The team at Advivo Business Advisors and Accountants outline some key considerations when starting your new business.
Starting your own business is an exciting step in life and one that requires significant planning and preparation to make sure it is done correctly.
Getting things right from the beginning is crucial to an early setup as it will pave the way for a smooth road ahead. This will put you in a better place to take advantage of any opportunities that come your way, making your business more likely to sustain long-term growth. Plus, your future self will thank you for having minimal to no mistakes to fix in the long run.
Establishing your business takes research and planning. If you take the time to understand what is required, you can make the best decisions for your business.
There are many elements to consider when starting your business, including the business structure that is appropriate for you.
Considering your business structure
Choosing the best legal structure for your business is important as each structure has different rules regarding issues such as tax, liability, succession, ownership and disposal of the business.
The structure you choose at the start of your business may not be the best structure for you in the future. Seeking professional advice from your accountant, solicitor or financial advisor is strongly recommended before deciding your business structure, as you will need to consider many legal, financial and tax issues.
Below are the four most common business structures and a brief explanation of each:
A sole trader is one individual who runs a business without partners or a company structure. This is the easiest and most inexpensive business structure. A sole trader has full control of the business, including ownership of all profits and responsibility for all debts.
A partnership is a common and relatively simple, informal and inexpensive way to set up or structure a business. It involves 2 or more co-owners participating together in a business. A partnership also requires an intention to make and share profits and an understanding that these co-owners act on behalf of each other in business.
Companies are expensive and complicated to set up. However, one of the biggest advantages of the company structure is that the liabilities of the company’s shareholders may be limited to their share capital. This means shareholders’ personal assets cannot usually be seized to pay company debts. As separate legal entities, companies rather than owners are liable for debts. However, establishing a company structure does include higher initial costs and ongoing fees. In addition, company losses cannot be offset against shareholders’ other income.
A trust is a legal relationship where a trustee (an individual or a company) carries on business for the benefit of other people (the beneficiaries).
Trusts can be expensive and complicated to set up – usually to protect the business assets for the beneficiaries. It is recommended you seek professional advice to support you through the process.
Meeting your legal requirements
It is important to know your obligations and legal requirements for operating a business.
The licensing, permit or registration requirements for your business will depend on your business type and structure, its location, and whether you employ staff. You must operate your business with the correct licences and permits. If you do not meet these legal obligations, your business can experience serious problems. For this reason, it’s important to seek legal advice before you start your business.
Getting the right licenses and registrations
To comply with the law, your business may need specific registrations, licences or permits to operate. These requirements are there to protect the health and safety of consumers and the environment, so penalties can be substantial for operating a business without them.
You also need to consider your tax requirements and register your business with the Business Registration Service or the Australian Taxation Office (ATO). Which taxes you pay will depend on the type of business you run and the number of employees you have.
You can an in-depth breakdown of your business’s rights and responsibilities here.
Capitalise on your Competitive Advantage
Generally, the most successful businesses are those that have a sustainable competitive advantage, that unique something that sets them apart from their competitors. It is important that you know what this is and capitalises on it promote it and most importantly protect it. That could be intellectual property, patents, code, systems and processes. This is extremely important and a whole new subject for another day!
So, where do you go from here?
Starting your own business is a rewarding experience, but you need to take the time to plan and understand how to make the best decisions in the start-up phase. It is especially important to get your documentation and structures right from the start, to pave the way for effective business dealings in the future.
While this article only scratches the surface, there are many resources out there to help inform your decision-making. Talking to experienced professionals can make your life easier and your business set-up smoother.
Advivo’s team of skilled Business Advisors and Accountants can guide you through your business set-up and will be there to see it through. If you would like to speak with one of them to better understand the options available, please contact us today.