Are you considering starting a business as a sole trader, but are not sure if it is really the right professional decision for you? Or are you committed to the idea of becoming a sole trader, but have no idea how you should prepare for the transition?
Well, you have come to the right place! Keep reading to learn more about the potential pros and cons of working as a sole trader, and exactly what you should be looking out for when starting your journey as a sole trader in Australia!
Pros of Working as a Sole Trader
There are many pros that come with working as a sole trader in Australia. These include:
- Sole trading businesses being simple to set up and operate (especially as you can register your business under your own name)
- Having fewer tax and business activity statement (BAS) reporting requirements when compared with larger entities (e.g. only reporting GST if your revenue exceeds the GST threshold, with BAS needing to be lodged on at least a quarterly basis)
- Having sole control over your business asset decisions
- Saving on costs such as payroll tax, superannuation or workers’ compensation
- Being able to change your business structure (from a sole trader) relatively easily
- Having less legal documents and set up to worry about (consider using an independent contractors agreement if you perform freelance or contract based work for clients).
Cons of Working as a Sole Trader
Before becoming a sole trader, you should also weigh up the cons of the profession. Such cons include:
- You are legally responsible for all aspects of the business. Debts and losses can’t be shared with other individuals, and your own personal assets may be at risk in the case that things with your business go wrong.
- Having little opportunity for tax planning, as unlike other business structures, sole traders are taxed directly from their personal income (treated the same as company profits) and there is no flexibility regarding the taxes you and your business needs to pay
What Should You Look Out For as a Sole Trader?
When it comes to working as a sole trader, there are also a couple of factors you should look out for – especially during the preparation stages of your sole trading business.
These factors include:
- Your business name. You should consider whether or not you want to register a business name, separate from your own legal name.
- You can operate your business as a sole trader under your own legal name.
- You can have multiple business names linked to your Australian business number (ABN).
- Insurance. As mentioned above, working as a sole trader means that you are personally liable for your business assets as well as losses. Purchasing insurance for your assets and revenue, and other types of insurance such as liability insurance and personal and workers insurance may be considered to give you a safety net when running your business.
Working as a sole trader can be both a rewarding and difficult journey. As a result, it is important that you weigh up the pros and cons of working as a sole trader, while also preparing yourself for the challenges and situations the profession may bring. By keeping the above advice in mind, you are sure to increase your chances of finding success as a sole trader in Australia!