In Australia, you can choose any of the four small business structures – sole trader, partnership, company, and trust. Each business structure has its specific requirements, advantages, and disadvantages. So, before you choose the structure, it will be important to be aware of all these details. For example, if you plan on starting a sole trader business, you have to understand its pros and cons and the procedure to set it up. You must also know the process of paying tax as a sole trader. Read this blog to know all these details.
What is a sole trader business?
From the name, you can understand that a sole trader is a business run by a single person who does not have sufficient financial capacity to start a company or trust. This structure suits accountants, plumbers, bookkeepers, electricians, consultants, and freelancers. Owning a sole trader business allows them to do the following.
- They can handle all the work independently.
- They can enjoy full business responsibility.
- As the invested money is restricted, sole traders cannot easily grow or recruit staff.
What are the advantages and disadvantages of running a sole trader business?
You can enjoy the following benefits when you run a sole trader business.
- First of all, it is easy, quick, and involves fewer expenses to set and operate.
- You will have complete control over the business operations.
- Reporting requirements are fewer.
- Paperwork will be less.
- Government regulations and interference are also minimal relative to other business structures.
- Any business loss can be offset against another earned income.
- With the least staff in the office, you will not need to worry about superannuation contributions, payroll tax, or worker’s compensation.
- You will not need to disclose your business profits to the public.
- Above all, unlike other business structures, a sole trader structure is flexible and can be changed according to your requirements.
However, there are some disadvantages, too.
- While having unlimited liability gives more freedom over business operations, it can put both personal and business assets at risk at the same time.
- You have to pay tax on every business income.
- Regarding tax planning, you will not get enough opportunities.
What key factors must you consider before starting your sole trader business?
Before you launch your new sole trader business, consider the following factors.
Relative to a company or trust, you will need very little investment to start your sole trader business.
Whether you want full control on business operations
Before starting a business, asking this question yourself is important. If your answer is yes, then a sole trader is perfect for you.
Ease and speed of setting up
One of the key advantages of sole traders is that they are quick and easy to set up. If the ease and speed of setting up a startup are important to you, go for a sole trader.
Importance of keeping personal and business assets separate
Usually, it will be important to keep your personal and business assets separate for a larger business structure. But for a sole trader, you can operate your business without separating them. However, it will always be a good idea to keep track of these assets separately.
Liability and responsibility
If taking 100% liability and responsibility is not a problem for you, you can choose to start a sole trader. Note that it can also be stressful at times.
Profits getting taxed as personal income
For a sole trader, profits are taxed as personal income. Your business structure can be a sole trader if you are comfortable with it.
The limited scope of expansion
While you can always change your business structure in the case of a sole trader, there is a limited scope of expansion on a broader scale.
The limited scope of selling your business
Another downside of a sole trader business is that you cannot easily hand over or sell your business. You cannot even sell its stocks or shares.
How can you set up your sole trader business?
Setting up a sole trader business involves only four key steps.
Apply for an ABN (Australian Business Number)
First, you must obtain your Australian Business Number. The application form can be filled out online with the ABR (Australian Business Register). This filling up is easy and can be completed within 30 minutes. serdivan escort
Once you obtain your ABN, it can be used for all business activities and transactions. Note that if you cannot provide your ABN on the invoices, your customers can withhold 46.5% of payment.
Register a business name
Remember that your business is an entity, and so, it should have a legal name. Whatever name you choose, make sure it is memorable, catchy, and describes the kind of business you do. sapanca escort
Before deciding on the name, it is advised to look at the National Names Index to see whether the name has already been used. If you find your name available, you must lodge your application with the ASIC (Australian Securities and Investments Commission).
Link your name and the business name
As the business owner, you must provide the ATO (Australian Taxation Office) with your ABN and business name. karasu escort
Register for GST
If the annual income generated by your business is AUD 75000 or more, you must register for GST. You may consider taking help from a business consultant Perth for professional tips.
How to pay tax for your sole trader business?
A sole trader business owner can pay tax as an individual. For that, you will need your personal TFN (Tax File Number). akyazı escort
Your tax return must include all business income and allowable and legitimate business-related deductions. When your business completes one year, you will have the option to pay PAYG (Pay As You Go) installments at the end of each quarter, and these installments will constitute the total tax amount for a financial year.
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