Establishing a business as a sole traders is quick and easy. That is one of the reasons it is an attractive option for many. Running your business is simpler than with other company structures too. However, there is information that will help you and steps you need to take to increase your chances of success. (Image Credit: Obsahovka/Pixabay)
1. Setting Up
In Australia there are four steps involved in setting up as sole traders and getting things in place in terms of future tax returns:
- Apply online for an Australian Business Number (ABN) through the Australian Business Register. It is easy and quick. You must have an ABN that must appear on all the invoices you issue. If you do not, your customers are obliged to withhold 46.5% of the invoiced amount.
- Register a business name which can either be your legal name or you can create a name. If you opt for a business name, create one that is descriptive and memorable such as “Eddie’s Electrical”. If the National Names Index indicates that your chosen name is available, you must lodge your application with the Australian Securities and Investments Commission.
- Link your name and the business name by providing both and your ABN to the Australian Tax Office before you submit your tax return.
You only need to register for Goods and Services Tax (GST) if your business generates income of $75,000 or more.
2. Insurance
It is essential that you protect yourself from risk because as a sole trader, you are especially vulnerable without cover.
- Public Liability: Sole traders have unlimited liability. If you are sued for injury to a third party or damage to their property you could lose everything if you must pay damages and costs yourself. Public Liability Australia compares a range of insurance companies online so it’s never been easier to do a quick online comparison. Click here to start protecting your business!
- Professional Indemnity: This is like public liability in that it offers protection against legal costs and damages but it only applies to sole traders that conduct an advice-based business. This would include the provision of verbal or written reports or suggestions on which work will be based.
- Loss of income: There are several types of cover that fall into this group. There is Income Protection, Accidental Injury and Total and Permanent Disability (TPD) Insurance. These provide partial income payments for a short period or a lumpsum if you have an extended period when you are unable to work or if you can never return to work.
- Vehicle: You do not have to use a specialist insurer for cover for the vehicle(s), but you must ensure that you are covered for business use. Also, extras on your vehicle such as signage and fittings are unlikely to be covered on a standard vehicle policy
- Assets: There are various forms of insurance available that cover the costs of the loss of or damage to goods, tools, equipment and property caused by fire or theft. You can also insure money specifically against fire and burglary.
- Audit: This cover pays the accounting fees incurred if the Australian Tax Office carries out an audit.
3. Open a business bank account
Having a separate business account can help you to avoid the, “It’s my money I can spend it all” trap. Have an account that all your income goes into. Then, treat yourself like an employee and transfer your wages into your personal account. Similarly, pay all business expenses from the business account.
4. Save money
It can be hard to raise capital if you are a sole trader. It is therefore a good idea to set up a facility so that a set amount is transferred into a savings account each month. If income is not sufficiently regular, be disciplined enough to save as much money as possible as often as you can.
5. Manage your time effectively
Sole traders are 100% responsible for everything that does or doesn’t happen in their business. One way to make sure that things are not overlooked or neglected is to manage your time efficiently.
Use a planner of some sort and a diary so you can make a note of tasks, appointments, scheduled work, etc. It is easy to forget things, especially if we are busy and/or stressed. Dropping the ball will potentially cost you money.
6. Pay your taxes and accounts on time
You are legally obliged to complete and submit your annual tax return. In addition, you must keep careful records of all your income and business expenses so that you can support your claim for deductions.
Settle accounts by the due date and no later. By doing so you avoid being charged interest, additional fees, or some form of penalty.
7. Manage collections carefully
Do not wait for the end of the month to send invoices out to your customers. As soon as the service has been provided or the goods delivered, send out an invoice. Ensure that every invoice is accurate and complete; the date, your details including your ABN, the customer details, the services/products you provided, amounts, payment terms, and payment options.
Send the invoice by email rather than post and set your messages so that you receive notifications when your email has been received/read. If an invoice remains unpaid after the due date, send out a Final Demand letter. If you are really having difficulty, hand the account over to a Collections Agency.
8. Create a website for your business
All businesses need promotion and these days a website is an essential business tool. Customers expect a business to have an online presence. A well designed, effective website will bring customers to you. If you do not have the skills and/or the time to do this, retaining a specialist is a good investment in the future of your business.
Conclusion
This is not an exhaustive list. However, it should help to point you in the right direction if you are considering becoming a sole trader or have launched a business and require a quick refresher or some advice.