Are you looking to start a business as a sole trader? Do you want to make sure you start your journey as a sole trader on the right foot and as prepared as possible? Well then, keep reading! In this blog, we’ll teach you how to prepare for your sole trader journey so that you can increase your chances of success in your new profession.
Consider the Pros and Cons
As with everything in life, you first need to consider the pros and cons of working as a sole trader before making a decision on how you want to work as one. Understanding the pros and cons of working as a sole trader will allow you to take advantage of the potential benefits, and minimise the costs of the disadvantages.
The main pros of working as a sole trader include:
- Being able to use your own name as the business name without having to register separately with the Australian Securities and Investments Commission
- Being simple to set up and operate
- Retaining complete control over your business assets and related decisions
- Being able to use your individual tax file number (TFN) to lodge your sole trading tax returns.
- Not having to pay costs such as payroll tax, superannuation for employees and workers’ compensation (as you are not considered an employee of your own business)
- Being a relatively simple business structure to transition out of if you wish to grow your business or experience a change of pace
In contrast, the main cons of working as a sole trader include:
- Being personally liable – meaning all your personal assets are at risk in the unfortunate case that things go wrong with your sole trading business
- Having little leeway for tax planning (you are personally liable to pay tax on all the income earned from your sole trading business)
Be Mindful of Your Business Name and Trade Marking
Although you can use your own name to avoid having to register for a business name, sometimes a separate unique business name may be more preferable. In such a case, you will need to get an Australian Business Number (ABN) to apply for a business name.
It is also important to consider trade marking your business name, or any other names you use for your business to protect it from misuse by others. You can work with a trade mark attorney to ensure you take the correct and necessary steps to trade mark your business name and other intellectual property.
Purchase Insurance
As a sole trader, you will be responsible for all the liabilities of your business. This means that your personal assets are at risk. As a result, it is important to purchase insurance for yourself, as well as your business assets (e.g. work-related equipment) to provide yourself with a safety net in case things go wrong.
If you are considering becoming a sole trader, be sure to take the following steps to prepare yourself for the challenging but rewarding journey thoroughly.
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