Setting up a sole trader business: Know everything in detail

Introduction:

Are you the brave type, ready to go out on your own and set up a sole trader business? If so, you’ve come to the right place. Even if you feel a bit daunted by all this small business talk, fear not!

Establishing a sole trading business is one of the simplest ways to start your professional journey. Don’t worry; it doesn’t have to involve hours and hours of tedious paperwork.

In this blog post, we will guide aspiring entrepreneurs through the process of setting up successful sole-trader businesses from start to finish.

We'll share some things to keep in mind to help you run your sole trading profession smoothly. So don't hesitate; read ahead and prepare to join the ranks of entrepreneurs by setting up your own solitary venture.

What is a sole trader business structure?

A sole trader or sole proprietorship business structure is a structure where one individual handles all aspects of the company. This includes taking legal responsibility for any debts and liabilities, lodging sole trader tax returns, keeping records, and maintaining business accounts.

Sole trading businesses are generally relatively easy to set up and operate, with the only official requirement being registering the business name with the relevant authority in the country or state.

While offering an easy setup structure, these businesses may not be suitable for those who wish to create a multi-dimensional company or have multiple employees working on staff in their organization.

However, this structure can be an excellent choice for individuals who wish to operate a small-sized businesses, as well as offering certain advantages in terms of taxation regulations.

What are the benefits of establishing a sole trader business in Australia?

From a fast to easy setup process to a few legal requirements, a sole trading enterprise can be an ideal choice for many entrepreneurs because of the following benefits:

• Immediate setup

  Setting up a sole trading enterprise is relatively easy as it can be done almost immediately. All you need to do is register your business name with the relevant authority and make sure that you are compliant with any local laws governing trading in your area.

• Simple registration

  The registration process for setting up this structure is simple. All you need to do is choose your business name, select an ABN (Australian Business Number) and submit the relevant forms. This can usually be done online in just a few minutes.

• Tax offset

  One of the most important advantages of setting up a sole proprietorship structure is the availability of small business tax offset.

  This incentive from the government allows sole traders to claim an up-front tax deduction on their total income tax payable for the year, thus leading to reduced financial pressure and more resources for ongoing operations.

• Low cost

  A sole trader structure is usually much cheaper than setting up other business structures, such as a company or partnership. You don’t need to worry about expensive setup costs and can get started with minimal investment. This makes it an ideal choice for entrepreneurs who are just starting.

What are the drawbacks of establishing a sole trader business?

Starting a sole tradership can be attractive to many entrepreneurs due to the relatively low setup and management costs, but several potential drawbacks exist.

Being a sole proprietor means you are legally responsible for all business assets, debts, and liabilities. This puts your personal assets at risk as they may be used to settle any outstanding legal or financial obligations should something go wrong.

Another downside is that you can't do much tax planning while running as a sole trader. There's no ability to split business profits or losses with family members to reduce tax liabilities. You must pay all the tax on the income from the business yourself.

You may also be required to work long hours and manage many aspects of the organization on your own, which can make it difficult to maintain a healthy work-life balance.

Finally, as a sole trader, you cannot easily raise capital outside of personal funds, so you may be limited in terms of the projects and ideas you can pursue.

How to set up a sole trader business in Australia?

The process of establishing a sole proprietorship in Australia is relatively simple. Here are the steps you need to take:

Step 1: Choose the right business idea

• Choosing the right business idea is essential to setting up a successful sole trader business. Spend time researching and brainstorming ideas that fit your skills and interests. Ensure to choose an idea best suited for the local market and can provide viable solutions to clients.

Step 2: Research the industry

• Once you have chosen the best idea, the next step is researching the industry. This should include a thorough analysis of any competitors in the area and an understanding of any legal requirements that need to be met. This research will help you to create an effective and successful business plan.

Step 3: Draft business plans

• Creating a business plan is essential for any entrepreneur, regardless of the size of their business. Proper planning will help you to understand your goals and objectives as well as how you are going to achieve them. Use the research from step two to create an effective and comprehensive business plan.

Step 4: Check your funds

• Before you start your business, make sure you have enough funds to cover the start-up costs. This includes any registration fees and other expenses associated with launching your business.

Step 5: Register your business

Once you have all the necessary paperwork in place, such as a business plan and sufficient funds, it’s time to register your separate legal entity with the Australian business register to get an Australian Business Number (ABN).

An ABN is an 11-digit number that identifies your organization to the Australian Tax Office and other government agencies. You can approach our team of experts for seamless ABN registration.

