Things I had to Consider
Have you wondered how to make the move from operating as a sole trader, to trading as a company? …..Because I did too, until JUST recently. As of July 2021 - Taputapu now operates as a company, instead of a sole trader!
Taputapu was under my personal IRD number, and it was comfortable. I wasn’t wheeling and dealing in significant amounts of money; therefore, there wasn't high risk in operating as a sole trader. Taputapu has traded as a sole trader for four years; so the identity of Taputapu was 'me'. I talked about becoming a company with my accountant, Jacks, and we decided that the first 2 years the right time. She suggested that I was ok as a sole trader. We talked about the pros and cons of each, and I agreed too.
As business grew and expanded into Taputapu Toi (our graphic design services), I saw growth happen slowly but surely. At the beginning of 2021, I had two employees (one administrator and one graphic designer). And through the year we started to work with more clients. In May, one of our biggest projects was branding and designing a report presented to parliament. This project was a big deal for Taputapu. It was around this time where I saw the need to become a company. Taputapu was no longer operating as an 'individual', and as it was expanding; and I realised it needed to detach from me.
I took the time to speak with my accountant again and I started to think about the differences between being a sole trader and a company. How I saw it, a sole trader is safe, it's an 'individual', and it works if that's your direction. However, a company, I see, has its own identity, it's no longer attached to the individual, and it holds its mana. After our conversation, my accountant agreed the timing was right and we set the date to make it happen.
When It All Went Down
In June, our accountant registered Taputapu with the Nz companies office. Shortly after I received our Certificate of Incorporation stating that Taputapu was now Taputapu Limited (a company), and sh#t got real. It was overwhelming, and doubt seeped in quickly. I started to question if I had made the right decision. It just seemed over my head. Luckily I had a month to transition; we signaled to IRD that we set our date for July 5th to start trading as Taputapu Ltd officially.
I had a month to transition, which was great because it took some time. I had to set up another business bank account, update files to the new IRD number, inform our clients that we were charging GST on our invoices, set up a GST/Tax bank account, and I had to get my head around it all.
What you need to know
I'll be honest, one of the things that put me off was organizing and paying GST. It seemed like another 'tax' thing that I didn't know. It took me about five months to get my head around PAYE, so to organize GST on top of that just seemed too much. Jacks reassured me that GST is all part of levelling up in business. Most people get put off by GST and Tax, and then I quickly realized that it's all part of the tikanga around being a company.
Here Are The Pros Of Operating As A Company:
- You as an individual are not at risk if the business goes under
- You are considered a 'company' rather than an individual
- Broaden the opportunities
- Considered more credible as a business
- You can claim your GST back
Let’s Talk GST
My GST is taken care of by my accountant. They calculate how much I owe every second month, and then I pay the GST to IRD. Super easy! I've set up a separate account for GST where every week, I transfer money into that account, and that money is set aside for paying my GST every second month.
Some advice from my accountant is; don't get caught up in the mindset of 'claiming GST back'. In her experience, small businesses will clock up high ticket items (work car, desktop, electronics etc.) knowing that they can claim the GST back. She said our mindset should be focused on clocking up the GST, which we may sometimes think is an added cost and a lot of money going out. However, if you can channel your focus on the GST, you are clocking up in invoices, jobs, sales etc. It means that you are growing your income instead of wasting your income on oversized items.
If you are thinking of becoming a company, here is what you need to think about:
- What are your business goals- how big do you want to grow? Where are you heading?
- How big is your capacity?
- What does becoming a company mean for you and your business?
- Identify the pros and cons.
- Do you have a good accountant to help you?
If you are considering to be a sole trader, I highly recommend it, especially to get you started. If you are currently a sole trader and feel like a company isn't where it's at for you, then that's fine; continue as a sole trader. There were times where I thought I had to be a company. However, a sole trader is perfect for small businesses and especially to understand how business works.
Running Taputapu and working in it everyday from home can get draining and so I try my best to keep a balanced lifestyle. In my next blog I will share with you how I maintain a balanced lifestyle to ensure I’m living a healthy stress free life.