Thinking about starting a new small business in Australia? It can be difficult to know where to even start.
We’ve created this simple guide. It’s a clear, easy-to-follow checklist for anyone who is thinking of setting up a new business, and wants some straightforward pointers to get them going in the right direction.
Please note, this is not a business checklist template. It’s only a guide.
Liston Newton Advisory can help you navigate the financial and legal requirements for starting a business in Australia. Contact us today to discuss your exciting new venture.
What to do before starting a business
The old adage, ‘proper planning prevents poor performance,’ (or whichever variation of it you’ve heard) is particularly relevant when setting up a new business.
It’s critical to determine where you want your business to go. Take the time to understand the industry you want to enter. Learn where your business will fit in, and stand out. Then, you need to create a well-developed business plan.
There’s no single plan that fits every business, so it really depends on creating a plan for your needs, that documents every detail of the steps you’ve taken. Some common types of business plans are:
- Start-up business plans. Outline the steps to take to bring your business to life. This should include a summary of your business, a list of the key business players, the product or service you’re offering, and evaluations of the market you’re entering.
- Operational plans. This is an internal plan that maps out key business deadlines, performance goals, and your employee and management responsibilities.
- Business growth plans. This is a detailed plan that maps out how your business proposes to grow. This will be provided to your internal management team, as well as any potential investors.
2. Structuring your business and personal assets
After you’ve created a detailed business plan that documents the vision for your business venture, the next step is to determine the most appropriate structure for your business. Your business structure can both facilitate and hinder your growth, so it’s important to choose the right one from the outset.
The two most valuable factors to think about when choosing your business’ structure are:
- Flexibility with tax minimisation strategies; and
- Asset protection.
Let’s look at some of the common business structures you may choose.
A sole trader structure is ideal for individuals operating their business by themselves, such as a freelancer or contractor. With minimal upfront costs, no financial reporting obligations, and a simple tax process, this is ideal for a one-person operation.
A sole trader structure doesn’t limit your liability, so if anything goes wrong in your business you as an individual are personally responsible. You’re also subject to the marginal tax rate system as an individual, which means you can end up paying more in tax.
The right solution for two or more individuals thinking about starting a business together, who want a straightforward way to get started. Partnership structures operate much the same way as sole trader structures. There are minimal upfront costs and reporting obligations, and a simplified tax process.
A partnership structure considers each partner an individual for tax purposes, so you’re subject to the marginal tax rate system as an individual. All profits must be shared between the partners, dependant on their partnership stake in the business. And, much like a sole trader, a partnership structure doesn’t limit your liability either, so you're individually responsible if anything goes wrong in your business.
A company structure is the traditional business structure most are familiar with, and ideal for businesses aiming for high growth. You operate under a shareholder agreement, and your company is its own separate legal entity, meaning your personal assets are safe from business risk. You also receive a capped tax rate of 26% (as of the 2021 financial year), meaning you can run a more tax-effective business.
A company structure has higher set-up and ongoing fees, and requires strict financial reporting. It’s much more involved to set up, as you need to nominate company directors, shareholders, and other company positions. You need to make decisions in conjunction with the business’ directors and shareholders, meaning a loss of personal control.
A trust structure is ideal for those looking to start a family-run business. The trust structure operates under a trust deed, which outlines the people involved, and their level of involvement. The trust itself doesn’t pay tax in its own right. So, any trust profits made within the entity within a financial year must be distributed among the beneficiaries at the trustee’s discretion. This enables a tax-effective distribution. The structure also limits the financial liability to the business, protecting your personal assets.
Setting up a trust deed can be a detailed process, and requires agreement from all parties involved. There are strict legal processes required, and a number of fees that need to be paid to set one up. Any undistributed income is taxed at the highest individual income rate. Unlike a company structure disputes are handled between the individuals involved, which can be awkward when they occur between family members.
What to do when you start a business
Once you’ve determined the right structure for setting up your new business, the next step in your new business checklist is getting the right registrations. These will include tax registrations and business registrations.
- Tax File Number. This is only required if you set up a partnership, company, or trust. Sole traders use their individual TFN.
