The moment you sold your first sugar-laden beverage from your makeshift lemonade stand was the moment that the entrepreneurial bug bit, and ever since that day you’ve been waiting for the right time to start your own business.
It’s very easy to get comfortable in a job that you could do in your sleep and with the salary that regularly lands in your account come rain or shine.
Like having children and so many other major milestones in life, the right time barely ever presents itself to you neatly in a bow. There are factors that might make a certain period in time more opportune, but at some point, you need to make a decision and just take the plunge.
However, before you start your business, we highly recommend some serious planning and preparation. We’re all for taking action, but it needs to be well-thought out each step of the way.
There are two questions you need to answer at the beginning of the planning process:
How should I structure my business?
The structure for your business has many implications including tax and liability, so it’s important to understand the different structures so that you can make an informed decision.
In Australia, the four most common business structures are:
- Sole trader: an individual operating as the sole person legally responsible for all aspects of the business
- Partnership: an association of people or entities running a business together but not as a company
- Company: a legal entity that is separate from its shareholders
- Trust: an entity that holds property or income for the benefit of others
Sole traders and partnerships are the quickest and easiest to set up, but you will be taxed at the marginal tax rate. You will also be exposed to unlimited liability which means being held personally liable for everything from accidents to debts.
A company or trust protects your assets in that they are separate legal entities from you as an individual. These two structures cost more to set up and you will need to jump through a few more hoops, but they do offer greater flexibility and security, as well as tax advantages.
Although you won’t be locked into one business structure for the life of your business, if you make the choice best suited to your business at the outset, it could potentially save you from spending additional time, effort and money to change it later.
The business.gov.au website provides more information about business structures along with a tool to help you decide which structure would be best for your business.
The tax implications of each business structure are explained in this video from the Australian Taxation Office.
How do I pay myself?
Even when you are working for yourself you need to be compensated. Your expenses will still have to be paid, regardless of who you are working for. It may not be the income you want right from the beginning, but the sooner you start your business, the sooner you can reach your financial goals.
The options for paying yourself include:
- Drawings from the business
- Loans from the business
Paying yourself a salary would make you an employee of your own business which is a much better option than just taking money out of the business whenever you want to.
These are only two of the many questions you will need to answer along the journey to launching your own business. The year is still young, so make 2020 the year that you put aside all your doubts and start your first business (hopefully the first of many).
Starting and running a business is both challenging and rewarding. We are here to make sure you and your business are appropriately protected and will customise a business insurance pack to suit the specific requirements of your business. Get in touch with us to discuss the benefits available with this insurance cover.
Important Note: All insurance policies have exclusions. Please refer to the Product Disclosure Statement or Policy Wording to decide whether an insurance policy meets your needs.