Do you want to become a sole trader with long term success?
We have a few tips to help you get started!
If you have a great idea or an original product? Do you have a clear idea about who your customers will be and what they want? Are you prepared to deliver knock out service? If you answered yes, then you have the potential to be a successful sole trader.
But if you want your business to grow and be a success, and not become one of the 60% of small businesses that fail within their first 3 years, there is some preparation work you should cover before you go any further.
We explore 3 steps – plus a few extra little tips – that will help put you on the right path to success
Why be a sole trader?
Registering as a sole trader is a great option for people wanting to start a small business. It’s the simplest and cheapest business structure to set up with very few obligations, unlike other business structures. Being a sole trader is perfect for someone who plans to manage and run a business by them self. You don’t need to do separate company tax returns because you can include all your business expenses and outgoings in your personal tax return.
What do you need to do, to become a sole trader?
Technically, all you need to do is register as a sole trader and get to work. But there is more to it than that if you want to start your business on strong footings and a sound strategy.
1. Do your research
Become a sole trader without doing your research first and you may as well shoot yourself in the foot.
The world of business can be tough and unforgiving. Don’t be offended, but there is a chance that your great idea is neither great nor original. And there’s a chance the service or products you plan to provide won’t have high enough demand or will meet with stiff competition.
Of course, it is disappointing if you discover your dream idea is already covered by others or there just aren’t enough customers to make you a reasonable, long term income. But it is a positive, important discovery if you find out these details before you start your business.
If your business idea is not viable, the worst thing you will ever do for your sanity and your bank balance is to continue on regardless.
So, before you do anything else, get moving on some serious market research – and don’t gloss over any negative findings or feedback.
- Start by asking friends and family for a brutally honest opinion about your idea. Have samples or give an example of the service you will provide so they have a real understanding of what your business concept is. Do they know any businesses similar to your idea? What is their opinion of them? Listen carefully to the good and the bad. This will help you make educated decisions as you move forward.
- Research your competitors as well as existing services or products that have similar concepts as you. Find out as much as you can online and in person so you have a good idea of how they are operating and communicating to their market. Through doing this research, you should establish what you can do that’s better than them. Why will customers come to you instead of your competitors? If you don’t have an answer for this, you have a problem!
- Establish who your target market is and whether or not the numbers add up to make your business viable. Are there enough target customers who can easily access your business – and where are they? How will you communicate to your customers? Check out how your targeted demographic prefer to receive information about businesses.
Three very cool posts on that here:
- If you need equipment or technical help, you’ll need to source suppliers and assess the terms, costs and practicalities of leases and services. Seek out referrals and make sure you make the best choice for your business that don’t require lengthy commitments. You may well have a very different view of what’s best for your business in a years’ time.
Does this all sound daunting? Don’t worry – it really isn’t
Once you begin your research journey, you’ll find yourself on an exciting learning curve. The more you learn, the more confident and prepared you become. Based on your learning and new info, you’ll probably adjust your direction or incorporate new ideas to make your business stronger and make it ‘fit’ better to customer needs and demand.
A business idea should be organic, it should evolve and grow with your growing knowledge of the field you are working on. Your business plan should evolve along with it.
2. Create a business plan
When you intend to become a sole trader and go into business for yourself, anyone you contact to support, invest or contribute will want to see the business plan behind your idea.
Your business plan needs to explain what your business will do, the goals you have set, how it will reach them, how it will be funded and when you expect to make a profit from it.
Your business plan should contain:
- Introduction – The business profile
- Vision – The aim of the business
- Customers – Who are they?
- Feasibility – Will it work and how
- Time frames and goals – When each stage will start and how long before you make a profit?
- Production equipment, vehicles etc. – What will you need?
- Marketing strategy – How will you get customers to your door or website?
- Funding and investment – How will you fund it?
Keep your business plan brief, to the point and informative. The reader should be able to grasp a full understanding of your business in just a few minutes.
