So you’ve decided to take the leap and start your own business. Congratulations! Establishing your company structure as a sole trader is a great way to get your business started.
Sole traders are known for being the most straight forward business structure but you still have a few things you to take care of to make sure you’re on the right track. Before you open for business, here are some key tips on how to get started as a sole trader.
Tax File Number (TFN)
Australians of working age already have an established TFN, but did you know that as a sole trader, you will file your business tax returns under your own TFN? It is critical that you have this information handy and make sure all your current tax returns are up to date.
Establish an Australian Business Number (ABN)
As a sole trader, you will need to obtain an ABN for your business. Your unique ABN will be used for tax purposes, claiming your business expenses, and can be used on your quotes, invoices or sales documents.
Register for Goods & Services Tax Identification Number (GST)
After establishing an ABN, you can then register for a GST. Please note that this is not automatically done when you’re setting up your business.
If you believe that your earnings will end up being over $75,000 a year, or if you are starting up a taxi or ride-sharing type of business, then you should definitely register for a GST.
If you believe your earnings will be less than $75,000 a year, you do not need to register for a GST. If you are unsure what your total earnings may be, there’s no need to worry. If you find your earnings do hit $75,000 a year, you can register at any time.
Public Liability Insurance
Protecting your business is critical. Every company needs to be properly insured to cover all that you have built. Public Liability insurance is designed to provide protection for you and your business in the event a customer, supplier or a member of the public is injured or sustains property damage as a result of possible negligent business activities.
BizCover has access to a network of insurance companies and can quickly provide you free, multiple quotes so you can compare policies without the need to ring around or visit multiple websites. Within minutes you will have options to choose from and can obtain coverage immediately.
Obtaining several quotes from different insurance companies will allow you to see not only the different coverage levels but also the cost of each policy. BizCover can make this process easier and faster. For more information regarding the benefits of Public Liability insurance coverage, please visit https://www.publicliability-australia.com.au/sole-traders-insurance/.
Budgets – Both Personal and Business
In the beginning stages of your business, it is challenging to predict the amount of revenue your business will be generating. It is important to establish a budget for your business that shows you how much you need to make each week and each month to keep your company in business.
Operating as a sole trader can mean that your cash flow differs from month to month, so be prepared for the times when your cash flow is weak, as well as when it is strong. A business budget will help you stay on track and monitor the progress of your business.
Although you are the owner, you will need to keep your personal and your business budgets separated. A well planned personal budget also needs to be developed to track your own cash flow. You will need to be able to quickly view your own income and expenses, and budget yourself accordingly.
Setup Super and Tax Savings
As a sole trader, you are responsible for your super and the super of any other workers you employ. You can’t rely on your super being automatically paid into your account like it was when you were an employee, you now need to actively pay it yourself.
It’s also your responsibility to meet your tax obligations. Tax isn’t automatically deducted from your invoice like it was with your employee salary. So, it’s crucial you set up a savings system (be it separate bank accounts or utilising an offset account), so you can save and plan for your tax obligations at the end of the financial year. By keeping your earnings separate from your everyday spending accounts, you can save for non-negotiable business expenses and super contributions.
Create Invoicing System
You do not want to lose track of your invoices! In the beginning, some traders start with just a spreadsheet and an invoice template but this doesn’t allow for effective tracking of your invoices. You will want something that is easy to maintain and that can easily be filled in even when you are busy. Consider investing in an integrated, cloud-based accounting software, as it can help you keep on top of overdue invoices and allows you to follow them up efficiently.
Record and Track All Income and Expenditures
Although you are a sole trader, you are still a business and your accounting process needs to reflect that. Recording and tracking your income and expenses is vital for cash flow, taxes and business planning. This is where the spreadsheet system can often fall down. Keeping track of all of your sales, invoices, purchase orders, expenses (including receipts), inventory (if applicable), business expenses from client entertaining to stationery, all need to be accounted for.
There is a myriad of opportunities open to sole traders, so make sure you speak to your accountant to ensure you’re maximising your chances to save.
Even though this is your business, you cannot do it all by yourself. There are only so many hours in a day! It’s important for your business (and your sanity) to have the help you need in place when you need it. Whether it is a bookkeeper or an accountant, it is better to consult a professional to ensure you have someone qualified to watch over important areas of your company. Find someone whom you feel comfortable talking to, who understands sole traders and can work with you to achieve your business goals.