Becoming Self- Employed in Australia
Australians have always prided themselves on their individuality and independence, even in the early days when achieving meaningful independence was almost impossible. Today, more and more people are moving towards independence in business, the number inflated in part by the number of new migrants who are bringing ideas, articles and skills to their new life in Oz.
Sadly, though, there is also an increase in the number whose self-employment attempts fail, many because of inadequate preparation when starting out on their own. This article tries to highlight the important elements in the set-up and early operating days and discuss ways of avoiding the possible pitfalls.
First And Absolutely Foremost
Be clear in your mind why you want to go out on your own. The idea of independence lurks somewhere in a great many of us but it doesn’t get much further than that. For those who want to press on, sit down with a pen in your hand and write: do this first bit of writing long hand, not on a computer, typewriter or other device. The results of this exercise must be ingrained into your being and holding a pen or pencil tightly helps to do that no end.
Write these things:
• What do I want to achieve and why?
• What are the various ways of achieving it?
• What are the advantages and disadvantages of each one?
• Why am I choosing the one I am?
We suggest that you should take at least a fortnight focusing on answering these questions. Don’t be afraid of altering your answers, an alteration now may well avoid disaster and disappointment later on. When you’re happy with what you’ve written see if you can find someone who is already doing what you want to do and get their views on where you might improve you starting document. Get the plan right and you’ll most likely get the action right and the result you want.
The Next Step
Start on making your dream a reality using the plan as the blueprint and justification for your action. For example, what trading method will work best for you? Should you be an independent sole proprietor or should you involve others, such as your husband or wife, your rich granddad or whoever. What will linking with them achieve? If you involve others, should this be in the form of a partnership or should you perhaps form a limited liability company?
Each of these structures needs documentation of various sorts. You need to set up different tax structures for each of these formats and, though the Australian Tax Office (ATO) has a bad name amongst those who only know the garbled stories they’ve heard, you will find that they and the Australian Securities and Investment Commission are most helpful; helping you get it right from the beginning means less work for them in the long run.
Just to go on with this structure question for a moment, many people are under the impression that forming a company means that your personal money is safe if the business fails; not so. If you are a director of the business you may be held responsible for its failure and have to make payment to minimise the impact of that failure. If the business is a partnership and one of your partners just takes off leaving the business in debt you, as the surviving partner, may find yourself paying his share as well as your own. If you’re an independent operator there may be no escape if things don’t pan out the way you wish.
So, whatever structure you end up with you need to do everything you can to make sure it doesn’t fail. One of the ways you do this is by sorting out how you’re going to operate under the Goods and Services Tax (GST) system. Just about every trading (buying or selling) transaction in your business is affected by GST in some way. If you sell something you must charge GST on the goods, if you buy something you must pay GST.
There are various mechanisms that can make this easier or harder. For example, if you register for GST you must keep a record of what tax you collect and what you pay and only pay the difference to the ATO.
You will also be liable to pay things like Worker’s Compensation Insurance premiums for anyone you employ, though you don’t need to pay it for yourself as a sole trader, but it would be best to insure yourself against as many risks as possible. It will also be to your advantage to build a small bank of money for your own use in certain circumstances such as time off for sickness.
At the end of each financial year, or another date agreed to by the ATO, you must prepare a set of accounts in the specified way and lodge them with the ATO. These accounts are legal documents so it is usually best to get an accountant or other registered practitioner to prepare them for you.
The last thing we need to talk about briefly is the question of what to do if things don’t pan out the way you had hoped. If this happens in your business, especially in the early days, don’t just ignore the danger signs and hope that it will be “all right on the day.” Acknowledge problems as they arise seek advice, act decisively. If worst comes to worst, there’s no shame in winding up your business and going back to something else. The horror comes if you just let things drift and you finish up with a business closed down by its creditors and you as a proprietor or director held personally responsible for paying many of the company’s debts.