- GST. GST is applicable if your business is likely to have a gross turnover of $75,000 or more. You can register for GST at any time.
- PAYG. You’ll need to register for Pay As You Go withholding if your business collects any PAYG withholding amounts from employee or contractor payments.
- Payroll tax. This is only relevant if your business exceeds your state’s payroll tax threshold.
- ASIC business name registration
- Ensure any licenses and other registrations, such as a vehicle, are registered in the correct business name
Once your business registrations are finalised you need to ensure your financials are set up correctly.
- Open bank accounts for your business. It’s best to create two business bank accounts, one for your daily transactions, income, and expenses, and another for your business savings. This is where you can store funds to pay income tax, GST, PAYG withholding, and payroll tax.
- Set up online banking. Setting up online banking, both on your computer and smartphone, makes it easy to complete your business’ banking needs.
- Set up merchant credit facilities. This enables you to accept payments for your business, and can include an online payment system, EFTPOS, and point of sale payments.
Once your banking is sorted it’s highly recommended to set up cloud accounting software. Cloud accounting platforms store your accounting data safely in the cloud, enabling you to access it through one centralised portal, whenever you need. At Liston Newton we recommend businesses use Xero thanks to its powerful functionality, intuitive interface, and ease of use.
After your banking is sorted, it’s important to get the right insurances in place. These can include:
- Professional and public liability
- Business interruption
- Contents insurance
- Workcover, Sickness & Accidents
- Cyber insurance
- Key person
- Buy/Sell cover
We recommend speaking with your insurance broker to ensure you get the level of insurance that’s right for your business.
Some other things to consider are the type of agreements and documentation you have in place when you start your business. This depends on your business’ structure, and can include:
- A shareholder agreement. This document lays out all the rights and obligations of the members or shareholders of your business, in case something goes wrong. This is necessary if you’re in business with a family member or friend.
- A personal will. If you’re operating as a sole trader or under a partnership structure, it’s a good idea to have a personal will drawn up. This ensures your family and your business are covered should anything happen to you.
People and HR
After your finances, banking, and insurances, the next step on your checklist when setting up a new business is sorting out your people. This includes:
- Getting your employees to sign employment contracts. These should outline their employment terms, pay, employee rights, and similar.
- Creating a new employee pack form for them to fill out. This will include their personal and bank details to be kept on file, to ensure they get paid.
- TFN declaration and superannuation fund nomination forms.
- Making copies of relevant employee licenses and qualifications.
- Supplying your employees with all relevant company policies and procedures to familiarise themselves with. This typically covers things like leave policies, dress policy, etc.
What to do while running your business
With your business now successfully up and running, it’s important to keep track of things to ensure it continues to run smoothly.
Keep track of your numbers
Keeping a sharp eye on your finances, and tracking everything on a daily, weekly, monthly, and annual basis, will enable you to stay in control of your business. To do so, it’s important to understand and manage your:
- Break-even cost. The amount of money you need to make in your business to cover all the running costs, manufacturing costs, and staff costs, so you can start making a profit.
- Monthly revenue target. The monthly target you need to hit after all expenses are paid, this will ensure your business is returning a profit.
- Gross profit margin. A measure of your business’ profitability, this can be calculated as the difference between the sale price of your goods, minus the costs to manufacture.
- Business net profit. For this one, you work out your business’ gross profit minus all operating expenses. This tells you how much money you’ve made before tax. A net profit after tax figure is this amount, minus the taxes you pay.
- Tax savings. The regular figures you save to pay for any current and future taxes. This covers things like income tax, GST, PAYG withholdings, and payroll tax, if applicable.
Delegate wherever possible
Delegating allows you to free up your time to focus on your important business-critical tasks. We recommend delegating things like your bookkeeping and accounting.
If delegating isn’t your thing, you can choose to systematise and automate these processes instead. Creating repeatable processes and deploying software to automate these processes can also save you time, and money.
The final word
There’s a lot that’s involved when setting up a new business—even with a checklist. So it pays to get the right advice.
This list is by no means a comprehensive checklist. Instead, use it as a guide, to get you working in the right direction. You can then build it out to include business-specific tasks and actions, and get you thinking about the bigger picture, and the longer term.