How To Start A New Business

The decision to start a new business can feel both daunting and exciting. Our detailed guide will walk you through the steps involved in getting your business up and running in no time at all.

How to start up a new business1. Choose a business structure and get it set up

A business can operate under a number of different structures and they all have their pros and cons in regards to how much tax you pay, your legal liability and the ongoing costs. The most common structures are:

  • Sole trader – If you start a new business as a sole trader, you essentially “are” the business. Any profits are taxed to you personally and you are personally liable for any legal action brought against the business. It is the simplest structure to operate and has minimal ongoing costs.
  • Partnership – Similar to a sole trader, however profits are generally split between the partners and taxed accordingly.
  • Company – In contrast to sole trader and partnership structures, a company is a completely separate legal entity. This means that a company pays its own tax at the flat corporate rate and can be sued separately from its directors and shareholders. Most companies will be “Pty Ltd” companies which means that they are private (ie not tradeable on a stock exchange) and have limited shareholder liability. If you start a new business as a company, you will have greater accounting reporting requirements than a sole trader or partnership and must meet all the requirements of ASIC and the Corporations Act.
  • Trust – A trust structure is not a separate legal entity. Essentially a trustee (either a company or individual) operates the business in a trust in accordance with the trust deed, and then distributes the profit to the beneficiaries of the trust. The trustee can then decide every year in what proportion the profits are to be distributed, which allows trusts to be very tax effective in certain circumstances. For example if you had 4 university age children who were not working, you could distribute $18,200 of taxable income to each of them which would mean you pay zero tax on $72,800 of taxable income.

We recommend that you seek our assistance for the decision on what structure to use for your new business as this is arguably the most important step in the set up process and has the most impact from a tax and liability perspective.

 

2. Register for a TFN, ABN and GST

If you start a new business using a structure other than as a sole trader, you will need to register it for a tax file number (TFN). You will also need to register for an Australian business number (ABN) at the same time. Your ABN will allow your customers and suppliers to identify your business on the Australian Business Register (ABR) and it will also enable you to register for Goods and Services Tax (GST).

If you expect your business income to be $75,000 or more, you will be required to register for GST. Once registered, you will need to charge 10% GST on all taxable sales to your customers however you will gain the ability to claim GST credits on all applicable business expenses. All the above registrations can be completed on the ABR Website.

 

3. Register a trading name with ASIC

If you want to operate or advertise your business with a particular trading name, you must register the name with ASIC. This is a commonly misunderstood area. Let’s assume you set up a company called John’s Dog Cleaning Pty Ltd. If you want to advertise your business as “John’s Dog Cleaning” and want to drop the “Pty Ltd”, you will need to register the trading name “John’s Dog Cleaning” with ASIC. Before registering a business name, you should also make sure the name hasn’t been registered by someone else. You can check this by searching the Australian Business Names index.

 

4. Register your website address

Once you have your ABN, you should proceed to register an appropriate website address or “domain name” for your website. Keep it short and to the point. Also note that registering your domain name can be done before you get around to actually designing the website. You are simply reserving the address before someone else does. There are a number of companies that offer this service such as Netregistry or GoDaddy.

 

5. Apply for necessary licences for your business

Different business types have different licensing requirements, while some businesses require no licences at all. For example a mobile food truck will require vastly different licenses compared to a beauty therapy clinic. To check what licences may apply to your business, you should consult the Australian Business Licence and Information Service website and possibly even a legal professional for confirmation that you have all the necessary licenses in place to operate your business legally.

 

6. Open a business bank account

You will need to open a new bank account for your business. If you started a new company or trust structure, the bank account will be in the new entity’s name. Usually the bank will require a company certificate of registration or a copy of the trust deed to open the new bank account. They will also search the Australian Business Register to confirm your ABN is set up correctly and linked to your business.

If you opted to start your business as a sole trader or partnership it may be tempting to just use your existing personal bank account for the business. However it is recommended that you open a new bank account to maintain separation between your personal transactions and those of the business. Plus it will make bookkeeping infinitely easier by having a separate bank account for the business.

 

7. Get the necessary insurance cover

Being in business carries inherent risks as you are dealing with the general public and may also have employees working for you. Therefore, public liability insurance is generally compulsory as is workers compensation insurance for any staff you may employ. Other types of business insurance can protect you from a range of events and you should consult a commercial insurer or broker for further details to ensure you have adequate coverage.

But at a bare minimum, you need to ensure the public liability cover is in place. The last thing you want to happen is for a customer to injure themself whilst interacting with your business and you don’t have the required public liability insurance to protect yourself and your business.

 

8. Set up online accounting

It can be tempting to ignore this point in the excitement of starting your new business, however setting up your accounting system correctly from the beginning will ensure that your business starts off on the right foot. Without an accounting system in place it becomes much more difficult to calculate your regular GST obligations with the ATO, as well as making it a nightmare to manage payroll and superannuation for any staff you may have.

Accounting systems also enable you to keep your bank account reconciled as well as manage your debtors (ie keeping track of how much your customers owe you). By having accurate and up to date accounting records, both you and your accountant can use the the information to analyse your business and identify any areas of concern before they become major problems down the track.

The most popular accounting platforms at the moment are Xero and MYOB. We also recommend that you utilise the services of a good bookkeeper to assist you with getting your accounts set up correctly and also to show you how to best utilise all the features of the accounting package you select.

 

9. Start trading

And that’s it! Now you just need to do what you do best, which is running your business. While starting your business may seem like a lot of hoops to jump through, it is actually relatively simple and you could be up and running in a very short period of time. You just need to make that leap!

 

Of course if you feel the above is too complicated, we would be happy to assist you and walk you through the set up of your new business. Contact us for more details and let us help you get your idea off the ground!

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