Some of the most successful businesspeople I’ve seen have put it all on the line. At some point. To build the thriving business they have today.

So, the new policy announced by the National Party here in New Zealand had me intrigued.

Take out up to $20,000 from your KiwiSaver retirement plan to put into your own business start-up. When you’re unemployed. It’s called ‘BusinessStart’.


Investing in business?


The trouble with this plan, from an investing perspective is the risk profile.

I’ve been involved in new and smaller businesses for most of my life.

Of the 22 businesses I’ve started or invested into, only 10 have turned out profitable. And only 4 of those especially so.

I’m now in my mid-40s and have had only one period of around six months as a formal employee on payroll. In my entire life.

So, you can see, I’ve some experience in having to make a business work.

That’s how I know how difficult it is to get a new business going. Especially from a small capital base.

The main reason businesses fail? They spend faster they can earn. That $20,000 from your KiwiSaver can disappear into thin air if you don’t know what you’re doing. Or if your business plans don’t find a receptive market.

Statistics NZ figures show, after two years, only 37% of new business start-ups are still alive.



Investing in retirement


Contrast this 63% failure rate with the failure rate of publicly listed companies. A Reserve Bank of Australia report found this to be only 0.75%.

So your chances of losing $20,000 in one single new business venture, as opposed to being in many companies across a KiwiSaver growth fund, are very different.


Dick Smith (ex ASX:DSH) liquidation. Even publicly listed companies can fail, but the chances are much smaller. Source: Wikipedia


What’s more — by and large, most funds get managed by people with deep experience in analysing companies and their governance. In my own stock market investing, I spend a great deal of time considering the balance sheets and risk profiles of the companies I invest in.

And we share the particular companies we’re looking at here.



But there’s more to BusinessStart…


It felt like the mainstream media was helping KiwiSaver managers whack the scheme. One pointing out that withdrawing $20,000 could amount to $67,000 of lost retirement wealth.

This is disingenuous. Such investment managers have a vested interest in maximising their own hoard. And proclaiming the benefits of retirement saving.

But there is that issue around risk profile. $20,000 in KiwiSaver may go up and down with the market. Yet it’s not likely to disappear into a garage of supposed ‘hot products’ that you now can’t sell.

So, you see, the key in starting a business — as with investing in the financial markets — comes down to experience and skill.

BusinessStart does address this:

  • If you’ve lost job, you could get a $1,000 voucher to get some help from an accountant or financial adviser to create a business plan.
  • You can only access the $20,000 withdrawal if they sign off on your plan.
  • You can also get a tax credit for $10,000 — essentially making your first 10k in profit tax-free.
  • And the government will pay your company registration fee of $130.
  • Plus, if you need to employ someone, there’s JobStart, which could fund 10k of wages.


There’s some good thinking behind this


I’ve never liked the ‘lock-up to 65’ nature of KiwiSaver. It’s your money. You should be able to decide how to best invest it.

Especially in a country where you’re already taxed to fund universal superannuation.

The accountant/adviser voucher system sounds like a compliance headache. So you need a bean counter’s tick just to access your funds? Why not add a 15-page AML form too?

After more than 20 years in business, my experience is that anything that doesn’t produce sales or help customers is what holds you back. Dealing with advisers and the government is often in that category.

Business success is providing value to customers. Not ticking boxes.


How could this be better?


This is just another route in the cheese maze. Another attempt by lawyers turned politicians to create a new hamster wheel.

If you really wanted to incentivise people to create businesses, you’d look at the following:

  • Make the company tax rate much more competitive. So it’s financially more attractive to be in business rather than work for someone else. And trust me — it is for other reasons too!
  • Reduce the endless raft of compliance and complexity, so you don’t need to spend time on accountants, lawyers, or regulators. When you could be out creating value. And selling that value!
  • Solve the property rort in this country. Not only is housing cost and shortage a lead cause of poverty, it saps the capital of too many households. When you’re up to your eyeballs in rent or mortgage payments — how do you start a business?

We’ll be dealing with the property rort in upcoming dispatches.

For now, there’s only one thing for sure. When it comes to KiwiSaver, what does make sense is investing $1,042 per year into your fund. For that the government will add $521.

That’s a 50% return. And you’d be hard pressed to beat that in the market or in the early stages of your own business.

But this is just another piece of cheese in the maze.



Simon Angelo

Editor, Wealth Morning

(This article is general in nature and should not be construed as any financial or investment advice.)