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What Is A Sole Trader?
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According to recent studies, nearly 1.5 million sole trader businesses were in operation during 2020. Entrepreneurs in all different industries, such as allied health and contracting, can easily become sole traders. The basics, tax implications, and general setup steps are critical to fully understanding what a sole trader is.
What Is A Sole Trader?
The Australian Government describes a sole trader as one that is responsible for the entirety of the business, including reporting income, taking on debt, and making business decisions.
A sole trader setup is one of the simplest and most cost-effective business types, making it great for small businesses. Anyone can set up a sole trader business; however, certain requirements need to be met. Sole traders can only include one person with no additional partners because of the taxation requirements.
This makes it a great business setup for those in the allied health and trade industries who want to work as contractors for other companies.
What Are The Tax Implications Of A Sole Trader?
Due to the setup, only one person will report all income and loss and pay corresponding taxes. This requires effective tax planning to minimise your burden at year-end.
Additionally, sole traders are subject to increased liability since there is a minimal separation of personal and business assets. If something does go wrong and you are faced with a lawsuit, you may be liable for paying damages out of your personal funds.
What Do I Need To Get My Sole Trader Business Started?
There are a few different steps needed to get your sole trader business up and running.
First, you will need to register for applicable identification numbers and claim your business name. This can take days to weeks depending on the turnaround time of the agency you are applying with. Then, you will want to create a marketing plan to attract new customers and begin generating revenue.
Next, you will want to consider business insurance.
As we mentioned before, sole traders have difficulty properly separating personal and business assets. One way to reduce this risk is to hold an insurance policy that can cover any liability lawsuits. Sole traders can find the appropriate business insurance by using our instant quote generator, where you can get an estimate on market-leading insurance in seconds! Simply enter your occupation and expected revenue to get started. This is a great starting point when it comes time to find the right policy.
Check out our article on 10 steps to setting up your small business for some more information on where to get started.
Summary
Comprehending what a sole trader is can help you decide if the business type is right for your next venture. Properly setting up a new business as a sole trader requires careful planning and preparation. We'll list some articles that you might find useful when starting out as a new business owner:
- How to get an ABN in Australia
- How to create a marketing plan for your small business
- How to choose a pricing strategy for your small business
- Tips to help you improve your management skills
Plus, be sure to check out these categories which contain plenty of useful articles for small business owners!
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