Let's talk about GST & why it should be your goal to register rather than to avoid!

Nail technicians in NZ often cringe at the mere thought of GST.

We are taught it's something to be avoided at all costs, "just stay under the threshold and you'll be fine".

But I want to talk to you about why this is such a limiting belief, and why it's holding your professional nail business back.

Important note before we get started - I am in no way a qualified Financial Advisor, Accountant or other similar roles. I merely am speaking from experience in hopes that my words can support and motivate you to help elevate your business to its true potential, instead of allowing toxic industry standards to hold you back!

The backstory -

At the start of 2024, I set a goal for my nail salon business through applying the pricing method from the Path to Profit course that I would cross the $60k revenue threshold and need to register for GST. At that point in time my revenue for the 2024 financial year (24FY) was $52k - so I wasn't that far off, but it also wasn't super imminent.

As the months passed, I diligently would check in Xero (my preferred accounting software) to see what my 12-month revenue was, and how close I was getting to my goal. But, as it loomed closer, I started to revert to my old thought processes and think about what I could do to avoid getting too close to the threshold. And for a few months, I scraped just under, and thinking this meant I was successful but...

It couldn't be more opposite! I'll tell you why soon, but I can now proudly say as of 10/12/2024, I have surpassed my goal and am now a GST registered business.

A little more context around GST -

The current threshold as a business operating in NZ to be required to pay GST is $60,000 revenue in any 12-month period. Revenue is the total amount of money your business receives, before any single cost or tax.

I did a little bit of research and found that this value has not been reviewed since 2009 - and before this, it was reviewed approximately every decade from 1986.

The inflation (general CPI) from 2009 to 2024 was 46% - which means, something that cost $1 in 2009 now costs $1.48 today - and putting it in nail tech terms, a $50 manicure in 2009 now should cost at least $73, $23 extra just to cover general inflation.

I did the maths for the GST threshold too - and feel the need to add a trigger warning in. It clearly demonstrates why we as sole traders struggle with the GST threshold.

If the GST threshold had been increased relative to inflation as above, it should be around $88k, meaning our businesses should be generating an additional $28k revenue before we even need to think about GST.

Ideally, the GST threshold will be revised soon, but in the mean time we cannot keep avoiding it. It is important to tackle this cost of doing business head on, to ensure it is not coming out of your own back pocket.

Why avoiding the GST threshold is holding your business back -

There's no doubt that the GST threshold is severely outdated, and sole traders are the most impacted.

Here's the thing though, if you are avoiding the GST threshold, you are also limiting your business revenue to be less than $60,000 - and therefore critically limiting your personal income.

For larger businesses this threshold is blown out the park with their revenue, but for sole traders, GST can be a much larger burden affecting our income. The current Living Wage in NZ translates to $56k annual salary - which should be the minimum profit we make, not the revenue. But an individual operating as a sole trader who generated $60k annual revenue would be required to pay up to $9k GST - and be left with only $51k. THEN all the expenses come out... and you'd be lucky to end up with an end of year profit of more than $30k.

Working full time for $30k a year translates to about $16 per hour (with 36 hour work weeks).

This right here is why we cannot keep trying to skirt under the GST threshold, and why we should be aiming to make much much more!

It is common practice for nail technicians in NZ to not be GST registered. I've explained how this is a concern for your hourly rate, but it is also detrimental to the industry, because it means the market rate service pricing is 15% lower than it should be.

The general story goes something like this.

Nail techs will start out with their price list excluding GST, and then when the time comes to register, they worry about the impact of 15% price increase (especially when they are not making the profit they should, so every client lost is a major impact to the financial viability of the business), and ultimately will believe their clients will not pay the increased rate. The only solution to this issue is to then find creative ways to avoid the threshold on paper.

This is not recommended, and does not show your potential the respect it deserves.

Your skill and hard work is worth WAY MORE than $60k annual revenue.

So I got to thinking... what if we had all just included the GST in our pricing from the start? And while we were still establishing a solid client base, the 15% could be set aside to help with tax bills and investing into our businesses, until such time that we passed the threshold to register?

This is totally how it should have from the very beginning, and while it's a little too late for us established techs, we can do the hard work now, so new nail techs entering the industry are much better set up for success!

