New Start-ups: Five key steps for successfully setting up your new business
Starting up a new business can be both exciting and challenging. There are lots of boxes you need to tick before you start trading, but there are five steps that are key to the success of your new venture.
1. Understand your market
If you don’t understand your market and you can’t identify your target audience, you could be setting your business up for failure. Is there a market for your products or services? Who are your competitors? Why should consumers purchase from your business and not the competition? What makes your products or services different? Can you price your products or services to make them more competitive or is the market ready for a superior quality product or service with a greater profit margin?
2. Select the correct business structure
The success of your business often depends on its structure, so you need to decide whether to operate as a sole trader, partnership or PTY company. As a small start-up, you may think that it’s easier to commence operations as a sole trader and then change to a PTY company as your business grows. This approach could be a problem, however, because a PTY company protects your personal assets and limits your liability (a sole trader has little protection). It’s also worthwhile considering a PTY company plus a trust as this gives you the most flexibility and asset protection. If you set up the right structure at the beginning, you protect not only yourself but you also future-proof your business.
3. Know the taxation requirements
Taxes for sole traders are different to those for a PTY company. You need to understand these differences before you decide on a business structure or you may end up in trouble with the ATO. Sole traders are taxed as an individual, which is higher than company tax, but the record keeping is much simpler and you can withdraw from your business’s profits. With a PTY company, however, profits belong to the business and can’t be accessed unless a legal loan agreement is in place. There are other tax differences of course, one being that a trust has to distribute all their profits at the end of the year, whilst a PTY company can hold onto these profits. So it’s important to understand the taxation requirements of each business structure and select wisely.
4. Identify employee payment options
As a sole trader, you can withdraw money to pay yourself from your business’s profits. As a PTY company, you have to pay yourself a salary with PAYG tax, superannuation, and a group certificate at the end of the financial year. Your payment options will depend on your business structure and if you get this wrong, the ATO will notice!
5. Protect your business with insurance
Another mistake often made by many start-ups is not having the right type of business insurance in place before trading. You might never need it, but if you don’t have it you can end up in a lot of financial trouble. So consider the following insurances: Public Liability, Professional Indemnity, Business Interruption, Plant & Equipment, Cyber, and so on.
Knowing how to structure your new start-up is the key to setting up your new business successfully. Your accountant will help with most of these decisions, but to decide what type of insurance policies are suitable for your business, talk to an insurance specialist today and find your local adviser.