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Building a new business? Success starts with the right business structure…
Andrew Stubbs • Jun 02, 2019

Regardless of the industry you're in, the way you structure your business will have ramifications long into the future.  

From the amount of tax you pay to the administrative load and your level of personal liability, the consequences of your decision can be serious; and they may have a profound influence on the success of your enterprise.

It's vital to fully understand your options and put the necessary consideration into the most suitable one for you and your business.

For most small businesses, there are four basic choices. Familiarise yourself with each of the four structures and then ask yourself the right questions in order to determine which structure is best for your business.

The four basic structures for a small business

Sole trader

A sole trader business is where one person owns, operates, and manages the business. This is a structure used by tradespeople, shop-owners, consultants, and other small businesses with one main entity running it.

It is a common structure for small micro businesses. A sole trader is not considered a separate legal entity.

Partnership

A partnership brings together two or more people who jointly own and manage the business - but not as a company.

Each party contributes funding, labour, and skills to the business, sharing in the income and liabilities according to pre-agreed ratios as detailed in a partnership agreement.

Trust

Trusts are legal relationships where a person or persons (the 'trustees') hold property or income on behalf of a beneficiary or group of beneficiaries.

Trusts are commonly used in family-run businesses. The benefits include tax minimisation strategies, as well as succession planning opportunities to ensure the future of the business. 

Company

Companies are a legal entity in their own right, separate from their owners. A different tax structure and administrative requirements apply.

NOTE: Other business structures exist, however, as a small business owner, these are the four most widely used options. Always seek specialist advice before making your final decision.

Which aspects of your business will your decision affect?

There are six main areas of your business that will be affected by your decision regarding business structure:

  1. Finances including tax liabilities, superannuation, workers' compensation, etc.
  2. Legal controls and constraints
  3. Administrative burden and costs
  4. Asset protection
  5. Personal liability for debts
  6. Your ability to raise funds

Note: you can change your business structure if your circumstances change but it still pays to opt for the most suitable structure from the start. Changing from sole trader to another structure is relatively simple but changing from a partnership, company, or trust is more complicated.

Which business structure is right for you?

In order to arrive at the most suitable structure for your business, carefully consider the following questions:

What size of business are you creating?

If it's just you in the business for the foreseeable future, it's likely that sole trader status will be most favourable; but if you have rapid growth plans, forming a company may be more suitable.

As a sole trader, even though you are solely responsible for running the business, you can still hire employees.

You do not need to pay superannuation and workers compensation to yourself as a sole trader or partnership but if you form a company or trust and are employed by that entity, these payments are compulsory. There are different thresholds and coverage rules in different states, so you will need to seek expert advice for your unique situation. (ie. QLD does not cover directors, but NSW does).

Can you handle a complicated set up procedure?

The simplest and cheapest form of business structure to register is sole trader or partnership. They are generally quick and easy to set up.

If it's just you in charge of operating the business, you may want to avoid the complexities involved in setting up a trust or company.

How flexible do you need your business to be?

Sole traders enjoy greater flexibility of management and generally operate with fewer legal controls than companies, partnerships, or trusts.

However, they have less flexibility with tax affairs. There is no income-splitting option like there is with partnership, company and trust setups.

Do you want to keep admin and reporting simple?

If you're considering setting up a trust or company, the administrative and reporting requirements are more cumbersome than with a simpler sole trader set up.

Are you comfortable accepting full liability?

Sole traders retain all the profits from the business (unlike with a partnership, trust or company) but they are also liable for all debts. This can increase the pressures of running the business and even threaten your home and other personal assets.

Companies are more complicated and costlier to set up but your personal circumstances and preferences may mean you're more comfortable with not being solely responsible for debts incurred.  Only the assets of the Company will be at risk, however it is possible for a director's personal assets to be at risk if they are found to have acted negligently.

Will you need to raise capital?

As a company, trust, or partnership, it's relatively easy to raise capital. However, this becomes much more difficult as a sole trader, so you will generally have to rely on savings, home equity or family loans.

Are you comfortable relinquishing some control?

As a sole trader, you have sole control over the decision-making. As a partnership, trust, or company, decision-making will need to be a shared responsibility. Are you comfortable with that?

Need specialist advice on structuring your new business? Contact one of our advisors and we'll be happy to talk through your options in plain English!

