{"id":872,"date":"2022-03-25T09:33:42","date_gmt":"2022-03-24T20:33:42","guid":{"rendered":"https:\/\/marketingwebsite.afirmo.com\/nz\/?p=872"},"modified":"2024-11-11T16:47:46","modified_gmt":"2024-11-11T03:47:46","slug":"paying-yourself-as-a-small-business-owner","status":"publish","type":"post","link":"https:\/\/www.afirmo.com\/nz\/resources\/paying-yourself-as-a-small-business-owner\/","title":{"rendered":"Paying yourself as a Small Business Owner"},"content":{"rendered":"

If you’re a <\/span>sole trader,<\/b> you are personally taxed on all the profits of the business whether you take the money out of the business for personal use or not. You therefore might use what\u2019s called the \u2018owner\u2019s draw\u2019 method. This approach allows you to withdraw money from business profits as you need it, but it\u2019s wise to set some aside for tax time. The profits of the business will be taxed when they are earned and your personal income tax bracket will be used to calculate the tax liability (after allowances and other tax adjustments). The Afirmo app will calculate these for you automatically.<\/span><\/p>\n

For those of you who are operating as a limited liability company<\/b>, the tax position is different to a sole trader. This is because the company is a separate legal entity to you, even if you own the company and are the only director. This separation is why you get the benefit of limited liability in the event of the business failing, unlike a sole trader.<\/p>\n

There are four main ways to take money out of the company: <\/b><\/h3>\n

1. PAYE Salary<\/b> \u2013 this is where the owner of the business (shareholder) sets themselves up as an employee (of their own company). The salary needs to be at a market rate for the work you do. The main advantage is that if you have a mortgage then the bank will want to see regular contracted income. The money that you pay yourself via salary is deducted as a business expense by the company.<\/p>\n

2. Shareholder Loan \u2013<\/b> often when people set up a company, they loan the company cash to get set up. This can be repaid without paying tax on the repayment. Many shareholders also borrow money from the company each year and therefore owe the company money at year end. This either needs to be repaid, treated as a shareholder salary (see next point) or you need to pay the company interest on the loan (to avoid a fringe benefit tax charge). Any loan repayments are not a business expense.<\/p>\n

3. Shareholder Salary \u2013<\/b> a shareholder does not need to pay tax via a payroll (PAYE) but can declare a salary at year end. If the shareholder has borrowed money from the company during the year the salary can be used to repay or reduce the loan. The shareholder salary is then treated as income in the shareholders personal tax return (and tax is paid using your personal income tax bands). This salary is also treated as a business expense.<\/p>\n

4. Dividends \u2013<\/b> when the company has paid all its costs (including paying the shareholder a salary if chosen) and still has a net profit then this profit is taxed at the company tax rate. The company is then free to pay a dividend to its shareholders (subject to other criteria that we can help with). The dividend is treated as income by the receiving shareholders (and may need to be taxed some more \u2013 if the shareholder is taxed at a rate higher than what the company has paid).<\/p>\n

The company route is more complex than the sole trader route but quite easy when you understand the rules. Afirmo can help with this.<\/p>\n

One mistake I see is business owners skipping their own salary, especially when they\u2019re just starting out. While this might feel like you\u2019re \u2018saving\u2019 money, it can make it harder to get an accurate view of your finances. Leaving out your salary might mean missing key data on expenses and overlooking important budget adjustments. Plus, paying yourself supports personal financial goals and makes balancing family needs much easier.<\/p>\n

Balancing business and personal expenses can take a bit of practice, but one useful approach is to keep a detailed list of monthly costs\u2014both business and personal\u2014and aim to have three months\u2019 worth of expenses covered in reserve. Business expenses may include salaries, utilities, and supplies, while your personal budget should cover essentials like living costs, mortgage or rent, insurance, and retirement savings. It might sound like a lot, but it ensures that you\u2019re prepared for any unexpected expenses or changes.\u202fSome of these personal costs can also be deducted against business profits in most cases! The Afirmo app will guide you!<\/p>\n

