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A sole trader is the most basic business structure there is. It\u2019s simple, cheap and has the fewest reporting requirements. While it has it pros \u2013 it has some cons as well.<\/p>\n
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How does it work?<\/strong><\/p>\n <\/p>\n <\/p>\n You can use your Tax File Number (TFN) to lodge your tax return as you normally do and everything gets lumped in with your normal income tax. So you pay tax at the income tax rate. To put that another way, you get taxed as an individual exactly as normal. It\u2019s just that you have (so to speak) some \u201cextra\u201d income.<\/p>\n <\/p>\n <\/p>\n You should consult an accountant as soon as you start so you know what records you have to keep, what you can claim and how you can claim it. Also find out when you should start to consider changing into a different business type for tax and other reasons.<\/p>\n<\/blockquote>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n Keep in mind<\/strong><\/p>\n <\/p>\n <\/p>\n You are the head honcho and you answer to no one. But you also can\u2019t share your losses, debts or profits with anyone else.<\/p>\n <\/p>\n <\/p>\n MAKE SURE YOU SET ASIDE MONEY TO PAY THE TAX MAN! Often you will need to do PAYG (Pay As You Go) quarterly instalments. You do not want to be stuck with a huge debt at the end of the year that you didn\u2019t see coming.<\/p>\n<\/blockquote>\n <\/p>\n <\/p>\n You have to keep your financial records for at least 5 years.<\/p>\n <\/p>\n <\/p>\n You don\u2019t have to have a separate bank account for the business but you really should. It makes tax time and keeping track much simpler. You will be amazed at how many little things are needed for even the simplest business. Paying it out of (or being paid into) a separate bank account is a huge plus when it comes to keeping track. It\u2019s also good for working out how much money you are really making.<\/p>\n <\/p>\n <\/p>\n You can\u2019t give yourself a wage (from the point of view of tax) but you should \u201cpay\u201d yourself so you know how profitable your business really is.<\/p>\n <\/p>\n <\/p>\n You can have employees but you have to pay their super and workers comp as well as their wages. There are other requirements as well. (Again, I would advise consulting an accountant for this). But sole traders can often find it difficult to retain really good employees as they are seen as more risky and limited kinds of businesses to work for.<\/p>\n <\/p>\n <\/p>\n Pros<\/strong><\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n Cons<\/strong><\/p>\n <\/p>\n <\/p>\n <\/p>\n <\/p>\n Some extra things to keep in mind<\/strong><\/p>\n <\/p>\n <\/p>\n YOU ARE LIABLE! (Just to say this again) Everything thing you own is at risk if something goes wrong and you rack up debts. You could lose your house, your car and your underpants!<\/p>\n <\/p>\n <\/p>\n Think about insurance. There is no workers comp for you. So if you break a leg on the job there will be no income coming in \u2013 but your business may well still be racking up expenses \u2013 expenses you are personally liable for. Depending on your kind of business, you should also think about liability insurance. Just to cover yourself against being sued or held responsible for accidents, damage or injuries. We have all heard stories about utterly ridiculous litigation against some poor bugger that left them penniless. Once again \u2013 You. Are. Personally. Liable!<\/p>\n <\/p>\n <\/p>\n Consult an accountant if you are starting out as a sole trader \u2013 or if you have never done so before. There are a lot of sole traders in Australia. Some sail through without a problem but some sink because of simple mistakes they couldn\u2019t have known about beforehand. Or miss out on all kinds of really good stuff.<\/p>\n<\/blockquote>\n <\/p>\n <\/p>\n It\u2019s the 21st century. <\/strong><\/p>\n <\/p>\n <\/p>\n Start with online accounting software on your first day. You might want to get someone to set it up for you (the same as any kind of accounting process) but once it\u2019s set up it does make life easier. Web based bookkeeping is straightforward, secure, backed up off site and you can add all kinds of extra \u201cplugins\u201d that can be added to it as you grow for all kinds of functionality to help you maximise income and save time and effort.<\/p>\n <\/p>\n <\/p>\n Start with online accounting software on your first day. You might want to get someone to set it up for you (the same as any kind of accounting process) but once it\u2019s set up it does make life easier. Web based bookkeeping is straightforward, secure, backed up off site and you can use all kinds of extra \u201cplugins\u201d that can be added to it as you grow for all kinds of functionality to help you maximise income and save time and effort.<\/p>\n <\/p>\n <\/p>\n A good accountant will save you money \u2013 so it\u2019s a good idea to use one. A bookkeeper is probably not necessary to start with but is something you should look into fairly early on. Time is money and wasting time on keeping track of incoming and outgoing money can drain your time like nothing else. Online bookkeeping is much easier than the old fashioned kind but it\u2019s still hair pulling if you aren\u2019t trained for it. And because you aren\u2019t trained for it you will probably lose money, pay more tax and miss out on opportunities that could have helped out your bottom line.<\/p>\n <\/p>\n <\/p>\n A word of advice about this. <\/strong><\/p>\n <\/p>\n <\/p>\n Keep meticulous records from day one. Don\u2019t say \u201cI\u2019ll do it later\u201d because you won\u2019t. At the very least it will make tax a nightmare. At worst it could get you into trouble.<\/p>\n <\/p>\n <\/p>\n Unless you are using your own name, you will have to register your business name. You need to have an ABN for this. Registering a business name does not mean you own that name. To have exclusive rights to a business name you will have to register it as a trade mark.<\/p>\n <\/p>\n <\/p>\n Also register the domain name for when you need a website (no matter what kind of business you are \u2013 you will need a website of some sort eventually). You can use it for your email address even before you have a website. mail@MeTheSoleTrader.com.au looks more professional, less fly by night and is a free plug for the business name for everyone who gets an email from you.<\/p>\n <\/p>\n <\/p>\n So has all this put you off the whole concept? It shouldn\u2019t. Most businesses in Australia, big and small, have started off as sole traders. Being a sole trader can be hard work but it can be very rewarding \u2013 not just in the monetary sense. So here is a final word of advice \u2013 give it a go!<\/p>\n<\/blockquote>\n <\/p>\n <\/p>\n Here are some resources that you might like to consult.<\/em><\/strong><\/p>\n <\/p>\n <\/p>\n Business.gov.au<\/a> have a page devoted to sole traders. They are also a really good resource for all kinds of help and information for small business.<\/p>\n <\/p>\n <\/p>\n They also have a page devoted to the difference between a company and<\/a> a sole trader<\/a> (including liability issues).<\/p>\n <\/p>\n <\/p>\n Here is some info on registering a business name<\/a> including costs (also has some handy tips on deciding on a good business name).<\/p>\n <\/p>\n <\/p>\n You might want to know what\u2019s involved in registering a trade mark<\/a>.<\/p>\n <\/p>\n <\/p>\n\n
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