Self Employed for the First Time - What do I need to do?

Being self employed is rewarding and motivating, and a great way to build wealth.

Hopefully you have got yourself a great accountant before you even reach the interview stage, to help with budgeting to determine if the job is worthwhile! Before you sign the contract, you need the entity you are going to operate under set up – if that’s as a sole trader or partnership, then sign away. However, if you are going to operate under a company, you need the company set up first and to sign the contract under the company name. You can set up a company yourself on the NZ companies register, usually this takes at least a few days for approval, or you can get your great accountant to do it for you. When signing the contract there are a few things to pay attention to (please see our article on “Starting a new contract milking job”).

Once you have signed the contract, you will need to apply for an IRD number if you are trading under a partnership or company. Your accountant can do this for you or you can apply for one on the IRD website. You will need to take the IRD number and company incorporation certificate and extract (if a company) to the bank to set up the bank accounts. If you require bank lending you will need to start this process quickly as the banks can take up to 6 weeks to process new lending. You will need budgets, cashflows and stress tested scenarios which your accountant can help you with.

You need to organise milk, public liability, plant, machinery and vehicle insurance prior to starting the job. It is worth the time to get several quotes and go over these with a fine-tooth comb as some policies vary considerably. Make sure you understand what is covered and what isn’t.

You also need to register for the relevant tax types such as GST, and PAYE if you are going to be employing staff. Your accountant can also help with this. You should register for GST before you start buying equipment so that you can claim the GST. If you are employing staff, there are various providers out there however you want one that understands the industry as rosters other than the standard 5 on 2 off can be complicated for calculating annual leave. Paysauce is one we use a bit.

Your accountant will also set you up with accounting software, we use Xero however there are alternatives such as MYOB and Cash Manager. Ask your accountant to do software training with you, if you can do the GST returns it will save you a lot in accounting fees and will enable you to take ownership of your spending. Training is key here though, if your GST returns are not done correctly you will end up with a very large accounting bill at the end of the year.

Remember to keep receipts for all business expenses. If you prefer electronic copies, set up a dropbox (or similar) folder to store them all by month and year to make finding them easier. Keep a shoe box in the ute for those pesky little fuel receipts.

The first few months to first year can be difficult to get through so make sure you have done a cashflow to determine what cash you need. Most people have savings that they utilize as often the bank overdraft interest rate is very high. Alternatively, some structure their herd purchase for 31 May so that they can get the GST refund in June which is their cash buffer to get through winter. Other options involve setting up a Farm Source account and getting items deferred for a few months, however you need to be careful that you plan to have the cash to pay them when they are due. You could ask your farm owner for an advance to get through the winter that you repay in summer, if you don’t ask you don’t get!

There is a lot to organise before you even start the job so make sure you start early and ask for help if you aren’t sure. The facebook farming groups are great for practical advise and your accountant will be able to help lessen the load too.