NEW BUSINESS • 9 OCTOBER 2022 • 7 MIN READ

The cost of starting a business in New Zealand

Small ecommerce business owner at her desk with boxes of stock, her laptop open on her website and smiling at her phone

SECTIONS

1. Registration and incorporation fees

2. Permits and licenses

3. Business space

4. Professional service fees

5. Website

6. Insurance

7. Salaries

8. Assets and equipment

9. Marketing and Advertising

Taking your business into the real world is exciting. They say preparation is the key to success. To get your business running, you need to know how much money you'll need to get started.

Understanding the cost of starting a business in New Zealand is vitally important. It helps you to plan ahead and avoid future cash flow problems. Unfortunately, many business owners start fast without considering the initial startup costs, which leads to the business being unsustainable in the long run.

Your start-up costs are expenses before your business generates income. These can include, but are not limited to supplies and equipment, utility connections, insurance, and solicitor fees. Usually, those expenses will be included in your first year of deduction. The only expense that can’t be deducted is preliminary costs, such as reserving a company name with the company office before setting up the company.

If you want to start a business, you’ll need to do it right. In this blog, we’ll cover 9 common costs of starting a business in New Zealand.

1. Registration and incorporation fees

Choosing a business structure is one of the most important steps to getting your business started due to its financial, tax, and legal implications. In New Zealand, the common business structures are sole traders, company, partnership, and trust. The business structure you choose has an impact on the cost of registration.

Sole traders, for example, incur very minimal costs. In contrast, setting up a company can be more expensive with more administration. You not only have to reserve a name through the Company Office and pay a company registration fee, but also must pay the annual company fee.

2. Permits and licenses

You should either do your own research or consult a professional to ensure that your business operates legally. Depending on your industry, you will need different types of licenses and permits, and the cost for applying varies.

Here are some common licenses and permits you may need:

Professional licenses: These licenses may be required for the practice of medicine, law, accounting and more. The fees for getting these licenses depend on the industry, and you'll likely need to renew them after a period of time.
Business permits: For example, liquor licenses are required for restaurants. You will need to apply for the liquor licenses with the government. Please ensure you checked your license requirements before starting to sell the products.

3. Business space

Your rental or lease (e.g., retail, factory, office) could be the biggest expense when it comes to starting a business in New Zealand. But if you are a digital nomad or operate a home-based business, these expenses will be significantly lower. You’ll also need to factor in other expenses to pay for, such as utilities, maintenance, office furniture, equipment, and more. The costs for business space depend on the location and the size of the space you’re renting.

According to Colliers, the average rate per square meter for warehouse space in Auckland is $144 per square meter in 2021. And this is expected to increase due to the high inflation.

It's cheaper to rent a coworking space if you're just starting out. While it allows you to pay a fraction of the cost of traditional office space, it also covers furniture, utilities, office supplies, internet, and meeting rooms. The term of the membership is also flexible.

Also, there is an increasing trend of people working from home since Covid. To meet business people’s needs, there are open office areas to be rented on hourly basis. When you start small, but want to look professional and meet your clients at a proper office, this could be your choice.

If you operate some or all of your business from your home, you may be able to claim tax deductions for home-based business expenses. For more information, look here.

4. Professional service fees

You may not have enough expertise or time for some critical business functions such as accounting, bookkeeping, and legal, so you need to think about outsourcing them to professionals. Paying for accounting and legal services is an additional expense but it’s important for startups to get everything right in the early stages of the business. Otherwise, you may end up paying more (or saving less) down the line.

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5. Website

No matter whether you’re operating through a company or as a sole trader, a website is your digital storefront showcasing what services you offer, pricing and contact information.

Having a strong online presence is crucial in the digital age. There’re a few ways to build a professional website:

Hire a professional website designer: It’s more expensive to get a professional to build your website, however it takes the weight off your shoulders. The cost of hiring a website designer varies depending on what you need (e.g., how many web pages you would like to have). You can talk to a few professionals, see what services they offer and get a few quotes before deciding which one you should go with.
DIY using a website builder: If you’re tech-savvy and want to be cost-effective, you can choose to use website builders such as Wix, Squarespace - or Shopify if you want to start an e-commerce business. Expect to pay a monthly subscription fee to build a website. However, you should make the most of the free trial period before opting for a website-building service.

6. Insurance

When you’re just starting, your business’ risk may be low. However, it’s wise to consider paying for insurance from the beginning. The common types of insurance in New Zealand are public liability insurance, professional indemnity insurance, business insurance, and management liability insurance.

With a lot of companies having a strong online presence these days, there is also cyber liability insurance which will help you in the event of a cyber-attack. There is also tax audit insurance which covers a business for specified costs in the event your business is selected by the IRD for auditing.

There’s no one-size-fits-all approach when it comes to choosing insurance because not every business is the same. The amount you must pay depends on the nature of your business, industry, your risk tolerance, insurance provider and more. For example, a tradie may face different challenges and risks compared to a home-based business owner. It’s also vital to know insurance is compulsory in some industries.

7. Salaries

If you hire any employees to help you out with your business, you'll need to pay your employees. You’ll also have to account for superannuation, entitlements, benefits, commissions, bonuses, and overtime pay.

Depending on the employee's expertise, the salary can differ. The minimum wage in NZ is $21.20 per hour from 1st April 2022. However, if you want to attract the talent with the right skills you need for your business, the salary may be considerably higher.

If you operate through a company and hire employees, payroll software may also be helpful in this case since it can assist you in planning the costs along the way. Although not directly a salary, you’ll also want to ensure that your workplace manages the health and safety (WHS) of anyone who does work for you including customers, visitors, and suppliers.

8. Assets and equipment

One of the most significant costs for many businesses is business assets and equipment. Like other costs, the costs of assets and equipment are determined by the type of industry. For example, if you want to start a lawn mowing business, you’ll need to purchase a lawn mower, trailer, and truck to carry out the business. On the other hand, if you are planning to start a dropshipping business, you might not need to spend a lump sum of money on equipment.

A business loan or payment plan may help you to get started if you worry about not being able to afford the essential equipment for your business.

9. Marketing and Advertising

You want to get the word out when starting a business, whether through traditional advertising channels (e.g., radio, billboards, tv etc.) or digital marketing (e.g., Google ads, social media advertising or extra production costs for graphic design or videos).

You can also leverage other advertising and marketing tactics such as partnership, influencer marketing, event marketing and more. The cost of these tactics varies; however, your business will start to get attention and sales.

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