When starting the next big IT idea or a small business you have two options, sole trader (cheaper to setup and run and really just an extension of your own tax file number) or create a company.
The steps for a small company are roughly as follows:
1) Product Viability, do some research, before you start a company and build the worlds next facebook, does the world want or need it. Ask people in chat groups bluntly, would they buy it. Create a free simple webpage and pay for google ads to see how many people are searching for this product now, for as little as a few hundred dollars you can prototype test your idea and get a list of people that are looking for your solution. If you are planning to open a café or something similar, then ask local businesses in that area how busy they are, if they are slow then opening a shop in that area and expecting foot traffic is probably not going to happen.
Hint: If you want to start a charity or not-for-profit and want to be exempt for tax, there is lots of additional work for you to complete first too, see AssociationsForum.com.au as they specialise in setting these up.
2) Do you need finance to hire staff, plant or equipment? Do research early to see what the requirements are, you may need to put a large sum of equity in the business to establish a high risk loan, investigate this first before you start laying down money to create a company.
3) Find an accountant, one that can turn a shelf company and turn it into your very own company, complete with ABN. An accountant will be in charge of doing your annual tax returns and giving you advice. At a minimum a new company startup will be around $2,500 including the accountants fee. Annual tax returns can cost around that amount each year too if you do not have any major complications. I'd personally recommend you start a new trust and a new company at the same time, the trust owns the company, you would be made the director of the company and director of the trust. The trust can own all the shares in the company, which you can start off with 20 shares. If you have a business partner, they become a director also and you can also add them as directors to the trust account. If you wonder why a Trust is preferred, ask your accountant for the benefits, its generally about safeguarding your personal assets. You can also add/remove family as beneficiaries to a Trust easily in the future and split and sell shares of the company.
4) Get a bank account. When your business is registered, go to your favourite bank and create a bank account. This is free. If possible, get a line of credit and a credit card for general recurring business expenses.
5) Find a bookkeeper, to save costs while you are starting up, get a book keeper who can lodge your BAS statements (quarterly) and help keep your accounts up to date. They will pick either XERO or MYOB depending on their preference, they can link these to your business account and generally track things like wages you paid yourself and put expenses into the right general ledger account, they usually only do this per quarter and then prepare the financial statements for your accountant come tax time. A book keeper will be around $200 a month.
6) Get business insurance. You insure your car in case it crashes and causes extensive damages to other peoples’ property and you should insure your business for exactly the same reason. Approx. $290 per month.
7) Personal insurance. If you get injured and want to be able to still afford your home loan, business loans and other expenses, you should look at personal income insurance, approx. $200 per month.
8) Now you need a domain name, get a .com.au one if it is a local Australian company and a .org.au if you are a charity, not-for-profit or a special interest group. Get a basic website setup that you can edit yourself and maintain. You can use our sister company members.org.au to setup a simple website, email support@members.org.au and tell them you would like the cheapest one possible for a start-up and they can sort you out at cost price for the first year and setup all of the following.
a. Domain name $79 per year (find one here: MelbourneIT) + $50 once off for domain tools
b. SSL certificate (must have), $89 per year
c. Website, members.org.au from $49 per month, first web pages 3 created and styled for you free.
d. Email (setup a o365 account and domain), $20 per month
9) Legals, work out what your terms and conditions will be for your product, you need to protect your business incase your product is misused or misinterpreted. You can consult an online lawyer for as little as $2000, first write down all the risks you can imagine, then write a list of terms that exclude your business and then have a lawyer look over it. Put this on your website, print it out and put it up on the wall of your business and if required put a copy in with your product with the instructions.
10) Tax, if you make a profit in the first year you have to give the government a huge chunk of this profit. Even though you have been paying the government more than most employees during the year through BAS (you have to give the government GST amount of 10% of all revenue you receive) and PAYG (the huge wages tax you and your employees have been putting aside), the government expects 27.5% of your profits come tax time. This was a huge shock after my new startup in year 3 boomed and earnt our first million and the tax bill was an enormous surprise.
Hint: You can use your accountant to do tax planning, put that profits towards paying the next years rent in advance to reduce the amount.
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