Starting a business
Starting A Business…..
“People don’t plan to fail – they simply fail to plan”
Congratulations! Starting a business is a step towards financial freedom, flexibility and success. We hope that this information brochure helps you in your plan to succeed in a business.
“The basics are necessary knowledge”
ABN – Australian Business Number – this is compulsory for all businesses and you must acquire one before you start. You use this number for all your business dealings.
TFN – Tax File Number – This is compulsory for all taxable entities. You will already have one for yourself but if you register a separate structure, it will need one also.
ACN – Australian Company Number – This is a requirement of ASIC for all incorporated companies; it must be displayed on all your public documents.
Business Name – If you use a business name other than your personal name, you will need to register it with ASIC or consumer affairs. Business names are used to promote and identify your business.
Registering for GST – You are only required to register for GST if your sales exceed $75,000 or if you are in the hire car industry. You have 21 days from the date you reach $75,000 to register for GST. However, a lot of businesses chose to register for GST regardless as they are then able to claim the GST they pay on things. If you are registered for GST you must complete and lodge your BAS (business activity statement) each quarter.
PAYG Withholding – If you have employees, you must register for PAYG Withholding and deduct tax from your employees’ wages, which you then pay to the ATO.
“Chose the right business structure from the start”
Business structures can be complex entities. There are many to choose from including sole trader, partnership/joint venture, company, family trust, unit trust or co-operative.
The right structure for your business can affect the safety of your personal assets, your tax position, the continuity of the business upon change of ownership and the registrations process you undertake. You may also need it to consider the legalities of your trade or profession or of your contract or franchise agreement.
You should contact our office to assist you with choosing the right structure and with setting it up correctly.
Here is a brief summary of the most commonly used structures:
You’re in business by yourself which is the simplest form of business structure
Establishment costs are generally low
There is no legal separation between you and the business and the liability for business debt is unlimited and could extend to your total personal assets
Relatively easy to cease operation and as the business grows you can progress to another type of structure
Profit from the business is treated as the owner’s personal income
Owner does not have to complete a separate tax return for the business
Your personal income tax return is used to report your business income and expenses
Business losses can be offset against your other income (e.g. Salary and Wages)
Your personal Tax File Number is also used for income tax purposes
Two or more people start a business and share the costs, profit and losses
Allows two or more partners to combine their different skills and resources
Liability for business debt is unlimited and could extend to the personal assets of the partners
To avoid future disputes between partners, a formal ‘Partnership Agreement’ should be drawn up by a Solicitor
A partnership is not a separate legal entity and does not pay income tax
Each partner pays tax on their share of net partnership profit. Losses can be claimed in the partner’s individual tax returns
Need to complete a partnership tax return showing the partnership’s income and deductions, and how the profit (or loss) was shared
Must have its own tax file number
Limited Liability Company
Shareholders own the Company and are appointed to run the business
Shareholders can also be Directors and employees, as in a family business
Allows you to distance yourself financially from the business and limits the liability for debts to the business assets – not your personal assets
Director(s) have additional legal and financial reporting obligations
Is a separate legal entity that pays income tax on its profits at the 30% Company tax rate, while the owner is taxed on their salary and/or Directors fees
Compliance costs are generally higher and record keeping regulations are generally more onerous
‘Personal Services Income’ rules may apply if you are a consultant or contractor
Must have its own Tax File Number
The business is transferred to a third party (trustee) who has legal control and duty to run the business for the benefit of the beneficiaries
Hold property (capital) for specified beneficiaries
Trust Deed sets out the Trust’s powers and formalises it’s administration
Can be difficult to dismantle
Lodges its own tax return
Has its own Tax File Number
Beneficiaries are entitled to distributions of income and / or capital
Beneficiaries pay personal income tax on their income distributions from the Trust
Flexibility of income distributions
“Keep great records of your success in business”
There are many reasons for keeping good business records; however the most compelling is basically that it is a legal requirement.
The ATO requires you to keep record of your income and expenses for 5 years so being organised to begin with is a key success.
“Electronic or manual systems”
Either! Whatever works best and is easiest for you. Depending on your knowledge, experience and business you need to select a method of bookkeeping that suits best and works. It is best to speak to your accountant to decide which is best for you. Our office accepts all forms of records from your invoices and receipts – excel summaries – Xero/MYOB/Quickbooks/Cash Flow Manager to bank statements! The most important thing to remember is keeping a track of all your expenses helps us keep your tax paid to a minimum.
“Have you thought of everything?”
As well as insuring your business premises and assets, you may require:
Public liability for your clients and visitors
Professional indemnity – if you provide a service
Product or asset insurance
Personal injury or income protection
Permits and Registrations –
Does your work involve councils or unions that require special permits?
Do you require licenses for liquor or food or music?
You may need to check your requirements with your local council, franchise agreements, contract agreements or any other legal legislation specific to your business.
Often when you run a business, paying your own super is your choice. Unless you are being paid ‘wages’ super is compulsory.
“Am I a subcontractor or an employee?”
A major focus for unions and governments in our new changing environments. If you are running your own business, there are some key considerations to define your status including:
Paying your own super and work cover and insurance
Being a separately identifiable entity
Working for more than one person
Using your own tools and assets
Being in control of the job and your hours
“How much tax do I pay”
Australian income tax law is complex and sometimes difficult to understand. Marginal tax rates vary from 0% to 46.5% tax on profit.
When you run a business, taxable profit is your income less any allowable deductions.
It all starts with planning and we are committed to helping you with all aspects of your business including taxation, management advice, finance and financial planning. We recognise that every business is unique and we tailor solutions to your needs and want to improve your profits and add value to your business.
Talk to us today because you’ll work with an accounting firm who are passionate about small business and your success.