How often should GST paperwork be done?



We’ve discussed the pros and cons of GST registration. Today we talk GST paperwork options.

First, you should keep up with all paperwork. Leaving it till the day before it’s due suggests a poorly-run business. Successful enterprises stay on top of their stuff and know where they’re going.

That’s why, when our new clients go on Xero, we suggest they have a coffee and code their GST weekly.

Some start-ups prefer monthly GST to receive early refunds. Some large businesses must do monthly GST as the IRD wants their money sooner than later.

Most businesses do GST every two months. This combines regularity with IRD payment manageability.

If you meet IRD criteria you can do six-monthly GST and invest the 15% to earn interest. But you must be disciplined so you don’t fall behind.

These are general comments. You should take independent advice before acting.

When not to register for GST



Last time we covered reasons for being in the GST system. Let’s look at the other side, if your turnover is under $60,000 pa.

If your customers are individuals rather than corporates, your price may be lower if you don’t add GST. Especially if you run a labour-based business and don’t buy many supplies.

With lawn mowing, for instance, most customers shop on price. Being outside GST may make you more competitive, gaining you market share.

Steering clear of GST also reduces compliance costs. Even if you do your own GST returns with great software like Xero, it takes time. And when your accountant does your annual return, their fee should be less if they don’t have to process GST.

Next time we’ll discuss how often you should do your return if you are registered for GST.

These are general comments. You should take independent advice before acting.

When should you register for GST?



Whatever your business size and structure, there are good reasons to register for GST.

If you expect your annual turnover to exceed $60k from supplying goods and services, GST registration is a must. This $60k excludes non-core (e.g. interest or domestic rent) income.

If you expect to turnover less than $60k, you might still register voluntarily for GST. Because if you spend money (e.g. on plant or equipment) you can claim the 15% GST and put it back in your business

Another reason to register is if your clients are councils or corporates. Many won’t deal with non-GST-registered suppliers as it’s too much bother for their accounts people.

GST registration even denotes size and credibility. Some clients fear dealing with ‘little fish’ who turn over less than $60k.

These are general comments. As every person’s situation differs, it’s wise to seek independent advice before acting.

In good company



If sole trading and partnering aren’t your style, a company could be the business structure for you.

As a legal entity, a company is taxed separately from its owners. New Zealand’s 28% company tax rate is significantly lower than the highest personal tax rate of 33%.

The down side is that Companies Act obligations mean more paperwork.

Company directors must act honestly and in good faith for shareholders’ benefit. This isn’t an issue for straight shooters (e.g. most ‘mum-and-dad’ companies).

But take care: directors can be liable if their company trades while insolvent. And liable for company debts if they’ve given ‘personal guarantees’. (We’ll discuss these later.)

Some people think corporate trappings confer credibility. Yet it’s easy to discover a company’s directors and history.

If you combine talent with good faith and good advice, you’ll likely prosper in any business structure you choose!

Choose your partner very carefully



So you’ve decided not to be a sole trader. How about a partnership?

This business structure permits income splitting (e.g. between spouses). Though fees are involved, a partnership is relatively easy to set up.

Yet it’s not a separate legal entity – so your personal assets remain at risk. You and your partner/s are jointly and severally liable for each other’s actions.

Which brings me to my main point: choosing the right partner. Be very careful who your partner is. Do you really know them?

Before I moved to electronic document storage, I had a box for each client’s files. And the stories those boxes could tell of business partners not getting on!

First, there was the honeymoon. Then, reality set in. Finally, one partner wanted to go left and the other right.

To save yourself this pain, check with your advisors before you commit!

Should you go solo?



Your advisors agree you can start a business. Should you be a sole trader?

Cheap and easy to set up, this structure has fewer compliance costs than a company or partnership. You call all the shots (including the coffee).

On the flip side, you’re personally liable. If something goes wrong, you could lose your home.

As all profits must go to the owner, being a sole trader isn’t ‘tax effective’. This may not seem a problem. But if you prosper (and why else would you start a business?) you can’t easily channel income to loved ones.

When a sole trader dies, so does the business. Unless you sell it first. We’ll cover that later.

For now, know that the structure you choose will have profound and lasting implications. So wise up before you do!

Starting a business? Who should you consult?



So you want to start a business. Great! But before you do, there are people you should consult.

Your spouse/partner. As they’ll be hugely impacted by what you do, you really need them on board.

Other business owners. They’ve been through the uni of hard knocks. They can tell you what it’s really like and save you making the same mistakes.

The bank. Launching without funds is like diving without water.

An accountant. Someone who can explain the pros and cons of franchise, sole trader, partnership and company options. (We’ll cover these separately in future articles, as picking the wrong horse, or changing mid-race, is very bad news.)

It’s vital to sit down and talk things through. Don’t just think five months ahead, think five years.

Wise people seek advice. The wisest take it. What kind of business will you have?

Do you have what it takes to run a business?



If you seek my advice on starting a business, one question I’ll ask at our first meeting is:

Can you get up every morning and make it happen?

A business owner must face hard situations: it’s no good hiding out the back. There’ll be times people give you their ‘bad day’. You’ll have to deal with this and move on.

When it happens to me, I take a quick walk and come back relaxed.

(If you see a chap in a T-shirt that reads ‘I’m the straight, honest, blunt accountant’ that’s me!)

To succeed, business owners must also stay the distance. Like any sporting event, there’s no point starting if you don’t finish.

I’ve been in business long enough to get up and make it happen.

I’d love to see if you can too.

Being in business can be exciting!



Starting a business may sound fun: work when you want, take breaks any time and stop when you’ve had enough. If you’ve worked for an organisation for a while, you may have many reasons to make the leap and be your own boss. But being great at your job doesn’t mean you have what it takes to own and run a business. The sad fact is that around 80% of businesses fail in the first five years!

How confident are you?

As accountant to hundreds of businesses over 17 years, I’ve learnt first-hand what it takes to succeed in business, and the kind of person who’s likely to make it. You could be that person. But before you make any sudden moves, this series of fortnightly articles is designed to help you decide if being in business really is for you.