Now we think it’s time for a wakeup call. Business is tough, business is hard and a lot of small business owners are working for little to no profit.
While we don’t want to be scaring anyone away from business, we think it’s best that you’re aware of the tough times ahead for any start up.
For example, a chef in employment decides to open her own restaurant and therefore, pocketing all of the money – or so she thought. She knows that she’ll need to pay for the fitout of the kitchen, tables, chairs, kitchenware, cutlery ordering system, branding, bond for the lease and all of the stock for the first week. No worries though; get a business loan to cover the initial costs and you’ll be able to pay this back pretty soon with your projected profit.
She’s had to hire staff for the kitchen, some wait staff and dish hands who are all mostly on minimum wage – so pretty cheap.
Opening night comes and she’s had a great response with all tables filled and some great cash rolling in. However due to being so busy, she’s had to hire another couple of staff and order more food than expected.
Month two, three, four roll around and she’s not as busy as her first month – must’ve been the opening excitement. She’s having trouble with a couple of the staff as well – so let’s them go.
Now not as busy, making payments on the business loan become harder and harder and making her mortgage this month is out of the picture.
She’s received a letter from the IRD saying she needs to file GST and Income Tax Returns for the year so she hires and Accountant. They get all of the work done, hand her two Income Tax bills (one for last year and one upfront payment for current year), overdue GST bills, oh, and their bill payable in two weeks. Now the business loan and mortgage may be a stretch this month.
Also, remember those staff members she let go a couple months back? She’s received a letter for mediation as the employees have filed a personal grievance for not following proper procedure. She had no idea about any of this – she was only hiring them to fill the gaps. A lawyer is engaged and they discover she’s used a template contract off the internet which was for a fulltime-permanent employees and not a casual as she’d expected.
She now ends up with her tax bills to pay, Accountant invoice, invoice from the Lawyer, having to pay the ex-employees some cash for winning their personal grievance case, business loan payment, mortgage, lease, wages and stock.
Two years in, the debt is mounting and she’s getting letters from the banks and IRD saying penalties and interest are accruing. She can’t make the wages payment and has to close the business and go back to employment.
As sad as this is, it’s happening to a lot of businesses out there but planning before you jump straight in the deep end is even more important that we can express through a newsletter article.
We don’t expect you to be able to build a perfect business model from scratch, but what we do expect is that you’ll take the time to have a chat to us first. We have a great team here at iif that deals with hundreds of businesses in different industries so let us use our knowledge and experience to turn your business into a successful, profitable one.