Starting a Business

New to Business - Steps Before Starting
If you are a new business owner or you are starting up a new venture please do not proceed without considering the following steps and advice.

  • Step 1 - Talk through every aspect fully with an "entrepreneurial" accountant or business adviser. Make sure you also discuss it with your spouse or partner and include members of your close family. Listen and learn from others who you know have run successful businesses themselves.

  • Step 2 - Get your thoughts down on paper as soon as possible. This is done by writing up a simple plan (known as a "Business Plan") which is the document that sets out what your business will be all about, what your products and services will be, what your business goals will be and your strategy on how you will achieve those goals. Include in your plan all the things detailed in Step 3 below.

  • Step 3 - Do lots of homework. Before you open your doors and start operating carry out a lot of investigating, calculating and fact finding. Who will be your customers (your target market), what is the potential for sales out there (the overall market), who else is running a business such as yours and are they successful or not, how much money do you have available and how much will you need, where will you get the rest of the finance if you cannot raise it all yourself, what is involved in producing your products or services, who will sell for you, will you need staff, where will you run the business from, what costs are involved in setting up and what costs are required for operations.

  • Step 4 - Educate yourself on owning and running a business. Read books, take a small business course, join a reputable business web site (such as StartRunGrow) ask professional advisers, talk with successful business owners.

  • Step 5 - Set Up everything including business structure, bank account, premises, furniture, equipment, email, internet, costing & pricing, accounting & recording systems, budgets, stocks, materials.

  • Step 6 - Manage the business, Start sales and marketing, manage day to day, control all areas, grow the business.

One of the most important things to do is keep your feet on the ground at all times and weigh things up rationally without too much emotion. And don’t run ahead too fast. Take your time.

Are You Actually in Business?

  • Do you charge other people for the goods/services you produce?
  • Do you supply your goods/services on a regular basis?
  • Do you intend to make a profit from supplying your goods/services?

If you answered "yes" to all 3 of these questions, you are likely to be in business, and to have related tax obligations and entitlements. If you are still unsure about whether your activities qualify as a business, make an appointment with a Business Tax Information Officer at the IRD to discuss your situation.

Is Your Business Just a Hobby?
The act defines a business as an undertaking carried on for profit.

An artificial situation is sometimes created by taxpayers who have an enterprise that they are fully aware can never be profitable. This “business” will show a loss year after year which is offset against other income (usually salary and wages) with the intention of reducing overall tax liability and possibly achieving a capital gain.

Where the Commissioner of the IRD feels that the undertaking is not carried on for pecuniary profit, he has the power to label the venture a “hobby” and not a business, thereby ruling that any income received is not assessable and accordingly no expenses can be claimed.

The result is that the “loss” is deemed non-existent and therefore not allowable for tax purposes.