Hints and tips for setting up for self-employment (especially tech-related)

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#1485009 4-Feb-2016 09:14

In regards to banking: any particularly strong recommendations for the best bank for a (very) small business?

We bank with Kiwibank for all our personal banking, and it looks like their Business Edge account is fairly well regarded (5 stars - one of only two - on Canstar's recent report on business transactions accounts).

Kiwibank's business savings accounts seem to kinda suck, but I guess that's something we could look at using a different bank for...

Is there also any value in a small company holding a credit card? At a personal level, we're used to sticking every possible purchase on our card (but only if we already have the money saved) and then paying the card off in full each month. As a business, do we need to get used to just paying for stuff up-front? (Apologies for what may be a stupid question - but it's all unknowns for us!).

Thanks...

itxtme

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#1485012 4-Feb-2016 09:18

Are you saying that, even if established as a LLC, my wife (as probably the sole director of the company) will retain certain liabilities that could place the assets held in her own name at risk? If so, can you please point me in the direction of some more information on this? Ta.

You have cretain duties/responsibilities as a director. If you were to for instance knowingly run the organisation while it was insolvent then they could come after the directors. The David Ross Ponzi scheme is a good example. He stepped outside of the legislation offering protection/limitation of liabilities by doing something illegal. Interestingly because some assets were in a trust the prosecution was unable to liquidate all of them.

Virgil

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#1485015 4-Feb-2016 09:21

jonathan18:

Is there also any value in a small company holding a credit card? At a personal level, we're used to sticking every possible purchase on our card (but only if we already have the money saved) and then paying the card off in full each month. As a business, do we need to get used to just paying for stuff up-front? (Apologies for what may be a stupid question - but it's all unknowns for us!).

Thanks...

We find it useful to have a Visa Debit card, acts as a credit card for online purchases but the money comes out of a regular cheque account.

If you would be making regular purchases from the same suppliers you should be able to set up a credit facility with payment due 20th of the month following purchase for example.

Lurking ...

itxtme

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#1485018 4-Feb-2016 09:29

jonathan18:

1) In regards to banking: any particularly strong recommendations for the best bank for a (very) small business?

We bank with Kiwibank for all our personal banking, and it looks like their Business Edge account is fairly well regarded (5 stars - one of only two - on Canstar's recent report on business transactions accounts).

Kiwibank's business savings accounts seem to kinda suck, but I guess that's something we could look at using a different bank for...

2) Is there also any value in a small company holding a credit card? At a personal level, we're used to sticking every possible purchase on our card (but only if we already have the money saved) and then paying the card off in full each month. As a business, do we need to get used to just paying for stuff up-front? (Apologies for what may be a stupid question - but it's all unknowns for us!).

Thanks...

1) Most banks will offer a zero fee period for startups, I personally use ANZ for my business but did so for the same reason you are considering Kiwi bank, I bank with them personally (ANZ).

2) I do not know the type of business your wife is in, but a credit card is an essential part for things you probably dont think of. Firstly its a PITA to use personal for business and try and reclaim. In the future could there be the need to fly, pay suppliers (especially around electronic goods)

Kyanar

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#1485107 4-Feb-2016 11:53

jonathan18:

Is there also any value in a small company holding a credit card? At a personal level, we're used to sticking every possible purchase on our card (but only if we already have the money saved) and then paying the card off in full each month. As a business, do we need to get used to just paying for stuff up-front? (Apologies for what may be a stupid question - but it's all unknowns for us!).

You may find it to be pushing the proverbial uphill to try and get one. Most lenders won't give squat to a small business unless the directors have an impeccible credit record, and they require the directors to sign personal liability for any credit, defeating the purpose of limited liability in the first place.

jonathan18

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#1485116 4-Feb-2016 12:00

Kyanar:

jonathan18:

Is there also any value in a small company holding a credit card? At a personal level, we're used to sticking every possible purchase on our card (but only if we already have the money saved) and then paying the card off in full each month. As a business, do we need to get used to just paying for stuff up-front? (Apologies for what may be a stupid question - but it's all unknowns for us!).

