So, you’re looking to start a business and not sure where to start? Starting a small business can be a life-changing decision and we are here to help you consider a few of the key factors to the decision before you jump in.
As part of this small article series, we will explore the pros and cons of a few of the common business structures we see in practice.
It can be common for many people going into business to start out as a ‘sole-trader’. A sole-trader basically means that you operate your business as an individual and are personally responsible for its operations.
Operating a business personally has its benefits but it is important to recognize that with benefits come potential risks. We have outlined the pros and cons of a sole trader business below for you to consider before heading down the sole trader path.
- Easy and cost effective to establish and administer
- Generally has fewer reporting requirements than other structures
- You have full control over business and investment decisions made
- You are taxed on profits generated at individual marginal tax rates – beneficial subject to level of profits realized
- Subject to eligibility you can access the various small business tax offsets and incentives
- Offering of a ‘personal touch’ what you provide can be more personal as it is seen to be coming directly from you as a person
- You can employee people to help run your business and conduct your business operations similar to that of other structures
- Its possible to change into a more advanced corporate structure as your business grows and develops
- You are legally responsible for all aspects of the business. This means that any liabilities incurred by the business become your personal liability, potentially exposing other assets you own
- Getting finance/loans can be a bit trickier compared to more advanced structures
- Any chance to take leave to get away or if you’re unwell, the day-to-day running of the business can suffer and therefore impact potential profits
- You are taxed as an individual on all profits generated which can lead to higher than necessary tax impost at times
Before deciding on the sole trader structure for your new business you should consider the alternatives. Choosing how you structure your business will affect things such as:
- Who can make important decisions
- The tax advantages and disadvantages
- How profits are disbursed and shared
- The legal obligations and costs
Our future articles in this series will summarise the pros and cons associated with other common business structures, namely:
If you would like to discuss how to structure your new business or consider the structure of your existing business, please contact the Davidsons team on 03 5221 6399 or at firstname.lastname@example.org for further information and to schedule a no charge meeting with one of our Tax and Business Services specialists.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article