The Greek proverb says: "A society grows great when old men plant trees in whose shade they know they shall never sit."

We can do our bit now to not only improve the future of our individual businesses, but also of the entire NZ Pro Nail Tech Industry!

A better way to think about GST -

Our mindset around GST needs to change!

All GST is, is that we are essentially caretaking some of the NZ Government's money - it was never ours, and we are just looking after it until it is time to complete our GST return and pass it on to the IRD.

Once you separate from the idea that you are paying your businesses hard earned revenue to the Government, and instead are just caretaking what was never yours, it gets a lot easier to plan for and tackle headfirst!

There is some good news though - as a nail tech, we can claim back GST for any of our business expenses that include GST. Because we are currently a lower profit industry (due to the expense of high quality products, tools, set up, rent, etc), there are more costs we can offset our total GST returns.

Any business cost including GST you pay passes on that portion of the GST you were caretaking to that business, and now it becomes their obligation to pass this on to IRD.

For the 24FY, my product and operating costs were 62% of my revenue, so I can pretty safely assume that from here on out, 50% of my revenue will be GST free! So, even though GST is 15%, due to many of my expenses including GST, I can very safely set aside 10% of my revenue to contribute to my GST returns.

I have created a separate suffix in my business account, and every single week when I review my finances, there is now a new step in the process where I will transfer 10% of my revenue into this suffix, before any other revenue management!

If this sounds a little complicated, and you want to be absolutely certain you are covered, setting aside the full 15% will be the best approach - and then you will have some extra $$ saved!

I would recommend practicing setting aside funds for GST right away, even if you aren't GST registered. This will encourage good habits, and will allow you to have a healthy buffer in your account for any unexpected business costs, or even investing in growing your client base!

But, if you really want to get the ball rolling, enroll in our Price for Profit course (2025's new and improved version of the Path to Profit) where you can build your pricing from the ground up, ensuring you can pay yourself your goal wage and account for every single business cost, including GST.

How to register for GST and successfully implement it for your salon -

Now that I am really in the thick of it, we can work through this together & perhaps I can motivate you to join the #GSTRegisteredNailTech club!

What I have already done:

• Monitored my 12 monthly revenue within Xero using the Profit and Loss Report

• Engaged with my accountant who has now registered me for GST and changed the necessary settings in Xero

• Reviewed my booking system settings (I use Timely) to reflect that GST is now included in the service pricing and will show on the invoices/receipts.

• Created a separate bank account for GST so I can be certain the funds I need will be set aside safely.

• Added an additional step into my weekly budgeting and revenue management where I transfer 10% of my revenue for the week prior into the above-mentioned suffix.

What I plan to do asap:

• Review my service pricing and implement a price increase early 2025

• Review business operating costs and optimise/reduce unnecessary spend

  • For example - I currently allow my clients to PayWave their payment for no additional fee. I really should build this into the service cost or decide to no longer offer it as a payment option - absorbing this cost is not a necessity for my business.

  • There will be more of these... but I won't know for sure until I review them!

What I will need to do in the future:

• Review my 10% GST concept on my first GST return - because I have never set aside money for GST specifically before this week, I should have the perfect amount saved, if not more in the designated bank account. If I don't have enough, or seem to have way too much, I will review the actual % my GST return vs my revenue for that period.

  • It's important to note that months where you have higher expenses you may have a lower GST return and vice versa. December is a lower expenses month as I usually have pre-prepared for the product I need, and I am so busy in salon I don't have time to buy anything else (or even think about buying anything else). So... it's likely the return I'll do in February 2025 could be the highest % of my revenue it would ever be. I'll definitely update you on this when the time comes!

If you have taken the time to read this far, I am super impressed! It's a lot of information for me to hurl at you, and I know I can ramble...

For so long the conversation around business finances in the nail industry has been "avoid at all costs, just think about the pretty things!" - but, you are capable to tackle your businesses finances! Don't let anyone tell you otherwise.

I am always here to chat - Instagram is the best place to get a speedy reply, but you can also email me too!

And, if this resonated with you like it does with me, I really hope to see you in an upcoming Price For Profit session soon! You can check out all the upcoming course dates, as well as more information here!

Right - enough rambling from me for one day!

We'll talk soon I'm sure

Steph xo