Key Steps to Starting a Business in Australia: Legal and Financial Insights
So, you’ve got a fantastic idea and you’re ready to take the leap into business ownership in Australia? That’s awesome! No matter how exciting it is to start a business, sometimes it can be overwhelming but with the right guidance, you can set yourself up for success.
In this guide, we’ll walk you through the essential steps to get your business off the ground. From legal considerations to financial planning, we’ll cover everything you need to know to kick off your entrepreneurial journey.
Setting Up Your Business: Legal Aspects To Focus On
Before you can start , there are a few legal hoops you’ll need to jump through. Let’s break it down, shall we?
Choosing the Right Business Structure
First things first – you need to decide on your business structure. Here are the most common business structures in Australia:
1. Sole Trader: This is the simplest structure, perfect for one-person shows. It’s easy to set up and gives you full control, but remember, you’re personally liable for all aspects of the business.
2. Partnership: Teaming up with a mate or two? A partnership might be your go-to. You’ll share the load, but also the risks.
3. Company: This structure separates your personal assets from the business, offering more protection. It’s a bit more complex to set up and run, but it can be worth it as your business grows.
4. Trust: This structure can be beneficial for tax purposes and asset protection, but it’s more complex and expensive to establish and maintain.
So, which one’s right for you? Think about the scale of your business, your expansion strategies, and the level of risk you are willing to take. If you’re unsure, it’s always a good idea to chat with a business advisor or accountant.
Registering Your Business with the Appropriate Authorities
Once you’ve chosen your structure, it’s time to make things official. Here’s what you need to do:
- Get an ABN (Australian Business Number): This is your business’s unique 11-digit identifier, you’ll need it for all your dealings with the government and other businesses.
- Register your business name: Claim your spot in the market , choose a name that reflects your brand and is easy to remember.
- Secure a Goods and Services Tax (GST) registration: If your annual turnover is $75,000 or more, you’ll need to register for GST
Protecting Intellectual Property
Have you got a unique idea or invention? You’ll want to protect your intellectual property before someone else steals the show. Here are the main types of intellectual property protection in Australia:
1. Trademarks: These protect your brand identity – things like your business name, logo, or slogan. They last for 10 years and can be renewed indefinitely.
2. Copyrights: This automatically protects your original works, like written content, music, or artwork. It lasts for the life of the creator plus 70 years.
3. Patents: These protect new inventions or processes. They can last up to 20 years, giving you exclusive rights to your invention.
Understanding Compliance Obligations
Let’s talk about everyone’s favourite topic – taxes. When venturing into business in Australia, it is crucial to understand one’s tax obligations. So, what taxes should come into your radar?
1. Goods and Services Tax (GST)
If your business has an annual revenue of $75,000 or more, you’ll need to register for GST. This is a 10% tax on most goods and services in Australia. According to the Australian Taxation Office (ATO), in the 2019-2020 financial year, GST revenue totalled $65.8 billion.
2. Pay As You Go (PAYG) Withholding
If you have employees, you must withhold tax from their wages and report it to the ATO. It’s like being a mini tax collector
3. Company Tax
If you’re operating as a company, you’ll need to pay company tax on your taxable income. Most companies currently pay a 30% corporate tax rate, but small businesses with an aggregated annual turnover of less than $50 million may be eligible for the lower rate of 25%.
4. Capital Gains Tax (CGT)
This applies when you sell specific assets, like property or stocks. It’s not a separate tax but forms part of your income tax.
5. Fringe Benefits Tax (FBT)
If you offer non-cash benefits to your employees, like a company car or gym membership, you may need to pay FBT.
6. Payroll Tax
If your business’s total Australian wages exceed a certain threshold (which varies by state or territory), you will need to pay payroll tax. It’s a state tax, and the rates and exemptions depend on where your business is located.
7. Superannuation
As an employer, you must contribute to your employees’ superannuation funds. The current minimum superannuation contribution is 11% of an employee’s ordinary time earnings (as of 2024), but this rate may increase in the future. Additionally, employees may choose to “salary sacrifice,” where they agree to reduce their pre-tax salary in exchange for additional superannuation contributions. This can be an effective strategy for boosting retirement savings. Learn more about salary sacrificing and how it works here.
8. WorkCover
WorkCover is an insurance scheme that covers employees who are injured or become ill as a result of their work. Employers are required to register for WorkCover and pay premiums based on their business type and payroll. This is a crucial part of protecting both your employees and your business.
You might think, “that’s a lot to keep track of!” And you’re right. But don’t let it overwhelm you. Many successful Australian businesses have navigated these waters before you
What Financial Matters Need to Be Considered?
Now that we’ve tackled the tax beast, let’s dive into some other crucial financial matters you’ll need to consider when starting your business. According to a 2021 study by the Australian Bureau of Statistics, the average initial cost to start a small business in Australia ranges from $3,000 to $5,000
- Developing a Solid Business Plan
First up, you need a solid business plan. Think of it as your business’s roadmap – without it, you might end up lost in the outback of entrepreneurship. A well-crafted business plan is the foundation of your business financial strategy.
