You have decided to start a business of your own! What next? Running a business of your own is not a child’s play, and not everyone is skilled enough to be a business owner. Not just this, starting a business itself is full of hurdles. However, provided with the right knowledge and resources, you can ace your business. As an outsourced accounting services provider, we want to provide you with knowledge regarding the accounting and taxation obligations of starting your own business, so let us delve into it –
1. Do your research:
Starting a business might sound very interesting, and your business idea might feel like the best business idea, but it might not be the case. It is important to understand the feasibility of the idea, whether there is actually a need for the product or service you intend to sell, or you can create a need for the same. Understanding the market, your potential customer, and your competition is winning half the battle.
In your research, you must do a cost estimation to understand at what rate you can sell your product or service, which can help you cover the cost and provide you with additional profit. You can always take the help of an accountant, as they can help you with budgeting and forecasting your business potential. After all, without profits, a business cannot survive in the long run.
2. Start Executing, first thing first – select a business structure:
Once you are certain about your business idea, its potential, and the pricing factor, you now have to finalise a business structure that suits you and your business. The structure you choose for your business is very important as it is not something you can change frequently. You must put a lot of thought into it as it will impact the level of control, the tax amount, legal obligations, and how much personal liability is at risk.
There are three kinds of business structures commonly used in Australia, each of the structures has its own advantages and disadvantages. The business structures are –
i) Sole Trader
In this form of business, you alone own and run the business.
Level of Control: High
Tax: Same rate as individual tax
Legal Obligation: Least as compared to others
Personal Liability: High
A partnership structure comprises two or more people that distribute income or losses among themselves.
Level of Control: Divided among partners
Tax: Partners are taxed on their respective shares of profit
Legal Obligation: Slightly more than Sole Trader
Personal Liability: Divided among partners
A company is an entity that has a legal existence separate from its owners and has perpetual succession.
Level of Control: Limited
Tax: Taxed at Company Tax rate
Legal Obligation: Most complex compared to others
Personal Liability: Not liable
A lot of consideration is required for business structure selection. You must learn about each structure and see what are the legal obligations for each structure. This will help you to avoid any legal consequences in the future.
3. Registering your business
First and foremost, you need a Tax File Number (TFN). It is required regardless of the type of business you intend to start. Secondly, you must register for an Australian Business Number (ABN) and Australian Company Number (ACN) in the case of a company. You cannot legally start a business without one. You must also register your business name as per the requirements of your business structure. ‘
Once this is done, you must register for all other relevant taxes like –
- Good and Services Tax (GST) if your business crosses the GST threshold
- Pay as you go (PAYG) withholding if you pay salaries and wages
- Payroll tax if the total wages exceed the tax-free threshold
- Fringe Benefits Tax (FBT) if you provide perks and benefits to your employees
There are several other taxes, licenses, and permits, or even trademarks that might be applicable for your business. This is why it is best to consult a tax advisor or even approach accounting firms online for advice. The good part is that you can even claim a deduction on this cost as a part of start-up expenses.
4. Setting up your Accounting Process
Accounting and bookkeeping are essential processes in a business, and so you must get familiar with some basics that will allow you to monitor your business finances. You must learn to organise your finances, and these two articles will be perfect for you if you are a novice in accounting and bookkeeping –
Starting your own business can be overwhelming. Additionally, all the legal and tax obligations do not make it any easier. We hope you find this article helpful in starting up your business. You can check out more articles to help you in the process of running your business, and if you seek expert advice, you can contact us to talk to our accounting and bookkeeping experts.