The following requirements need to be met to get an ABN:

• Identity proof
• Details of business activity, including planning
• Address proof of the business

Step 6: Business name registration

• If your business name is different from your own personal name or you want ownership or legal protection of your business name, in such a case, you need to register your business name with ASIC. At CleanSlate, our experts are always available to help you you get your desired business name registered quickly and hassle-free. Once registered, your trading name will be protected from use by other businesses.



For this purpose, the following details are required:

• ABN
• Proposed business name
• Address of your organization
• Details of the sole trader, for example, date of birth
• Confirm your eligibility to hold the proposed business name


• You will also be required to pay $39 for one year or $92 for three years to register your business name. The ASIC should receive payment for your registration within 10 days of making your application of being approved.

Step 7: Register for goods and services tax return

As an individual taxpayer, you may also be required to pay tax at personal income tax rates using your individual tax file number. This is because, as a sole trader, you need to report your business income in your personal tax return file. There is no need for a Business Tax File Number (TFN).

You need to pay GST to the Australian Taxation Office if the organization run by you has a minimum GST turnover of $75,000 or more. This can be done by phone, online, or through your registered tax or BAS agent when you first register your business or at any later time.

For GST registration, you will need to provide the following information:

• ABN
• Business name and address
• Banking details
• GST turnover



Once you have registered, you will be issued a GST registration certificate. You can use this certificate to claim GST credits or refunds.

Step 8: Register for PAYG

• You will also need to register for Pay As You Go (PAYG) withholding with the Australian Taxation Office. This requires you to provide details about any payments that are made to individuals and businesses, such as wages, rent, or lease payments.

Step 9: Register for Trade License

• Depending on your business activity and location, you may also be required to obtain a trade license or other licenses that may be required in your state or territory. You can visitAustralian Business License and Information Service to check for your business's required license and permits.

Step 10: Ensuring compliance with Law

As a sole trader, you ensure that your business activities comply with all relevant laws. This includes the occupational health and safety (OHS) regulations and any other legal requirements in your state or territory.

Your business must also comply with the Australian Consumer Law and relevant industry codes. You can seek advice from a legal professional if you are unsure about these requirements.

Step 11: Apply for Insurance

• As a sole trader, you should also consider taking out business insurance. This will provide financial protection for your business in an accident or illness. You can compare different policies and find the right cover for your business.

Step 12: Promote Your Business

Once you have set up your business, it’s time to start promoting it. You can use various marketing strategies such as social media, email campaigns, or even word-of-mouth to get your business out there and build a customer base.

• You need to follow these steps to set up your sole trader business in Australia. By following these steps, you can get your business up and running quickly.

What are some things to keep in mind to keep running your sole trader business smoothly?

Running a sole trader organization is an exciting and rewarding venture, but it can also be stressful because of the number of things that need to be remembered.

To ensure everything runs smoothly, it is important to keep in mind five key points: staying organized, staying compliant, watching expenses, claiming deductions timely, and understanding your target market.

• Staying organized means keeping all documents and records up-to-date so that information can be accessed quickly.
• Staying compliant with relevant business regulations will ensure that your business runs legally and ethically.
• Watching expenses is also important as it ensures that your business remains profitable. It can be beneficial to create a budget and stick to it to keep track of spending.
• As a sole trader, claiming as many deductions as possible is a great way to reduce personal tax liability and ensure you're paying the right amount at the end of the financial year.
• Claiming deductions can be a powerful way to manage individual income and save in the long run. From personal super contributions to work-related expenses, it's important to keep track of everything that you may claim deductions for. The earlier these are claimed, the more money you'll save in the long run.
• For tax purposes, it's also important to understand your target market to classify your income and expenses correctly. Additionally, understanding your target market can help you with marketing strategies and campaigns and ensure that your products or services meet their needs. Being familiar with customer behaviour and preferences can make a significant difference in the success of your business.

Conclusion

Establishing a sole trader business is an attractive option for those hoping to turn their passion and skills into professional success. Running this type of business has plenty of benefits, such as having full autonomy over decision-making and controlling your income.

Still, some risks come with this business structure, meaning you should always stay on top of compliance.

With CleanSlate’s encouragement, help, and excellent customer service, you can be sure you start your sole trader journey the right way with all the essential details taken care of.

We understand that setting up a business isn't easy and can be overwhelming, so don’t hesitate to contact us today and make light work out of setting up your sole proprietorship in Australia.