What should I consider if I’m thinking of starting my own business?
It’s a big step to start your own business, and can be risky. But it’s something to consider if you want to be your own boss and have a great business idea which you are passionate about.
Work and Income has information which can help you decide whether running your own business would be right for you. There is also information on the Ministry of Business, Innovation and Employment’s business.govt.nz website.
Make sure you take the time to think through the risks and benefits of starting a small business. A class on starting a business is one option (your Local CAB can help you find one). You could also talk to small business owners to find out how they got started, what mistakes to avoid and so on. It would be useful to also talk to people who have started businesses which failed, as a way of finding out what the pitfalls are.
You might also consider getting a business mentor.
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What is a business plan and do I need one?
Having a business plan can help you to set your business goals and plan how you will reach those goals. You can develop a plan when you start a new business, or one for growing your existing business. Immigration New Zealand requires a detailed business plan if you are applying for an Entrepreneur Work Visa (more about living and working in New Zealand is on our Moving to New Zealand page).
You’ll find information about writing a business plan on the Ministry of Business, Innovation and Employment’s business.govt.nz website, including templates you can use.
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What are my legal obligations when starting my own business?
Assuming you already know what service or product your business will be providing and how it will operate, and have the funds and necessary knowledge to proceed, the main things you will need to do are:
- Work out what kind of structure the business will work within (e.g. sole trader, partnership, or company)
- Decide what your business will be called, ensuring that the name isn’t similar to an existing business name.
- If you will be using a logo for your new business, ensure that it is not too similar to the logo of an existing business. Also consider trademarking your logo. More about this is on our Help for small business page.
- Find out about your tax obligations regarding your business
- Get any required licences associated with your trade (e.g. from the appropriate regulatory authority) or relating to work premises (from the local council)
More information about the legal aspect of starting a business is on the Ministry of Business, Innovation and Employment's (MBIE's) business.govt website. You can also call MBIE on 0800 424 946 to speak to a business adviser.
There are local organisations which help people starting up their own business, for example a chamber of commerce which provides support to members. You can find contact details for your local Chamber of Commerce on the New Zealand Chambers of Commerce directory. You can also contact the CAB to help you find one in your area.
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How will I know whether I need a special licence to start a business?
A good place to start is your local council, as in many cases if you do require a licence you will need to apply to the council for it. Depending on the type of business you want to run, you may need more than one type of licence.
Examples of types of business licence or registration you may be able to apply for from your local council include:
- registering under the Food Act 2014 if you want to sell food;
- licence to operate a health and beauty business (e.g. hairdressing, body piercing);
- licence and registration to run a funeral director business;
- licence to sell or supply alcohol;
- licence to operate a market on public land (e.g. craft market, produce market);
- licence to operate a mobile trading business (e.g. from a truck);
- busking licence (to perform on city streets).
You can also ask those who are already established in a similar business.
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Should I set up my business as a company?
You might start a company because you want to be able to:
- grow your business by allowing shareholders to invest in the business (and receive dividends from any profits in return),
- limit your personal liability, or
- pay a lower rate of tax on profits.
However it is a bit more complicated to set up and run a company, compared to running a business as a sole trader (for example). A company must have shareholders and directors and must file annual returns. It must have a company constitution and hold annual general meetings.
Visit the business.govt.nz website for an overview of the different business structures, to help you decide whether a company is the most appropriate structure for you.
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How do I go about putting together a constitution for my company?
A constitution sets out the rules for running an incorporated society or a company i.e. the rights, powers and duties of the company, the board, the directors and the shareholders. It is not a legal requirement (if a company has no constitution then the company is governed by the Companies Act 1993), but having one will allow you to have rules that are tailored to your company.
If you want the company to adopt the constitution it needs to be filed with the Companies Office.
You can choose to buy a constitution produced for you (e.g. by the Auckland District Law Society) or draft one up yourself. The Companies Office recommends that if you choose this option, you seek legal or other professional advice first.
More about company constitutions is on the Companies Office website.
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Is there a minimum age for starting a business?
Setting up a company will be more complicated if you are under the age of 18 - because under 18’s can’t be company directors - but in general you can start a business at any age.
There are some restrictions on the type of work you can do depending on your age. For example you can’t:
- work fulltime until you are at least 16,
- work as a babysitter until you are at least 14,
- work on a construction site until you are at least 15,
- serve alcohol until you are at least 18.