Keeping your personal and business finances separate is crucial. Mixing them can lead to compliance issues. My recommendation? Use separate bank accounts for business and personal transactions. This keeps your finances clear, and you\u2019ll thank yourself at tax time.<\/p>\n

Speaking of taxes, be sure to budget for both taxes and ACC payments, setting enough aside to avoid any last-minute financial pressure or penalties. The Afirmo app always shows you how much tax to set aside so you will not get any surprises!<\/p>\n

Another tip\u2014don\u2019t reuse last year\u2019s budget. It may seem easier, but it won\u2019t reflect the changes and growth your business has experienced. Updating your budget each year will account for economic shifts and ensure you\u2019re adjusting where you need to.<\/p>\n

Paying yourself consistently and fairly provides an accurate picture of your business\u2019s health, allowing you to plan with confidence for future growth. Setting up a rainy-day fund early on can make a big difference if unexpected costs pop up, too. And remember, even if it takes a few years for your business to become profitable, planning for your personal income needs right from the start is key to staying strong\u2014both financially and personally\u2014as your business grows.”<\/p>\n

How do I choose and register a business name in NZ?<\/h3>\n

How do you choose and register your business name in New Zealand?<\/p>\n

Choosing the perfect name for your business isn\u2019t just fun\u2014it\u2019s also a key part of setting yourself up for success.<\/p>\n

Your business name should be all about your brand.<\/p>\n

It\u2019s not just a name; it\u2019s the personality of your business.<\/p>\n

Think about your purpose, values, and how you want to be seen by customers. Your name should reflect those things, even if it doesn\u2019t describe exactly what you do. Over time, it will become associated with the qualities that set you apart.<\/p>\n

Your business name also needs to help people find you \u2014 especially online. In today\u2019s world, it\u2019s all about search engines and social media handles!<\/p>\n

Google prioritises names that include common search terms, so consider what words your customers are likely to search for. The easier it is to find you, the better.<\/p>\n

Of course, your name needs to be memorable too. It needs to be easy to read and pronounce, so that it sticks in people\u2019s minds.<\/p>\n

Clever wordplay, humour, or even pairing colours with objects\u2014like \u2018Green Gorilla\u2019 or \u2018Blue Frog\u2019\u2014can make a name pop. But remember, it still needs to fit your brand and speak to your customers.<\/p>\n

Once you\u2019ve brainstormed a few names, it\u2019s time to check if they\u2019re available.<\/p>\n

Start with a simple Google search and check social media platforms. You don\u2019t want customers getting confused by similar names.\u202fMake sure the domain name is available and the social media handle.<\/p>\n

After that, it\u2019s all about getting feedback from your target customers. Ask them what they think of the name, what it makes them feel, and whether they\u2019d remember it. It\u2019s important to test your name with people who fit your customer base, not just friends or family.<\/p>\n

Once you\u2019ve got the perfect name and have made sure it\u2019s available, it\u2019s time to register it. In New Zealand, you can do this with us here at Afirmo – we make the process simple and stress-free.<\/p>\n

And if you\u2019re thinking ahead, consider protecting your brand with a trademark. It\u2019s a great way to ensure your business stands out and remains uniquely yours.<\/p>\n

So, ready to make your business official? Let\u2019s get that perfect name locked in and start building your business dream into a reality.<\/p>\n

What is a NZBN Number?<\/h3>\n

I often get asked, \u201cWhat is a New Zealand Business Number?\u201d A New Zealand Business Number or NZBN, is a unique number for your business, that makes your business searchable and easy to find for customers, suppliers, and partners.<\/p>\n

Instead of having to share your business details over and over again, you can just quote your NZBN, and all the important information is right there. The NZBN register stores all this data securely for you and is easily retrievable.<\/p>\n

I also get asked \u201cdo I need to apply for one for my business?\u201d.<\/p>\n

Well, if your business is a registered company in New Zealand, you\u2019re all set\u2014it\u2019s issued automatically. But if you\u2019re a sole trader or in a partnership, you\u2019re eligible to apply, and Afirmo can help you get started.<\/p>\n

Here\u2019s what you need:\u202f <\/b><\/p>\n