You may find it to be pushing the proverbial uphill to try and get one. Most lenders won't give squat to a small business unless the directors have an impeccible credit record, and they require the directors to sign personal liability for any credit, defeating the purpose of limited liability in the first place.

Good to be pre-warned! Perhaps a Visa debit card is a better option given it too can be used for online and over-the-phone transactions, but without the hassle clearly attached to the credit aspect?

itxtme

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#1485155 4-Feb-2016 13:07

jonathan18:

Kyanar:

jonathan18:

Is there also any value in a small company holding a credit card? At a personal level, we're used to sticking every possible purchase on our card (but only if we already have the money saved) and then paying the card off in full each month. As a business, do we need to get used to just paying for stuff up-front? (Apologies for what may be a stupid question - but it's all unknowns for us!).

You may find it to be pushing the proverbial uphill to try and get one. Most lenders won't give squat to a small business unless the directors have an impeccible credit record, and they require the directors to sign personal liability for any credit, defeating the purpose of limited liability in the first place.

Good to be pre-warned! Perhaps a Visa debit card is a better option given it too can be used for online and over-the-phone transactions, but without the hassle clearly attached to the credit aspect?

Cant comment on Kyanar's experience. For me it was easier than getting a personal credit card. Agreed to have it direct debit out of the business current account and that was it.

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#1485167 4-Feb-2016 13:18

When I started up, I was advised by my bank to apply for a CC (personal) whilst I was still in employment if I wanted to have one for business use. They said I wouldn't get one if I was already in business.

Also, check your insurances, ie household insurance may not cover items used for business purposes. We required, separate business content insurance for the home office and vehicle.

lapimate

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#1485270 4-Feb-2016 15:44

itxtme:.... Interestingly because some assets were in a trust the prosecution was unable to liquidate all of them. ...

In some circumstances courts can reach inside trusts.

Kyanar: ... and they require the directors to sign personal liability for any credit, defeating the purpose of limited liability in the first place. ...

The same [agree to personal liability] will likely apply these days to setting up company bank accounts, to making substantial purchases and possibly to undertaking contracts if the company does not have much capital backing/history.

Kyanar

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#1485337 4-Feb-2016 16:47

lapimate:
The same [agree to personal liability] will likely apply these days to setting up company bank accounts, to making substantial purchases and possibly to undertaking contracts if the company does not have much capital backing/history.

With undertaking contracts, that's why you have Public Liability/Professional Indemnity Insurance. If they require a cash surety, it will usually be in the form of a bank guarantee rather than personal liability (which is basically pointless). Setting up accounts doesn't result in any extension of credit necessarily, so that won't require personal liability in most cases.

lapimate

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#1485378 4-Feb-2016 17:40

Kyanar: ... Setting up accounts doesn't result in any extension of credit necessarily, so that won't require personal liability in most cases. ...

I suspect it is may be to do with that old bank favourite "With recourse on all documents" rather than credit as such. In other words to cover the bank if any transaction goes awry after the bank has transferred funds.

turnin

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#1486648 6-Feb-2016 20:59

I'd say your business plan is what you should spend time worrying about.
I can't emphasise this enough.
It should be an ever evolving document full of all the questions answers, contingencies and strategies.
Your business is only as clever as your business plan

beehappy

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#1486748 7-Feb-2016 07:22

turnin: I'd say your business plan is what you should spend time worrying about.
I can't emphasise this enough.
It should be an ever evolving document full of all the questions answers, contingencies and strategies.
Your business is only as clever as your business plan

Agree 100% we have been in Business for a number of years an accountant friend helped us draw it up (says we are better at sticking to it than him) has seen us through good years and bad.

Do a SWOT analysis (Strengths, Weakness, Opportunities, Threats.) can seem a bit Naf but it gets you to focus on the basics.

