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Sole traders need to obtain an Australian Business Number (ABN)
Registering for an ABN is simple and free of charge. It is done through the Australian Business Register. https://www.abr.gov.au/business-super-funds-charities/applying-abn
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Choose a business name.
While you can just operate as a sole trader under your own name as your trading name, it is worthwhile registering a business name. As a sole trader, you are permitted to trade under your own name however it is useful to link your ABN to a registered business name to create an identity among competitors and plan for future expansion of your business.
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You should register a business bank account.
Setting up a separate business bank account will simplify your accounts and make record keeping much easier. Mixing personal transactions with business transactions in your accounts is more likely to result in errors in your bookkeeping.
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Set up a functional bookkeeping system.
We recommend purchasing online bookkeeping software such as MYOB or Xero to keep track of your transactions. These programs are simple to use and can help you get paid on time and track your expenses accurately so you are not missing out on tax deductions at year end.
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Invoice immediately.
Timely invoicing can be of immense benefit to your business. It is better for your clients who may need to put the expense through an approval process and it is better for your business as it will result in quicker payment. It also reflects professionalism and punctuality on your part as a sole trader.
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If you operate as a sole trader, you are not a separate legal entity.
As a sole trader you and your business are one in the same so you will be responsible for any debts the business incurs and you will only have one tax return to complete which will be your personal tax return showing all your income from your activities as a sole trader and any other investments or employment.
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Get sole trader insurance.
Public liability and professional indemnity insurance are important forms of sole trader insurance, this will provide protection if you are sued over property or personal damage. Income protection and personal accident insurance should also be considered.
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You will need to register for GST when your gross income minus GST exceeds $75,000 (or you expect it to) within a financial year.
If you are required to register for GST you will need to charge an additional 10% in Goods and Services Tax on your invoices. You should also specify GST on your quotes and show the amount of GST charged on your invoices. You will need to report and pay any GST collected the ATO through a business activity statement (BAS) on a quarterly or monthly basis. You are able to offset the amount of GST collected with GST you have paid on your legitimate business expenses as a sole trader.
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You can have employees.
Sole traders can employ staff. If your business is expanding and you need to take on employees you will be subject to employer obligations such as providing a safe working environment, paying correct wages, entitlements and superannuation contributions. You will also need workers compensation insurance.
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You should engage a skilled bookkeeper.
Engaging a qualified bookkeeper to take care of your accounts and reporting obligations will free up your time so you can concentrate on the important aspects of your business. Customer service and marketing are crucial to the development of your business as a sole trader and if you stretch yourself too thin you may find your reputation suffers. Bookkeeping is a time consuming task that is often an after-thought. By engaging a professional you will ensure all your expenses are tracked correctly and you have accurate and timely financial information at hand to make decisions about your business.
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Discuss your business structure with a qualified accountant.
Operating as a sole trader is a simple and cheap way to set up a business and is a structure that works well when the business activity is small, simple and relatively risk-free. However it is important to seek professional advice as your business grows to make sure you are operating under the best structure for your changing business. Remember just because you start out as a sole trader doesn’t mean you have to trade as one always. In many circumstances a sole trader will eventually transition to a company, trust, or partnership structure as the business develops.