Starting a new business can be one of the most exciting and overwhelming achievements that a person can experience. More and more Australians are looking to start new businesses in 2017, so it is little wonder that the term ‘side hustle’ has been trending so strongly over the last few months.
Getting your legal framework right the first time can save a lot of heartache after you begin trading. New entrepreneurs should tick off the following 5 milestones before they begin trading.
Decide on your business structure
The most common business structures are:
- Sole trader (ie running a business in your own name).
- Company (ie running a business via a separate legal entity).
- Partnership (ie two or more people running a business).
- Trust (ie a trustee runs the business on behalf of the trust).
Each structure has different advantages, disadvantages and set-up costs. It is important that you choose the structure that is right for you and what you want to achieve.
You should also speak to your accountant about what tax liabilities and benefits you might have under each structure.
Register your business
All businesses must register for an Australian Business Number (ABN) and receive that ABN before trading. You may also have to complete other registrations before your business begins trading, depending on the circumstances. For example:
- If you have chosen a company business structure, you must first register the company with the Australian Securities & Investment Commission and receive an Australian Company Number before registering for an ABN.
- Unless you are a sole trader, your business must also register for a Tax File Number (TFN). Sole traders can generally use their own personal TFN.
- If you expect to earn at least $75,000 gross by the end of the financial year, your business may wish to register for Goods and Services Tax (GST).
- If your business will employ people, your business must register for Pay As You Go (PAYG) withholding.
Obtain all required licences and permits
Some businesses must hold certain licences and permits before trading.
There is a very useful tool on the Australian Business Licence and Information Service website that will help you identify which licences and permits your business is required to hold before it starts trading.
You may also wish to make enquiries to find out how long each application will take to process, as this information will help you plan other start-up milestones. For example, you may want to delay taking on high-cost obligations (eg leases) until after the date you expect to receive your licence, so you are not paying these high cost items during your non-trading period.
Get your contracts in place
Your business will likely require (at minimum) a contract template for contracts between:
- your business and its clients;
- your business and its employees (if applicable); and
- your business and any independent contractors that will supply goods and services necessary to support your business’ activities.
Do not under-estimate the importance of having high quality contract templates in place. A well drafted contract is legally binding, clearly identifies the rights and obligations of each party, and operates to reduce the risk of loss, liability and disruption to your business. A poorly drafted contract may have the opposite effect on your business.
Know when to seek professional advice
Do not be embarrassed or afraid to seek advice from suitably qualified and experienced professionals – for example, a lawyer and an accountant – when completing the above tasks. Great professional advice is worth its weight in gold, and may not cost you as much as you expect.
Disclaimer: The above is not an exhaustive list of tasks that must be completed when establishing a business. This article as a whole does not constitute legal advice and should not be relied upon as such. It is a general commentary on matters that may be of interest to the reader. Formal legal or other professional advice should be sought before acting or relying on any matter arising from this communication.