New year, new business venture?
Starting a small business is an exciting time in your career. You get to be your own boss and carve your own destiny.
But while the euphoria of starting your own business is still very much there, it’s important to not get ahead of yourself.
Although being a sole trader is the easiest business structure, there are some pitfalls to look out for on your new journey.
Here are 5 tips to ensure the launch of your sole trader business runs smoothly and has a successful 2023.
1. Sort out the fundamentals first
It’s time to get to all that boring admin stuff that you’ve been dreading – we’re talking tax file numbers and GST.
Don’t worry! Once you get these things out of the way, you’ll be sorted for a while. For this first step, it’s a good idea to consider the advice of a financial professional to ensure you are starting your sole trader business in the best way possible.
Australian Business Number (ABN) – Firstly, you’ll need to get an ABN.
Your Australian Business Number (ABN) is your unique business identifier and is required for tax purposes.
It can be used to claim all business expenses and quote on invoices and other documents.
Register for one here.
Tax file number (TFN) – Sole traders will also need an individual TFN to register in Australia.
As a sole trader, you don’t need to operate under a separate business TFN and instead can just use your personal one. The reason for this will become clear in the following steps.
You can apply for your TFN here.
Goods and Services Tax (GST) – Essentially, GST adds a 10% tax on most goods and services sold in Australia.
Depending on your situation, you may not need to register for GST.
According to the ATO at the start of 2023, sole traders must register for GST if they earn $75,000 or more in a year (minus GST), if they run a taxi or limousine service, and if you want to claim fuel tax credits.
For more information, click here.
- Consider how you’ll be paid
When you first start your sole trader business, it can be difficult to predict your income.
However, it is important to know how much you will need each week and month to keep you and your business afloat.
Adjust your living expenses to reflect your new earnings. Being a sole trader can lead to fluctuations in your cash flow from month-to-month.
Be prepared for both for the good times and bad and try to create a sustainable average salary for yourself.
Another thing to consider is how you are going to pay your superannuation.
Unlike being paid by an employer where it’s automatically paid into your super account for you, you are responsible to paying your own – and especially your workers – super deductions.
- Get started with an invoicing system
While most people start with a simple spreadsheet and an invoice template, it is important to have a trackable system for invoicing that you can use when you are busy.
You don’t want your invoices to go missing! Using a cloud-based, integrated accounting software can be a great option.
It will help you keep track of your overdue invoices and allow you to follow up on them efficiently. A time tracker can help you understand your time and show you where you need to improve.
Send your invoice immediately after you complete the work. It is best to send it by email, so that it doesn’t get lost in the mail. Invoices should contain all relevant information, such as the total cost, payment terms, and bank account details.
- Establish a bank account for your business
Another important tip to consider is whether you should open a separate business bank account.
Unlike companies, where the CEO’s finances are separate from the business, there is no legal distinction between a sole trader and their business.
This means that all finances – both personal and business-related – are included together in the eyes of the government.
Still, it is a good idea to consider separating your business account from your personal account.
Then you can always transfer your wages from your business to your personal account.
This will allow you to better manage your money and prevent you from dipping into your personal salary for business expenses.
It’s about drawing a line in the sand; a distinction between yourself and the business for your own benefit.
- Think about insurance for sole traders
Given the point above, sole traders often carry greater risk when operating a business.
If a customer slips and injures themselves or you accidentally damage their property, it could be your personal finances at risk.
This is why sole trader insurance is essential to consider as it provides an important safeguard from the consequences of risk.
One type of insurance for sole traders that is popular in Australia is Public Liability Insurance*.
Public Liability insurance is designed to protect you if a third party claims against you due to them getting injured or sustaining property damage as a result of your negligent business activities.
Get started today!
Starting a sole trader business is an exciting career move. But given how turbulent recent years have been, it’s important to start it out on the right foot.
Hopefully, this blog can help you grow your sole trader business in 2023 and beyond!
This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. © 2023 BizCover Pty Limited, Public Liability Australia is a business name of BizCover Pty Ltd (ABN 68 127 707 975; AFSL 501769)