In a study by Palo Alto Software, businesses with a formal plan are 16% more likely to achieve viability than those without one. So, take the time to get this right – your future self will thank you!
- Finding A Source of Funding
Let’s face it – starting a business isn’t cheap. The initial cost to start a business in Australia can vary widely depending on the type of business.
So, where do you find the cash for your business dreams? Let’s explore some funding options that might be perfect for you
- Personal Savings: Many Aussie entrepreneurs kick off their business journey by dipping into their own savings. However, make sure you’ve got enough left for unexpected expenses.
- Seed funding: This is an initial investment that helps the startup begin its operation.
- Venture capital: These large-scale investors back businesses with higher growth prospects.
- Angel investors: Individuals who provide financial backing for small startups or entrepreneurs, usually in exchange for ownership equity.
- Incubators and accelerators: Startup incubators nurture the business by providing shelter tools like office space and legal counsel without expectation of payment until the business gets off the ground.
- Business angels: These are affluent individuals who inject capital for startups in return for convertible debt or ownership equity.
- Crowdfunding platforms: This is a way of funding a venture by raising small amounts of money from large numbers of people, often using online platforms like Kickstarter.
- Private investors: They provide funds in exchange for partial ownership, profit sharing, or royalties.
- Debt financing: This involves borrowing money from a lender that you promise to pay back within a predetermined timeframe, typically with interest.
- Equity crowdfunding: A funding solution where start-ups issue securities (shares/stocks, debt, revenue shares, convertible notes) to a ‘crowd’ of people sourcing it through crowdfunding platforms as an option for common Australian consumers to invest.
- Business loans and grants: Loans enable you to borrow specific sums. Government grants come with certain specifications but don’t have to be repaid, making them a highly attractive option.
Setting Up Accurate Accounting Systems:
Okay, maybe it’s not as exciting as a footy game, but trust us, getting your accounting systems right from the get-go is crucial for your business success.
Maintaining accurate financial records is not just good practice – it’s a legal requirement
Choose the right accounting software: With options like Xero, MYOB, and QuickBooks, you can streamline your financial management. According to a 2021 survey by Capterra, 67% of Australian small businesses use accounting software, with Xero being the most popular choice.
As the old saying goes, “You can’t manage what you can’t measure”. Accurate financial records are the backbone of your business decisions. Setting up and managing an accurate accounting and bookkeeping system ensures you’re on the right track from day one.
Implement Effective Financial Planning
- Managing cash flow effectively: Keep a close eye on your income and expenses to ensure your business stays afloat
- Budgeting and forecasting: Create a detailed budget that outlines your expected income and expenses. Regularly review and adjust your budget as needed
- Risk management strategies: This could include purchasing insurance or diversifying your revenue streams.
Consider consulting with a business advisor to gain valuable insights and reduce overhead expenses. A professional accounting firm, like Future Advisory, can offer expert guidance and efficient management of your financial systems. Future Advisory specialises in supporting small and medium-sized businesses in Melbourne and Australia. They have a wealthy knowledge of the local business landscape and have a proven track record of successfully managing accounting systems for numerous clients.
Schedule a consultation with us to explore how they can benefit your business.
FAQ
In summary, what are the basic steps to start a business in Australia?
To start a business in Australia, you need to:
- Choose your business structure (e.g., sole trader, partnership, company, or trust).
- Register your business name with the Australian Securities and Investments. Commission (ASIC).
- Obtain an Australian Business Number (ABN).
- Register for Goods and Services Tax (GST), if applicable.
- Acquire relevant licences and permits.
What is GST, and do I need to register for it?
GST (Goods and Services Tax) is a broad-based tax of 10% on most goods, services, and other items sold or consumed in Australia. If your business has a GST turnover of $75,000 or more, you must register for GST.
What is a Business Activity Statement (BAS)?
A Business Activity Statement (BAS) is a form submitted to the Australian Taxation Office (ATO) by registered businesses to report and pay their tax obligations, including GST, PAYG (Pay As You Go) instalments, and other taxes.
What are the initial costs involved in starting a business?
Initial costs can vary depending on the type and scale of the business, including expenses like:
- Business registration and licences
- Equipment and supplies
- Marketing and promotional activities
- Rent and utilities
- Initial inventory
Are there government grants available for startups?
Yes, the Australian government offers several grants and incentives for new businesses, such as the New Enterprise Incentive Scheme (NEIS) and other small business grants.
What are common challenges faced by startups in Australia?
Common challenges include:
- Securing initial funding
- Navigating complex regulatory environments
- Managing cash flow and financial stability
- Establishing a customer base amidst competition
How do I manage tax obligations?
Tax obligations can be managed by:
- Registering for GST if applicable
- Filing your Business Activity Statement (BAS) on time
- Maintaining accurate and up-to-date financial records
- Consulting with a tax professional for guidance
