Business basics for sole traders
So, you’ve decided to work for yourself, or expand a hobby into a career. You’re not alone – some 60% of Australian businesses are run by sole traders. But what are the first things you should think about to get your business off on the right foot?
You’re a sole trader if you are the only person involved in your business and you have complete responsibility for all aspects of it, including debts and losses. If this is you, you’ll be using your individual Tax File Number (TFN) when reporting your earnings to the Australian Tax Office (ATO).
You can appoint others to help you – such as an accountant – but if you actually employ people in your business, you may not have sole trader status and may have to apply for a separate TFN.
If you’re just using your first and last name, that’s fine – and there’s no need to register it anywhere. But if your business name has extra words, such as Oliver Smith Plumbing, or is something else completely, you’ll need to register it with the Australian Securities & Investments Commission (ASIC). But before you do that:
Your ABN helps identify your business in public records and facilitates interactions with banks, the tax office, and other government departments. Most businesses need an ABN to create invoices and purchase orders. It’s not always mandatory for sole traders to have an ABN, but it is required if you have to be registered for GST (see below).
The good news is that you can apply for your ABN and register your business name online at the same place, on the business.gov.au website.
If you think your business will earn $75,000 or more, you’ll need to register for goods and services tax through the same business.gov.au website or the Australian Taxation Office (ATO) website. Just to be clear, the $75,000 refers to income, not profit – and if you anticipate passing this milestone during a current financial year, you should register within 21 days of ‘realisation’.
The 10% GST you collect is reported to the ATO through your business activity statement (BAS), where it can be offset against any GST you incur in your business.
It’s not compulsory to have a business bank account as a sole trader, but it’s a good idea to separate your personal financial affairs from your business ones. You might like to consider one of the business bank accounts offered by Westpac2.
It isn’t compulsory to choose an accountant or financial adviser, but it’s a good idea. At the least their advice will help you claim the right amount of deductions you’re allowed to against your business, and determine at what frequency you submit your BAS.
How to find an accountant? One way is to simply ask around your friends and any business networking organisations you belong to, and check out any accountants that are recommended.
You’ll need to think about how to take payments, which could be with cash, through direct transfers into your bank account, by credit card over the phone, or using a portable EFTPOS machine. Generally, the more options you can offer the better.
You may also want to think about how to send invoices. If you hold an eligible Westpac account1, you can access and link your account to our handy online invoicing solution through online banking. Biz Invoice features a customisable invoice template, letting you generate, send and manage bills from your mobile or PC. It can help with invoice reconciliation too (transaction accounts only), and even provides the option to send slow payers automatic payment reminders.
Please note that if linked to a foreign currency account, Biz Invoice will not calculate GST or any tax that may be required in your customer's country. Payment of foreign currency account invoices can only be made using direct deposit via international transfer.
Good luck with your new venture. If you need any help with starting, running and growing your business, you’ll find plenty of assistance on the Help for your business page.
1. To be eligible for Biz Invoice you must hold a Westpac Business One Low Plan or Business One High Plan transaction account or a foreign currency account (other than in Chinese Yuan RMB) and be registered for Westpac Live Online Banking. Terms, conditions and fees apply. Before making a decision, read the disclosure documents for your selected product or service, including the Product Disclosure Statement and T&Cs, by clicking the above links and consider if the product is right for you.
The information in this article is general in nature; does not take your objectives, financial situation or needs into account; and does not constitute financial or taxation advice. Consider its appropriateness to these factors; and we recommend you seek independent professional advice about your specific circumstances before making any decisions.