Remember a percentage of what you make belongs to Wellington so put money aside for tax & Gst especially the 2nd year as you have 2 years tax to pay - Terminal and Provisional.

Be adaptable the best survivors are those that can adapt to change

ALWAYS keep your Bank Manager and Accountant in the loop they are there to help you and can often dig you out of a hole you thought was too deep.

Enjoy yourself remember Work Life balance!!!

Pete

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#1486772 7-Feb-2016 08:58

This thread scares me as I intend to work from home in the future.

dipper

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#1486905 7-Feb-2016 12:27

Hi,

These are just some of my comments as an Accountant:

Xero

Xero is a great product for small business. Get the subscription through your accountant as they get a discount and normally have access to allow your first two months to be 50% off …any ethical accountant should be passing these discounts on and not retaining them. Being cloud based helps with no need for backups in case your laptop fails and also your accountant will be able to keep a close eye on you.

Structure

Definitely run the business through a company as you will be able to limited an exposure to only the assets of the company and it looks more professional. Setting up a company is not that difficult.

LTC v Normal Company

An LTC is a corporate entity governed by the Companies Act but is a tax structure that in essence treats the company as if they are a partnership or sole trader …this structure has some benefits if you are intending to make losses (please note that an LTC is a loss limitation company so whatever income arises from the company will flow through to your own personal name but expenses in certain circumstances cannot flow into your name)

Also please note that a company pays tax at a flat rate of 28% and as an individual you pay marginal rates but with a closed company (fewer than five shareholders) a shareholder’s salary can be paid out thus transferring the income from the company to you allowing for the use of your marginal tax rates. With this flexibility arises as to the mix between salaries and retaining income to minimize your tax liability but with the LTC this will not happen as you will pay tax at your marginal tax rates no matter what. Please note that to get the money out of the company via a dividend then the company will be required to pay an additional 5% DWT.

Paying a Salary

Don’t pay yourself a PAYE deducted salary. There are rule around this and some issues but in essence if you pay a salary and deduct paye and you pay too much then you will in essence over pay your tax. Also the key to being in business is the timing of money.

The Timing of Money

One of the keys in being in business is using other people’s money. A great example of this is using your credit card. For me my credit card closes off on the 25th of the month so I have all my bills due around the 27th so in essence I am not physically paying for them for another 45 days. During this time, I am collecting my debtors and have the ability through my bank to offset these held funds against any bank debt that I have saving on interest costs. Just make sure that you pay off the credit cards when its due. I have heard the banks refer to this as freeloading.

ACC

Some consideration should be given to ACC. If you have an accident without having a record through your business i.e. having not filed a tax return is a real paid. If you believe that cover through ACC is important then look at the option of Cover Plus Extra. This is like having an agreed policy with ACC for cover and work well in your first year in business or when you tend to have years when income levels fluctuate

Prov Tax

I always advise my clients to put away 20% of their gross income into a saving account so that when I come asking to pay tax then they have it ready. Normally this is enough. Please note that Prov Tax is based on your current year’s residual tax (being you tax bill after the deduction of source deducted tax such as paye and rwt) plus 5% and is payable in three installments being 28/8, 15/1 and 7/5 based on a March Balance date and in your first year normally you will not be required to pay any as your normal tax would of all been soured deducted but as previously noted you are entitled to a first year discount.

I can’t emphasis that do not be scared of paying tax, paying tax is a sign that you are making money but the key is that you are paying the correct amount. I remember I had one of my clients whom use to t pay just over 500k per payment and they hated to I explained how much they had earned to generate such a tax bill.

I have recently gone through the same process of leaving my well paid job that I had for 17 years to go out on my own, I love it and now really enjoy work as the efforts I put in are for my benefit and not others.

Disclaimer: my comments are generic and are based on general observations. Setting up a business should be treated on by case by case basis as you need to rely on actual facts of the person before implementing business structures.

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