Business basics for sole traders plus the benefits of a sole trader bank account

So, you've decided to work for yourself, or expand a hobby into a career. You're not alone – some 60% of Australian businesses are run by sole traders. But what are the first things you should think about to get your business off on the right foot while fulfilling legal obligations? 

What we'll cover

• Business structure
• Business name
• Australian Business Number (ABN)
• Goods and Services Tax (GST)
• Professional services
• Business bank accounts
• Taking payments

 

Confirm your business structure

You're a sole trader for tax purposes if you are the only person involved in your business and you have complete responsibility for all aspects of it, including debts and losses. If that's you, you can simply use your individual Tax File Number (TFN) when reporting your earnings to the Australian Taxation Office (ATO).

 

You can appoint others to help you – such as an accountant to help with tax returns – but if you actually employ people in your business, you may not have sole trader status and may have to apply for a separate TFN for your company.

Think about a business name

If you're just using your personal name, that's fine – and there's no need to register it anywhere.

 

But if your business name has extra words, such as Oliver Smith Plumbing, or is something else completely different such as DripFree Plumbing, you'll need to register it with the Australian Securities & Investments Commission (ASIC). You may also need to conduct a thorough search to ensure that your preferred business name doesn’t have an existing trademark lurking in the background and is available for you to use. But before you do that:

 

Get an Australian Business Number (ABN)

Your ABN helps identify your business in public records and is used when you deal with banks, the tax office, and other government departments. You'll need to use it on purchase orders and invoices, and it's required if you have to register for GST (see later in this article).

 

The good news is that you can apply for your ABN and register your business name online at the same place, on the business.gov.au website.

Ask yourself, do I need to register for GST?

If you think your business will earn $75,000 or more (excluding GST) in any 12-month period (not just the tax year), or if your business provides taxi travel services (including ride sourcing and ride sharing), you'll need to register for goods and services tax (GST). The GST Turnover threshold for non-profit organisations is $150,000.

 

Just to be clear, the GST Turnover figures refer to gross income, not profit – i.e. before expenses – and if you anticipate passing this milestone during a current financial year, you should register within 21 days of ‘realisation'.

 

You can register for GST through the same business.gov.au website or the Australian Taxation Office (ATO) website.

 

You'll then need to report the 10% GST you charge and collect to the ATO through your business activity statement (BAS), where it can be offset against any GST you incur on business expenses.

Think about appointing an accountant

It isn't compulsory to have an accountant or financial adviser when you’re a small business, but it's a good idea. At the least, they'll be able to tell you what's tax deductible, so you can claim the right amount each time you submit your BAS. And naturally, they'll do their best to legally minimise how much tax you have to pay.

 

How to find an accountant? One way is to simply ask around your friends and any business networking organisations you belong to. Then check out any accountants that are recommended. 

Set up a bank account

It's not mandatory to have a dedicated account for a sole trader business. But it's a good idea to have one to help separate your personal financial affairs from your business finances.

 

Many small business owners avoid mixing business and personal in all aspects of their life; and prefer a separate bank account for business even if it sits alongside their personal bank account in their online banking.

 

Why have a separate bank account for business?

 

Having a separate business account can make it easier to track performance, manage income and expenses, and plan for tax time. Plus, choose a business bank account rather than a personal account and it may include extra features that support your operations and accounting.

 

With Westpac sole trader business accounts for example, you can connect to accounting software such as MYOB and Xero to simplify bookkeeping, set up direct debits and automatic payments, have a business debit card, and link to a business savings account to earn interest on money you're saving to help grow your business.

 

You can choose between a $0 monthly fee business account (Business One), or an added value business account (Business One Plus) that gives you access to exclusive discounts on popular business products and services. Unlimited electronic transactions are included with both accounts.

Consider ways to take payments

Want to be paid fast? Then make it as easy as possible for customers to pay you.

 

For example, if you want to take credit card payments from customers using just your phone, you can apply to use the EFTPOS Air app on your own compatible mobile.

 

Or if you want customers to pay into your bank account, you no longer have to provide your BSB and account number if you’d prefer not to share your account details. Instead, ask to be paid by PayID®  and you’ll only need to provide the unique number you’ve registered with your bank for the service – which could be your mobile number or ABN. Better still, for extra security, your customers will be able to see that it's definitely you they're paying through their internet banking, before confirming their payment.