How are you meant to know when it’s time to re-structure your business from a Sole Trader to something more?
A lot of small businesses face this issue. It either comes to light at the beginning before they commence trading and are considering what structure they will need, or it comes to light when they’ve commenced as a sole trader and come to a point where their turnover is increasing or they’re paying a high rate of tax.
I would advise clients to look at their structure from the beginning. I understand that starting a business can be a costly exercise but you need to get the structure right from the start, and save yourself a lot of money down the track.
Other than securing finance, choosing a structure is the most important part of starting a business.
As a general rule, you need to look at the future projection of income you expect to earn. If you’re starting a small business that contains no risk and you’re looking at not exceeding turnover of $75,000, I would be comfortable for a start-up to operate as a sole trader or partnership. If you’re looking at starting a business that requires you to own a large amount of assets but you consider your turnover will be small for the first couple of years, I would still look at the correct setup as either a company or trust structure – or even both. A business that has assets is at a risk of being sued and losing its assets, and needs a structure to reduce this risk.
If you’re currently operating as a sole trader and are making a net profit of more than $80,000 or hold a large amount of assets, it’s time to see your accountant to re-structure your affairs. You need to look at setting up and transferring everything across to a different structure. This might involve tax payable, CGT, GST payable or Stamp Duty if you hold property, but this expense will be minimal compared to what could happen if lose all the assets you have built.
With many of us doing our taxes now we should all be reviewing our circumstances. If you’re not receiving the attention you deserve contact us now.