential. Get started here with our free Business Plan Template.

How do I create a cashflow forecast?

A cashflow forecast is simply a record of what you expect to come into your business month by month and what could go out, usually over the next 12 months. Each month you’ll be able to predict if you’re up or down, giving you time to either cover the shortfall or reinvest the surplus. For each month you’d have a starting balance, add your predicted income, minus estimated outgoings, which leaves a running balance. Use your accounting software or download our Cashflow Template.

How do I to set up my record keeping/accounting software?

Legally you need to keep all your business records (proof of money coming in and going out), so you can work out the net profit you report to the Inland Revenue Service. You can use a spreadsheet, but it makes sense to use accounting software linked to your bank account. Then you’ll know nothing will be missed by mistake. Ask your accountant what software they recommend.

How do I work out how much to sell, to make a profit?

The easiest way is to divide your predicted gross profit percentage into your estimated overheads. For example, if your gross profit is 25%, and monthly salaries, rent, power, internet and everything else is $50,000, then if you divide the 25% into $50,000, you’ll get $200,000 as the answer. This is what you need to sell each month to cover those overheads, also called your break-even point.

What insurance do I need?

There are three main insurances to consider. Business assets, liability and interruption insurance in case your business gets damaged or something happens to prevent you operating. Then business life and disability insurance in case something happens to you. The third is to consider start-up income protection (if you’ve been trading under three years). For more information visit www.asb.co.nz/business-insurance.

What type of business structure is best?

It depends. A sole trader, where you run the business under your own name (and tax number) is best if you're working on your own, or you're testing the feasibility of your business and want to limit any cost (as it's free). A partnership (two or more people share ownership) is also free to set up, managed by a partnership agreement, and useful if you need another person to help you out. Finally, a company (a separate legal entity) can be useful if you want to limit your liability or want to issue shares to several owners. Find out more from Business.govt.nz on what to do before you choose a business structure.

When should I contact an accountant?

Technically you can trade and file your own tax returns, without ever seeing an accountant or bookkeeper. But it does make sense to get some expert help if you’ve never been in business before. Ask friends already in business for recommendations. Your accountant should be able to save you money and stress by advising on what you can claim and how.

It’s also a smart idea to consult a lawyer about your business intentions, particularly if you intend to sign a lease or any legal document.

Where's the best place to get the cash to start-up?

Sources of capital vary. The most obvious is your own, from savings or anything you can sell to convert to cash. Then it’s a matter of cost and control. For example, if you borrow money, you'll pay interest. If you have someone invest, they may want to be involved in the business. Talk to your advisers (accountant, banker, other business owners) to get help based on your individual circumstances and the amount of cash you need.

Who should I talk to first for advice?

As a start-up, often it's friends and family who will help the most initially. It’s then useful to get input from people who are less connected, such as other business owners or those involved in your industry. Going up a step you can then consult mentors, professional consultants, council business development support, and accountants or lawyers for specific legal queries. Try to get as much information as you can from the free services.

How much working capital do I need?

It depends. If you're starting a service business from home and you're the only employee, you may only need to cover your phone, internet and salary for a few months until you start covering your costs with income. If you've managed to get work from day one, your working capital could be a few weeks costs. At the other end of the scale, such as a software company developing a new product, you may require 12 months or more of salaries, rent and marketing. Use a cashflow template and break-even calculator to predict how much you need to cover overheads.

How much can I borrow?

There is no definitive answer for this question, as every business application for lending will be based on a multitude of different variables. In general, the amount you can borrow is dependent on how much you need, what you want it for, your ability and plan to repay, the loan type and if you need security, what that is. Talk to us.

Should I use my house as security?

If you borrow money and use the equity in a property, the interest rate is usually lower (compared to unsecured). In that case, it does make sense. But not always. If you have multiple owners in a business, a partner who shares property ownership, or you want to keep business and personal assets separate, then maybe not. Talk to your banker.

What are business mentors and how do I find them?

A mentor is someone who has no ownership in your business and is there to give friendly advice and support. Often, they're existing or retired business owners, or people with industry experience. A good place to start is Business Mentors where you can be matched to a mentor. There are also lots of other support groups, such as Chambers of Commerce, industry associations, and government help.

Do I need cashflow projections to borrow money?

You should know your business can afford repayments without putting undue stress on you or your working capital. A cashflow projection isn't always compulsory, but it’s not a bad idea.

Where can I get a decent business plan template?

Download our free Business Plan Template here.

Where can I get a decent cashflow forecast template?

We have a Cashflow Template you can download here.

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