How to plan for a new business

When starting a business, smart entrepreneurs take several cast-iron steps to minimise risk, including researching their idea, writing a business plan, and double-checking all their findings. At the end of the day, you have to do your homework to establish the feasibility and bankability of your business before you go any further. If you invest time upfront planning your business, you’re likely to reap the rewards in the long run. 

Below are some key questions, tips, and considerations to help you get your business off to a flying start.

If you’re looking to start a business, then chances are you’ll be investing a huge amount of your time, money (or maybe someone else’s money), reputation, and energy. Before you take the leap, do a self-assessment to make sure it’s something you absolutely want to do.

Running a successful business requires juggling everything from accounting, admin, and tax to sales and customer service – so it’s important to be the kind of person that thrives on challenges, is resilient in the face of setbacks, and is prepared to take risks. If you’re not that person, question whether owning your own business is really right for you. 

It’s a good idea to talk to someone who’s started their own business to get an insight into the challenges.

Building a business from the ground up is hard work – but if you’re prepared to work hard enough to make it happen, the end result can be incredibly rewarding. To give your business the best shot at success, you’ll need to consider the feasibility of your idea and conduct robust market research before taking the plunge.

Buying a business that already exists can be a great way to gain immediate cash flow, a proven track record, market credibility, and an established customer base. It’s important to thoroughly investigate all aspects of the business – from financial performance to legal and tax compliance – to identify any potential problems. This ensures you know exactly what you’re buying and will help you assess the value of a business and the risks associated with buying it.

A franchise is a business that’s part of a group, usually with an established brand. They provide training and a support network, but there are rules to follow (such as prices to charge and where you buy supplies from). The benefits are a (hopefully) proven system that’s been tested and set up by others so you’re not alone.

Regardless of what type of business you’re buying or building, you’ll need to establish that there’s a market for the type of product or service you’re selling. This should be done before you go too far down the track of developing your business.

You also need to work out your competitive advantage – why will people buy that product or service from you rather than one of your competitors?

Understanding your market, your customer, your competition, and what makes your product or service offering unique, is what will help you determine whether your business has a real shot at being successful.

The most compelling evidence is often established demand, for example:

• Do you have any orders in advance, or have you secured any contracts? 
• Have you trial-marketed your product or service on a small scale to determine its wider demand and acceptability? 
• Are there existing businesses in the industry that you can use as market evidence?

There are lots of ways you can do research into your market. By far the most common (and realistic) approach is to simply get out and talk to as many potential customers as possible about your idea. 

Other cost-effective ways to conduct market research include getting in touch with an experienced business owner within your industry, looking at similar products or services in other parts of New Zealand, and joining an industry association that produces research and insights.

Writing a business plan helps you plan where you want to go. At any time, a quick glance at your business plan lets you determine if you’re on track to achieve your goals, or whether you might have to steer the boat back on course.

A business plan will also help when you speak to the bank, other lenders or investors, and your accountant, lawyer, and advisers. The plan builds confidence by showing you’ve thought through your ideas and translated them into achievable steps.

Before you progress further with your idea, you’ll need to crunch the numbers and find out if your idea is profitable. Even if you’ve never made a sale, you can predict the future financial outlook of your business by completing a break-even point forecast, profit and loss statement and cash flow forecast. Our business calculators can help you complete these important steps.

It’s important to know what your break-even point will be when you start up a business. This is where your costs equal your income so you neither make a profit or a loss.

A profit forecast tests the viability and sustainability of your business idea, by establishing the volume of sales that the business needs to generate to cover its costs before generating a profit. In other words, your profit and loss statement shows your predicted profit for the year – not necessarily the cash in and out of the business.

This is your predicted cash flow – actual cash in and out of your business, usually for the period of a year.

To work out how much money you’ll need to start your business, you need to calculate two things – your start-up costs (your one-off, set-up costs such as equipment, legal fees, and initial stock) and your working capital requirements (your regular ongoing costs such as raw materials and wages).

If the cash you have available is less than the total funds required to start your business, then you may need to borrow the shortfall. 

There is a range of different finance options for your business and it’s likely that you’ll require a combination of finance options to meet your short-term and long-term funding requirements.

You’ve identified that you have the skills and necessary drive to be self-employed; you’re satisfied that your business idea is feasible and a demand exists; and you’ve sorted the necessary finance. Now it’s time to start getting ready and setting up the facilities you may need for your business – for example, debit and credit-card processing facilities, business credit cards, and day-to-day banking accounts. You’ll also want to look into insurance and make sure that your business, and the people in it, are sufficiently protected.

The most popular business structures in New Zealand are sole traders, companies, and partnerships. Your lawyer and accountant can advise you on the best structure for your business.

You can check to see if the business name you have in mind is available as a company name, domain name for your website and a possible trademark, all at once. Go to business.govt.nz/onecheck , a free online tool that allows you to enter your proposed business name and the tool searches all three databases at once.

You’ll be doing your business a great favour if you get on top of taxation issues right from the start. In a well-managed business, there should never be an ‘unexpected’ tax shock because most taxation is predictable and therefore can be planned for – especially if you consult your accountant and take advantage of free training on offer.

You can apply for the new company’s tax number from Inland Revenue through the Companies Register on the New Zealand Companies Office website at the same time that you form your company.

Because everybody’s individual circumstances are different, it’s important that you get professional advice specific to you and your business. Inland Revenue offers a free business tax information service for businesses that are starting up or changing the way they operate. More about these services and other resources are available from the Inland Revenue website.

Setting up good accounting and record-keeping systems is essential to running an efficient and successful business. Having good systems will help you to determine whether your business is making enough money to meet its expenses, make sure you have enough money to pay taxes, and demonstrate to investors and bankers that your business is sound.

Remember, you must keep your business records for at least seven years, as they’re key evidence that Inland Revenue will use if they audit your business.

You can start off with a manual cashbook or keep track of your sales and outgoings on an Excel spreadsheet. But if you’re serious about being in business you should consider using an accounting software to manage and track your business finances.