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People often have an idea for a start-up or dream of breaking out and starting their own business. But how do you know whether to take the plunge or even what’s involved? We’ve put together an overview of the most important considerations for those looking to start a business.
Viable Business Idea
The first and most important step is determining whether you have a good business idea that is likely to succeed and be financially viable. Plenty of ideas sound good when you’re talking with your friends but is there a market for your goods or services, how will you differentiate yourself from competitors, will you be able to run an adequate profit margin?
Business.govt.nz has information on how to prepare a business plan and think through whether your business idea is viable (see here). It’s best to get specific advice from a professional business advisor or a successful business person as to whether your business will work, particularly if you are planning on investing significant personal money into the business.
The second step is determining how you can fund your business. Establishing a business comes with significant start-up costs and you can only have an accurate idea of how much these costs will be if you have properly worked through a business plan and the business’ financial viability.
There is a wide range of funding options, such as funding it yourself, bank loans, venture capital, crowd-funding, taking on an investor as a business partner, government or small business grants, and others. Each option has different consequences such as the risk of losing your own money if the business doesn’t succeed, having to give over a share of your business to an investor, and interests rates on lending. It is crucial to do due diligence and get professional advice on the pros and cons of funding arrangements before agreeing to anything.
Does COVID-19 mean that you shouldn’t start a new business? No. But you should consider how COVID-19 would affect your business and whether you can operate while restrictions are in place. Some businesses, particularly those operating remotely with online ordering, are actually seeing increased business in the time of COVID-19. However many businesses are struggling.
An important step (which is often overlooked) is determining the best structure for your business. There are obvious options – sole trader or a company – and those less well known to the average person – partnership, limited partnership, trading trust. Each structure significantly differs on whether a separate legal entity is actually created, whether there are personal protections, tax implications, and set-up and ongoing administration and reporting requirements.
Having the right structure and knowing how to optimise it and use it effectively is essential to business success. Professional legal (and ideally also accounting) advice is needed to know which structure will be best for your specific situation. Any time and money spent getting this right at the outset is well worth it (and much cheaper and easier than trying to correct it later on).
The Next Phase
After completing the steps above:
- Develop the business name and logo. Consider whether trademark protection is needed. Check what business names are already in use and what domain names are available.
- Compliance. Get an IRD number, register for GST, check what regulations and health and safety requirements affect your business and how will you comply.
- Key Agreements. Have the necessary agreements with customers and suppliers prepared, such as terms of trade, terms and conditions, supply agreements.
- Premises. Securing a lease for your business premises. A lease is often the biggest financial obligation a new business takes on so it is crucial not to sign whatever is put in front of you without seeking advice.
This article is a summary only. It is not specific legal advice and must not be relied on as legal or business advice. We recommend seeking specific legal advice and also accounting and tax advice before starting a business.
If you have any questions about setting up a business, please get in touch with a member of our Commercial Law team.
Author: Rochelle Farmer
Rochelle's work focuses on commercial matters and company and partnership law. She undertakes commercial property transactions, drafting and reviewing commercial agreements, selling and purchasing businesses, and other matters.
Rochelle’s broad experience in corporate and commercial law, employment law, privacy, and health and safety gives her a unique overview from which to provide thorough and pragmatic advice.