Risks to using KiwiSaver money: adviser

A leading tax professional and business adviser in Dunedin says it is vital for aspiring business owners to understand the risks around using KiwiSaver money to start a company.

Under the National Party’s BusinessSmart policy, released yesterday, people who had been laid off after March 1 would be able to use up to $20,000 from their KiwiSaver to start a new business.

This was "to buy your kit, to make sure you have some working capital and to lower your taxes at the early stages as you start to become successful," National Party leader Judith Collins said.

Almost all New Zealanders had "one business idea or another", she said.

"... the best thing about small businesses is that they can grow at a much faster rate than big business. It’s hard for a big business to double its size. It’s not so hard for a small or sole trader to hire a mate."

Findex managing partner Scott Mason said for the right person with the right idea and opportunity — it could be the beginning of a solid new business.

But anyone taking this path needed to be aware of the risks around using KiwiSaver money in a new small business.

A KiwiSaver account someone had at the age of 35 would have a 30-year-time horizon and would go through multiple economic cycles.

That was a low to medium-risk investment, whereas a new business would be a much higher-risk investment.

"The failure rate for new businesses is quite high.

"You’re really need to have done your homework ... not just validated the business, cashflows, those sorts of things, but also done a little market validation to make sure there is actually an opportunity there."

It was important people received sober advice about whether their business idea had a chance before they depleted their KiwiSaver.

"We’re all overly optimistic about what we can achieve in the business world, which is why so many businesses fail within the first two years of starting up."

Under National’s policy people would receive a $1000 voucher to pay for advice from an accountant or business adviser before they were in a position to take money out of their KiwiSaver.

Mr Mason said $1000 was "nowhere near enough" to get a business idea off the ground.

The Regional Business Partners scheme — operated by New Zealand Trade and Enterprise with various chambers of commerce — offered $5000 "and that’s at least getting you close to it", Mr Mason said.

If he was advising an aspiring new business he would tell them to be aware of their target market, he said.

"Go and make sure the problem you’re solving actually exists. Make sure that people are truly willing to pay for that solution.

"It is actually making sure there is a true opportunity. That’s why it takes a little bit longer. I would, as an adviser, be really challenging the people who want to do this to go and do the research themselves."

The nature of the package meant it was most likely to appeal to people who had the skills to buy a few tools and create a job for themselves, Mr Mason said.

"I’ve been made redundant, I use the $20,000 to buy myself an old ute, a lawnmower and some gardening tools and I’ve become a garden maintenance person."

Included in National’s policy was that people who took money out of their KiwiSaver would be able to pay it back tax-free.