Any contracts you enter into can’t be enforced if you are under the age of 18 years. Some consequences of this are:
- you may need to get a parent or guardian involved in the business;
- your age may put off people from doing business with you, as they might have less protection if you don’t uphold your end of the business deal;
- you may have difficulty in getting finance or other help, to start or grow your business.
See our page on legal ages for more information.
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What kinds of insurance will I need to cover my new business?
You may need insurance to cover your business equipment, vehicles and premises, the risk of being sued, or the possibility of your business being unable to trade for a period of time – for example due to damage to business equipment.
If you will be using your home as a source of income (e.g. as a homestay or holiday rental) you may need a change to your home and contents insurance, to covers this new use of your home. It may need to cover loss or damage to your property that is done by guests, as well as cover for loss or damage to guests’ property. If you’ll be renting out your home via a host website such as Airbnb, you may have some cover through them - but it may not be comprehensive.
You can read more about these on the business.govt.nz website and the Insurance Council of New Zealand website.
You can also talk to an insurance broker to help you decide what kinds of insurance to get and which insurer to get it from.
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I want to turn my home into a bed and breakfast or homestay. What do I need to know?
First of all you’ll need to work out what kinds of service you will offer - will you be serving food or alcohol, organising or running tourist activities or making airport pick-ups, will you open all year round, or only part of the year? You can get an idea of service standards and pricing - and check out your potential competition - by visiting and staying at other B & B’s and homestays.
You’ll need to talk to your local council about:
- zoning - whether you will be able to operate a business of this kind in your area
- what modifications will be required to the building so you’ll meet fire and building regulations (e.g. smoke detectors, fire exits), and how much this will all cost (including for permits and consents)
- licencing and registration requirements for:
- food handling, if you’ll be serving food
- serving alcohol to paying guests
- whether your rates will be affected by the change in what your home is used for
If you have a mortgage on the property, ask the bank whether they are okay for you to rent it out for short-term accommodation.
You’ll need to register your business with Inland Revenue. See our earlier information about legal obligations.
As your bed and breakfast or homestay will be a workplace, you’ll have health and safety obligations. For example you’ll have to maintain the property and manage any potential safety hazards (eg swimming pools, decks, gas barbeques, and any recreational equipment that your guests can use).
Think about getting a website for your business, and whether prospective guests should be able to make bookings through the website (or through other online accommodation-booking services). You’ll also need a marketing plan to advertise your B & B.
If you will be operating a transfer service for your guests and want to be able to charge them for this service you must have the right endorsement on your driver licence. There may mean some insurance implications for your vehicle so make sure you check that out with your vehicle insurer.
The Innkeepers Act 1962 governs what your rights and obligations are if a guest’s property is damaged, lost or stolen - and what you can and can’t do with any abandoned property belonging to guests who leave with money owed to you. You may also need to adjust your insurance. See our information about business insurance.
Preparing the house or room
You’ll have to do some work to prepare the house for use as guest accommodation and to market it, for example:
- removing personal items and cleaning out wardrobes, chests of drawers, bathroom cabinets, fridge and pantry (depending on whether guests will be using part or all of the house);
- taking good photos of the house/room to use in marketing the property on one or more holiday accommodation sites;
- inspecting and cleaning the room or house after each occupation to ensure it is ready for the next one;
- Being willing to deal with any questions or complaints from your customers.
You can join Bed & Breakfast Association New Zealand for support, information, marketing of your business and a Code of Practice to operate under.
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I’m thinking of occasionally renting out my house or spare room as holiday accommodation via sites like Airbnb. What would I need to consider ?
Sites like Airbnb allow people to rent out a house or room as short-term holiday accommodation to people wanting an alternative to staying in a hotel or motel. If you are thinking of earning income by renting out your house or spare room occasionally, you’ll need to consider the following:
- You may need to apply to your council for approval to use your house for commercial purposes, and get resource consent (see the previous question).
- As a provider of accommodation to travellers you may have obligations under the Innkeepers Act (see the previous question). Also see our information about possible insurance implications.
- If it is an apartment you will be renting out, check with the body governing the building (e.g. body corporate or, if it’s a company share, the other shared holders) that you won’t be breaking their rules.
- Your paying guests are covered by the Health and Safety at Work Act 2015 (see the previous question). The BookaBach site has more information about this.
- You will have to declare your earnings to Inland Revenue and may have to pay tax on it.