By Andrew Stubbs 05 Jun, 2022
Here's some good news if your business sends invoices to business or government customers. Peppol* is on its way. (That's Peppol, not Peppa .) Ever had this conversation in your business? You or one of your team: "Hello, I'm calling to follow up the invoice we emailed to you last month. It hasn't been paid yet." Customer: "Really? We didn't receive that invoice?" In addition to the time and expense of following up, the cash flow delays create stress for you and they hurt your business. Thankfully, the adoption of Peppol will solve this problem. What is Peppol? Peppol is an obscure acronym for Pan-European Public Procurement On-Line. What's more important than what it stands for, is what it enables. Peppol is an international 'eProcurement' framework for the electronic exchange of information. It creates a standard approach for governments and businesses to structure and exchange information such as invoices and other documents. What Peppol means for you and your business Peppol makes electronic ordering, invoicing and shipping between governments and private companies faster, simpler and more secure. This means your business will get paid faster when dealing with government and larger businesses. In 2019, Australia and New Zealand adopted this platform for e-invoicing which, when implemented, will make 'we never received your invoice' issues virtually impossible. The new e-invoicing system is more secure than email and provides many other benefits. Which countries are adopting Peppol? There are currently 40 OpenPeppol member countries: 32 countries in Europe plus Australia, New Zealand, USA, Canada, China, Japan, Mexico and Singapore. Each country has a Peppol authority. For example, in Australia that's the Australian Tax Office (ATO). Is Peppol already in use? Yes it is. For example, the SuperStream system in Australia-which many businesses are currently using to automate the payment of employee superannuation contributions-is based on the Peppol protocol. How does e-invoicing work? The system connects the accounting systems of all businesses and government departments via the secure Peppol network.  Suppliers generate sales invoices in their accounting systems which are sent to Peppol.
By Andrew Stubbs 04 May, 2022
If you're a director of an Australian company-or you plan to be-take 5 minutes now to read this article. All existing directors (and intending directors) of Australian companies need to be aware that the Australian Government has announced the introduction of a new mandatory Director Identification Number (DIN) system. (You'll notice the term director ID is also used for DIN.) This system is the initial step in the Modernising Business Registry (MBR) Program which has been established under the Treasury Laws Amendment Act which was legislated by the Australian Government in 2020. More information on the MBR program can be found here . What is the DIN system trying to achieve? The DIN aims to provide accountability and traceability of a director's relationships over time, across all companies and will provide information on a director's involvement in what may be repeated unlawful activity, including illegal phoenix activity. It should also solve the problem of false or fraudulent director identities. What are the key features? It is mandatory for all directors, foreign directors and alternate directors of Australian companies to hold a DIN. The DIN is a unique 15 digit number. The first 3 digits will be 036 which is the identifier for Australia. The last digit is a check digit to help with accuracy when quoting your DIN. Like your tax file number, you will only be issued with one DIN which you will hold for life - even if you cease acting as a director for any period. To obtain a DIN, you will need to prove your identity so you will not be able to hold multiple DINs. Other office holders (e.g. company secretaries) are not required to register. The director is responsible for updating the DIN records for any changes in personal information within 7 days of the change. The director must apply personally. The process cannot be completed by your accountant, lawyer, spouse or executive assistant. There are significant penalties for non-compliance. How do you apply for a DIN? Directors have 3 options for applying. You can apply online from 1 November 2021. To use this method, you must first establish your identity via myGovID (an app you download on your smart device which is different from myGov). Once set up, your myGovID will make accessing a wide range of government services easier. (It's not just for your DIN application). For information on how to set up a myGovID please go to https://www.mygovid.gov.au/set-up During the DIN application process, you will need additional information such as your tax file number (TFN) and your residential address as per ATO records. It would also be advisable to have other personal details such as bank account details, medicare card or a recent income tax assessment available in case these are required. You can also apply by phone ( 13 62 50 ). During the call, the operator will ask for the identity documents you would have used to obtain your myGovID (passport and driver licence) as well as the additional information listed above. These details will be confirmed with the records held on existing government databases and, assuming the details agree, your DIN will be issued. Or you can apply by mail, but this is not recommended because the process for doing this seems vague ("Write to us") which means you can probably expect a lengthy process of certifying documents and coping with the vagaries of the postal system. One of the other two methods would be a better choice. When will you need to apply for a DIN? Transitional arrangements will allow directors to become familiar with the new requirement. When you need to have a director ID will depend on when you were appointed as a director.
By Andrew Stubbs 07 Apr, 2022