It’s good to understand that a business plan isn’t just to help you get up and running with a clear path of where you intend to go, it’s a very useful tool to help you through the many stages of your small business. For more about how to write a winning business plan, our sister business, Etax Local, have a great post here: How to write a business plan for your small business
3. Business registrations and Tax
When you become a sole trader, you have different tax obligations to when you were an employee. The good news is; you can also claim your business related expenses on your tax return.
First of all you’ll need to:
- Register for an Australian Business Number (ABN) which identifies your business.
- If your business is likely to make a gross profit of $75,000+ in its first year you will need to register for Goods and Services Tax (GST). Note: If you plan to work in the ride sharing industry, you’ll need to register for GST immediately, regardless of how much income you make. Read more about the do’s and don’ts for ride sharing drivers in our post “ATO crackdown on ride-sharing drivers”
As mentioned, numerous business related expenses can be claimed as tax deductions when you become a sole trader. However you should keep good records of ALL your income and expenses.
- Salary/wages from all income sources
- Managed funds
- Rent from rental properties
- Income from letting a room
Office and equipment
- Utility set up costs (if applicable) – power, phone etc.
- Tools and equipment – purchase, lease or repairs
- Tablet, computer and mobile phone expenses
- Work related software and computer accessories
- Business related equipment, maintenance and repairs
- Home or commercial office expenses (as applicable)
- Filing cabinets and bookshelves
- Desks, chairs and lamps
- Internet expenses (apportioned)
Clothing and protective gear
- Clothing with your logo on it
- Protective items and clothing (safety glasses, overalls, gloves etc.)
- Laundry/cleaning of work clothes
- Sunscreen and sunglasses (if you work outside)
- Training course expenses (if directly related to your existing business)
- Professional libraries
Travel and accommodation
- Car/vehicle expenses including parking, tolls, running expenses, fuel, km driven etc.
- Purchase or leasing costs of a work vehicle or a vehicle purchased in part for business use
- Travel and/or accommodation expenses (For example, if you need to visit a trade fair for stock)
Licenses, insurances etc.
- Union fees
- Licenses, permits and certifications (periodic, as required)
Marketing and tech expenses
- Marketing costs, including advertising, design, website development, printing etc.
- Signage design, printing and installation
- IT/computer services
And few other things to consider before you become a sole trader…
Put your head in the clouds
These days, cloud based technology really has taken the hard graft out of a sole trader’s record keeping and tax obligations. Software subscriptions from companies such as Xero, MYOB and Intuit provide user friendly yet impressively comprehensive online platforms for keeping track of business finances, reporting, invoice payment and much more. Add Etax Accountant’s streamlined online tax return to the mix and you can lodge your annual tax returns, quickly and simply, without the need to understand ever changing tax legislation and confusing calculations. Together we make a formidable team for your business.
If you’re considering leasing a work space, think really hard about whether you actually need to. Commercial rents and associated costs can be very high, and usually come with a long lease. This is a huge commitment for a fledgling sole trader. Unless it’s essential to work from commercial premises, its best to avoid them if you can work from home and/or provide a mobile service. If you really need a commercial space, consider looking into shared workshops, offices, meeting rooms, retail spaces or even weekend markets. These cut the costs and commitment considerably but still give you the space and commercial face you need.
Play it safe
Don’t underestimate the importance of insurance. As a sole trader you are personally responsible for all the liabilities of the business, so make sure you have adequate insurance for you, your customers and your business.
Keep your business agile
Be willing to change direction, rise to a challenge and move quickly when faced with opportunity. If you remain agile in business, your chances of success are far greater.
Agile businesses get things done and keep moving. They finish important bits and get into practice, then observe results, refine what they offer and how they work, and repeat. Agile business is a process that you can adopt. And it is an interesting topic for your own research!
Don’t give up your day job
Unless you are immediately rushed off your feet with orders that require your full time attention, it can be a good idea to continue working while you grow your business and client base. You retain a steady income which takes some of the pressure off you in the early stages. It also gives you a little freedom to experiment, without the odd failure crippling your bank balance.