Starting a new business can be an exciting chapter in your life but it’s important not to skip over the first few important decisions on your way to becoming the next Richard Branson, or Mark Zuckerberg.
In Australia, there are over 280,000 new businesses set up each year – hairdressers, coffee shops, tech start-ups and tradies. They all face the same start up challenges – Do you register for GST? Do you need a new bank account? Do you need to lease an office space? How do you finance start up?
The best business structure for you is not necessarily the same as your competition, or the entity a friend at the pub has suggested. It could be as simple as operating as a Sole Trader, or it could be via a Company or Trust. If it’s a Trust – do you need a corporate trustee or will an individual trustee suffice? These answers will be unique to you, your situation and the industry you will be operating within.
Changing a structure after your business has been set up can be difficult and costly, so it’s important to get it right the first time. Whilst some entity structures can be more costly to set up than others, it’s an investment in your future – the wrong entity can mean higher taxes, transfer fees and capital gains issues on sale.
There are important issues to consider, such as protecting your family home, minimising tax and succession. Stephen Covey, legendary writer of the 7 Habits of Highly Effective People (1989), always said to begin with the end in mind, and your end game is an important factor in setting up a business. Will a future generation run the business or do you intend to sell it? Considering this, what will you register as the business name? Do you even need a business name?
As accountants, it’s amazing how often we see poorly set up entities, which are costing new clients time and money unnecessarily. Just recently, we were engaged by a new client who was unnecessarily registered for GST, paying more to their previous accountant to complete BASs than they were earning.
Seeking professional advice from business professionals, such as your accountant, can help you run through advantages and disadvantages of potential business structures to identify the best solution, for your situation. Accru specialises in business start-ups of all sizes. Please get in touch if you would like to know more.
By Tim Lane, Accru Hobart