If you're a small business owner, you're always on the lookout for better ways to go about routine tasks to boost growth and underpin reliability. So, yes, you have the will; now, what are the ways? What are those consistent routines you can instill that will have the most benefits? This article looks at the top 6 things you can do to help your business thrive. We're going to cover finances, goals, marketing, technology and you ! So, let's take a look… 1. Your finances are a scorecard … and a predictor Boil it all down and dollars in the bank are the report card on the health of your business operations. Surprising then that so many people don't really pay much attention to how much they've earned, nor how much they're likely to earn. As much as it might feel like a chore, reviewing your sales and financial projections and then using them to ascertain if you need business financing is a discipline worth cultivating . If you suspect that your cash flow is precarious, you should be checking out your options today. First metric to check: your credit score. If it is too low, you need to take steps to shore it up. Next, check in with your bank or finance broker about what loans are available. 2. Goal setting, goal achieving, goal celebrating So, if you're using current and future dollars in the bank to keep score, the next thing is to do something about it. This is where goal setting comes in. If thoughtfully set and persistently pursued, goals help you orientate your willpower and your energy at each moment of the business day. This is the hidden power of goals: giving you a good sense of direction and a way to channel your instincts towards wise objectives. Constantly checking in with your goals makes them a benchmarking tool to keep your business pointed in the right direction. Yes, just having goals helps. Actually achieving a goal helps too, of course! 3. Increasing the impact of your marketing Marketing is not magic. It is not a mystery. It is not an art. However, many less-than-reputable marketers will try to claim that it is. They do so to gain wiggle room to pad their invoices and cover up their lack of skill. What this means is that it is easy to waste money on ineffective marketing. The good news is that there are many low-budget marketing strategies that actually work to help grow your brand and reputation. Scout around on the internet and choose one or two new tactics. Deploy them and test them. If they work, double down. If they don't, try something else. If you can't tell if they're working, also try something else. Social media is the obvious starting place for these low-stakes experiments and the old classics of LinkedIn, Facebook and Twitter are where to trial them. 4. Bringing your business up to date technologically The ability of modern productivity and project-management tools to give small players the same capabilities as the big boys simply cannot be ignored. Harness them properly and they'll let your small businesses operate with the same productivity as the titans of your sector. And, if your business is in the services sector, the increased controls that business technologies can yield also lets you be highly agile - that's something the big boys can't do. So, ask yourself: are you taking full advantage of what's out there? Don't worry, the answer to this question is always 'no' - the field is simply moving too fast for anyone to be able to take full advantage. However, if you have a realistic view of your needs, then you have a yardstick to help assess all the solutions out there. When you know what you need the technology to do, then you can wisely choose what hardware, software, platforms and techniques to introduce. 5. SEO has changed and it is going to change again Google - indeed all platforms offering broad search functions, from Youtube to Facebook - are constantly altering and optimising their algorithms. This, in turn, means SEO practice must constantly evolve to keep pace. So, if your SEO approach hasn't been overhauled in a few years, the time has come to give it some attention. Do a review of best practice and score how you cater to SEO in your online presences. Yet, because the underlying concept of SEO has not changed, the corrective actions you need to take may not be major. Then again, they might be! It is better to know unpleasant news sooner than outright bad news later. 6. Download the right new apps The remote work trend has gone mega and this means mobile productivity apps are very much of-the-moment. See, you can get a surprising amount done with just your phone and tablet. And apps are how it all happens … plus connectivity and a full battery, of course! Usually, apps are best for keeping an eye on things, boosting effectiveness on the "busy" tasks and enabling you to give your stamp of approval to work that needs your say-so to progress. In general, these are not value-adding tasks, just the value-neutral tasks that get in the way of the value-adding tasks. Now, there is no end of apps out there. So, as always, don't bother looking until you have some idea of what you need. 7. You are the ultimate business tool Health is the single most important aspect to consider for anyone running a business. It's the non-negotiable factor that governs everything else you are capable of. To adapt a quote from Arnold Schwarzenegger, being fit and healthy is "a status symbol. It reflects you worked hard for it; no money can buy it. You cannot borrow it, you cannot inherit it, you cannot steal it". This means that you must get enough sleep every night (most people need 7 hours or more). This means a healthy diet must become your preferred way of eating. This means that you should exercise every single day (except when sick). This means you must give your mind a rest too . Meditation isn't some mystic monkish thing, it's simply the practice of letting your thoughts come and go while you - the observer - stay peaceful and undisturbed by them. Think of it like this, meditating is mediating your mind. Take stock, choose wisely, make small steps in the right direction In this article, we've talked about some improvements you can make to what you're already doing. You don't have to do all of these at once. Start with the one that seems easiest and then stick with it to see if it works. Remember, it's not always about big changes. Often, you can make major improvements in outcome by making small changes to input. Doing the little things better. So take stock, choose wisely and be sure to make those small steps in the right direction for success today, tomorrow and the next day.
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