Updated: Jan 7
The timing is right, and you have decided to set up your own business. You have thought about what your going to do, who your going to target and what your going to offer. So where to now?
Step One: - The Structure
The first thing you will need to do is work out if you are going to trade in your own name, which is known as operating as a sole trader, OR set up a company and trade via a company structure.
When you are first starting out and now sure if being a small business owner is for you or you want to test the waters first, then the simplest, fastest and cheapest method is to set up as a sole trader. A lot of tradies (electricians, plumbers etc) set their business up as sole traders.
The disadvantage with being a sole trader is that any profits are taxed to you as an individual with little tax planning opportunities. Companies have some additional tax advantages over being a sole trader.
The first thing you should do is set up your Australian Business Number (otherwise known as an ABN) as your invoices to your clients will need to include the ABN. If you do not expect to turnover (or invoice) more than $75,000 in a year, then you can apply for an ABN and ignore the GST registration. If you expect to invoice or turnover more than $75,000 in a year, then you will also need to apply for GST registration.
To apply for the ABN simply click the link [ https://www.abr.gov.au/business-super-funds-charities/applying-abn ], all you will need is to answer some questions and provide your tax file number. At the end of registering for the ABN, should you be required to apply for GST registration, you will be asked if you wish to apply for the GST registration. Simply click YES and proceed with this registration.
The second thing you should do is think about a business name or trading name. The trading name should be something that describes what you do (Jim’s commercial plumbing) and or what you do differently (i.e. Jim’s sustainable plumbing services). Should you wish to register a trading name, click this link [ https://register.business.gov.au/registration/type ]. You will be asked for you ABN which you will now have.
Your other option is to set up a company structure to operate from. If you wish to set up a company, you can contact ASIC and directly form a company or contact your accountant and they will attend to this for you. If you use your accountant, then they will take care of all the other requirements such as providing all the minutes of meetings, share scripts, company constitutions, applications for directorships and so forth. Also, your accountant will set up the company’s tax file number, ABN, GST and PAYGW registrations for you. It is always recommended to have your accountant attend to this so that all the compliance is set up correctly and it can all be ready within 3 to 4 business days.
To set up a company you will need to know the following:
- Who will be the director(s) and company secretary;
- Their full names, date of births, place of birth and tax file numbers
- The director(s) current home address(es)
- Who will be the shareholders, their full names, tax file numbers and addresses (if different to the directors)
Step Two: - The Bank Account
The next thing you will need to do is set up a new bank account for the business. If you have set up a new company to trade from, then you will need to set up the bank account under the company’s name and tax file number. If you set up as a sole trader, you should still set up a new bank account for all the business income and expenses to go into and out of AND not use your current personal bank accounts. This will mean that you can track your business income and expenses correctly and save time and costs of not having to determine which is private expenses and those that are for business.
If you set up a new bank account as a sole trader and have set up a trading name, then the name on the bank account can be that of the trading name i.e. Jim’s sustainable plumbing services. You should not need to provide your tax file number if you already have accounts with the bank.
Step two A: 2nd Bank Account
As an advisory I always recommend my clients set up a 2nd bank account, an online bank account that pay’s higher interest, for cash flow purposes. I recommend my clients deposit 20% of any income they earn into this account each time an invoice is rendered or paid to you. For example, say you sell something for $1,000 then you would transfer $200 from your main trading account (Step two) into the 2nd bank account (Step Two A). This money is to be set aside to cover the quarterly GST payments and or set funds aside for the end of the year for tax owning to the ATO. It’s a forced form of savings and cash flow management plan.
Step 3: - Cloud Based Accounting System
You should consider your options regarding a cloud-based accounting system like Xero or MYOB (just a few of the options out there) to run your business from.
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