- If you regularly earn income from your house then it’s considered a business. This means you have obligations under the Consumer Guarantees Act and the Fair Trading Act.
- If you will be renting out your property via a third party (such as AirBnB) make sure you understand your obligations under the agreement you have with them.
There is also relevant information in the previous question.
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What’s different about owning a franchise rather than other kinds of small business?
When a business is successful and the owner is thinking of expanding into other locations, the two main options for them are:
- Set up branches (offices or shops) in these locations, including hiring staff to work there. Profits from these offices or shops go to the owner of the business. The risk of losing money if a branch is unsuccessful is carried by the owner of the business rather than the person running the branch.
- Sell franchises to other people who run their own business (the franchisee); they pay to be allowed to use the brand and expertise of the brand owner (the franchisor). Profits made by the shop or office go to the franchisee - who also carries the risk of their franchise being unsuccessful.
From the point of view of someone buying a business, normally you would get to make all the decisions about what product or service you’ll sell, how it will be delivered, how much you will charge for them, and so on. You’ll also be responsible for any marketing that is done to promote your business, and for organising any training for yourself or your staff.
It’s a little different when you buy a franchise. As a franchisee, you generally don’t have much say about what product or service will be offered, prices and so on. These factors are decided for you and are generally consistent across the brand (think about certain global fast food franchises and how their products are pretty much the same size and quality all over the world).
On the other hand, not having to make all those decisions can make running your business much easier. You can also expect the franchisor (the person or organisation that owns the brand) to provide the training you need to successfully run the business.
Some of the more well-known franchises include fast food outlets, lawn mowing services, supermarkets, dental clinics and optometrists.
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What do I need to consider if I’m thinking of buying a franchise?
If you’re thinking of buying into a franchise, it’s a good idea to talk to other franchisees first, and find out what their experiences have been. It’s also worth doing some research on the brand:
- visit the premises during working hours
- find out what fees you’ll need to pay (usually there is a franchise fee, plus an on-going fee for the right to use the brand name, research and development of products, and support), and what support you can expect in return
- ask to see the “manual” which provides the franchisee with information about running the business
You should always seek legal advice before signing a franchise agreement- after all a lot of your money is at stake. Make sure that you understand the details of the franchise agreement before you sign it, to make sure it is fair and that you are aware of your rights and obligations e.g.
- Whether there is a minimum performance level (e.g. how much profit the business makes) and what would happen if you don’t meet them.
- Are there restrictions on which suppliers you must purchase your ingredients or equipment from?
- Will you have exclusive rights to operate the business in the area, or can another franchisee start up across the road from you?
- What fees you would have to pay.
- Who is responsible for fitting out the premises?
- Whether you’ll be able to do your own local advertising.
- Can the agreement be renewed at the end of the term?
- Under what conditions will the franchisor have the right to terminate the agreement? If this happens the franchisee could lose all of the money they have put into the business.
- How disputes will be resolved.
- Any restrictions on whether the franchisee can sell the business and to whom.
- Who chooses the site for the new office or shop, and what happens if the site turns out to be an unprofitable one?
More information and advice about franchises is on:
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What do I need to know about renting premises for my business?
Your rights and obligations as a commercial tenant (as well as those of the landlord) are contained in the Deed of Lease between the Landlord and Tenant– so it’s important to read and understand the lease before you sign.
The lease document should include things like:
- the term of the lease, whether you would be allowed to sublet the premises, and whether you will have the right to renew the lease at the end of the term.
- whether you will be required to personally guarantee the lease, to back up your business’ lease
- how often the rent will be reviewed
- what kinds of business activities will be allowed on the premises
- whether any car parks are included with the premises
- what kinds of repairs and maintenance the landlord will pay for, and what you (the tenant) will be expected to pay for – the lease may allow the landlord to recover the cost of some types of maintenance from the tenant.
- whether you can have the interior refitted and who will pay for it
- who will be liable for the cost of repairing consequential damage (e.g. if a window breaks, rain gets in and destroys part of the carpet)
- whether you will have to change the premise back to how it was when you moved in, if you move out.
Many commercial lease agreements are based on this template from the Auckland District Law Society.
You might also want to find out about the building’s earthquake rating, and ask the landlord for an estimate of what you would be expected to pay aside from the rent (e.g. contribute to the cost of marketing a retail centre the premises are in).
It might be a good idea to have the lease agreement checked by your lawyer before you sign it.