Launching a startup in New Zealand is exciting, but navigating the accounting side of things can be tricky. Don’t worry, we’ve got you covered! In this blog, we’ll break down everything you need to know, from choosing the best business structure to getting professional help.
1. Choose the best business structure for you
Choosing the right business structure for your startup is a crucial first step. It impacts your tax obligations such as how much tax youβll pay and when to pay them, as well as your ability to raise funding.
There are four common types of business structures in New Zealand:
- Sole Trader
- Company
- Partnership
- Trust
Operating as a sole trader might be the easiest and simplest, but leaves you personally liable for business debts. This means if your business incur debt, youβll have to use your personal assets to pay off the debt. If you run your business as a company, it offers some personal liability protection, however, it comes with more complex regulations and tax requirements.
The βbestβ structure depends on your specific circumstances, risk tolerance, and long-term goals. Don’t hesitate to consult with an accountant to determine which business structure suits you best. Itβs important to note your needs may change as your business grows and evolves, so it’s crucial to re-evaluate your structure periodically.
2. Have a good accounting system
Having a good accounting system is the sturdy backbone that supports your startup’s growth. While spreadsheets might seem sufficient in the early days, investing in a proper accounting system from the start can save you countless headaches down the line. Accounting systems such as Xero can effortlessly track your income and expenses, generate insightful reports with a click of a button, and even help you manage your cash flow like a pro. This isn’t just about crunching numbers; it’s about gaining valuable financial insights that empower you to make informed decisions.
3. Have a separate business bank account
Having a separate business bank account is more than a good practice; itβs building a solid foundation of your startupβs financial house. A separate business bank account draws a clear distinction between your personal and business finances. You donβt need to do any more scrambling to figure out if that coffee was a business expense or just a Monday morning necessity. This makes tracking your income and expenses a breeze when the tax season comes around.
Moreover, a separate bank account provides a clearer picture of your startupβs financial health. You can see exactly how much money is coming in, where it’s going, and spot any spending trends. This is super helpful for making smart decisions about your business, like whether to hire that extra hand or invest in that shiny new equipment. Plus, it shows investors and clients that you’re on top of your game and taking things seriously.
4. Register for GST from the start
Now, you might not have to register right away, especially if you’re starting small. But if you’re ambitious and expect to hit that $60,000 turnover mark within your first year, registering for GST from the get-go can save you a lot of hassle later on.
Think of it this way: registering early means you’re already set up to handle GST, no scrambling to catch up when you hit that magic number. Plus, you can claim back GST on those early expenses. Every dollar counts when you’re just starting out!
However, registering for GST also means taking on extra responsibilities, like filing those returns on time. If you’re feeling a bit overwhelmed, have a chat with your accountant. They can help you figure out if early registration is the right move for your unique situation.
5. Have a business plan and budget
A well-defined business plan and a meticulously crafted budget are essential for startups to navigate to the path of success.
A business plan articulates the startup’s vision, value proposition, target market, and competitive landscape. It outlines the strategies that will be employed to achieve short-term and long-term goals, providing a roadmap for growth and sustainability. A budget, on the other hand, provides a financial framework for the startup’s operations. It forecasts revenue streams, anticipates expenses, and facilitates informed decision-making regarding investments, resource allocation, and financial management.
A strong business plan and a realistic budget are essential for any startup – they act as a roadmap and financial compass, guiding your journey towards success. If youβre not sure how to create a business plan or a budget, always consult your accountant.
6. Seek for startup business grants
Most of the time, even the most groundbreaking ideas need a little financial boost to truly take flight. That’ where startup business grants come in – helping startups to turn their dreams into realities. They can provide the crucial funding needed to overcome those initial hurdles, whether it’s developing a prototype, securing essential equipment, or launching a marketing campaign.
Don’t be shy about seeking out these opportunities. Research various grant programs, tailor your applications to highlight your unique strengths, and craft a compelling narrative that showcases your vision. Treat each application as a chance to refine your business plan and articulate your goals with clarity and passion. Even if you face a few rejections along the way, remember that persistence is key. Callaghan Innovation has a number of grants for Kiwi startup businesses.
7. Distinguish between operating costs and capital R&D
Both operating costs and capital R&D are essential when you’re just starting up, but there are several differences.
Operating costs are the day-to-day expenses that keep your startup running smoothly. For example, rent for your office, electricity bills, marketing campaigns, internet expenses and more. These costs are typically short-term and recurring, showing up on your income statement and directly affecting your profitability.
Capital R&D, on the other hand, is an investment in your startup’s future. It’s about developing new products, enhancing existing ones, or creating innovative processes that give you a competitive edge. For example, developing a groundbreaking app, researching new sustainable materials, or designing a cutting-edge manufacturing process. These are investments with long-term benefits, often resulting in assets that appreciate over time.
While operating costs are expensed immediately, capital R&D costs are typically spread out over the useful life of the asset created. This affects your financial statements and tax liabilities, so it’s crucial to classify them correctly. If youβre not sure how to categorise your expenses, talk to your accountant.
8. Get professional help
While you might be tempted to wear all the hats yourself, especially in the early days, seeking professional help from an accountant can be a game-changer. They can help you set up a robust accounting system, ensure you’re compliant with all tax obligations, and provide valuable insights into your financial performance. Imagine having a trusted startup accountant who can help you make sense of the numbers, identify potential pitfalls, and unlock opportunities for growth.
Beyond technical expertise, a good accountant can be a valuable sounding board for your business decisions. They can offer objective advice on everything from managing cash flow to securing funding. It’s like having a financial mentor in your corner, cheering you on while keeping you on track. Working with an accountant is an investment in your startup’s long-term success.
Insights from the team at Beany
