7 Reasons Why You Should Start a Sole Trader Business
Are you thinking of starting your own business? If so, you might be wondering what type of business structure is best for you. One of the most common and simple forms of business is a sole trader. A sole trader is a person who owns and runs their own business, without any partners or shareholders. They are responsible for all aspects of the business, including the profits, losses, debts and taxes.
In this article, we will explore what a sole trader business is, and what are the benefits of choosing this option. We will also provide some tips on how to start and manage a sole trader business successfully.
What is a sole trader business?
A sole trader business is a type of business where the owner is the only person involved in the business. They have full control over the business decisions, operations and finances. They can use their own name or a trading name for their business, as long as it is not misleading or offensive.
A sole trader business is different from other types of businesses, such as:
A partnership, where two or more people share the ownership and management of the business.
A company, where the business is a separate legal entity from the owners, who are called shareholders or directors.
A trust, where the business assets are held by a trustee for the benefit of beneficiaries.
A sole trader business is also different from being an employee, where you work for someone else and receive a salary or wage.
Benefits of a sole trader business
There are many advantages of starting a sole trader business, such as:
Ease of setup: You can start a sole trader business quickly and easily, without any formal registration or paperwork. You just need to obtain an Australian Business Number (ABN) and register for Goods and Services Tax (GST) if your annual turnover is more than $75,000. You may also need to register for other licenses or permits depending on your industry and location.
Low cost:
You don’t have to pay any fees or charges to set up or run a sole trader business, except for your own expenses and taxes. You also don’t have to pay any ongoing fees or charges to maintain your business structure, unlike a company or a trust.
3. Flexibility: You have the freedom to make your own decisions about your business, without having to consult or report to anyone else. You can also change or end your business at any time, without any legal or financial consequences.
Privacy:
You don’t have to disclose any information about your business to the public, unless required by law. You also don’t have to keep any formal records or accounts for your business, except for tax purposes.
Personal satisfaction: You can pursue your passion and vision for your business, and enjoy the rewards of your hard work and creativity.
Tips for starting and managing a sole trader business
While a sole trader business has many benefits, it also comes with some challenges and risks. Here are some tips on how to start and manage a sole trader business effectively:
Plan ahead:
Before you start your business, you should do some research and planning to identify your goals, target market, competitors, strengths, weaknesses, opportunities and threats. You should also prepare a budget and cash flow forecast to estimate your income and expenses.
Choose a name: You should choose a name that reflects your brand identity and value proposition. You should also check that your name is not already taken by another business or trademarked by someone else. You can use the Australian Business Register (ABR) website or the IP Australia website to search for existing names.
Protect yourself: As a sole trader, you are personally liable for all aspects of your business, including any debts or legal claims. This means that if something goes wrong with your business, you could lose your personal assets, such as your home or car. To protect yourself, you should consider taking out insurance policies that cover your business activities, such as public liability insurance, professional indemnity insurance or product liability insurance. You should also keep your personal and business finances separate, by opening a dedicated bank account for your business transactions.
Keep records:
Even though you don’t have to keep formal records or accounts for your business, you still need to keep track of your income and expenses for tax purposes. You should also keep receipts and invoices for all your transactions, and store them in a safe place. You can use accounting software or apps to help you record and manage your finances.
Pay taxes:
As a sole trader, you have to pay income tax on your net profit from your business. This means that you have to deduct any allowable expenses from your gross income before calculating your tax liability. You may also have to pay GST on some or all of your sales, depending on your turnover and type of goods or services you provide. You can use the Australian Taxation Office (ATO) website or app to help you lodge and pay your taxes.
What Is a Sole Trader Business?
A sole trader business is a type of enterprise owned and run by one person, who has full control and responsibility over all aspects of the business. A sole trader does not have to register their business with the government, but they may have to use a trade name or business name if it is different from their own legal name. A sole trader can hire employees or consultants, but they are personally liable for all debts and losses of the business. A sole trader also receives all profits from the business, which are subject to personal income tax. [1] [2]
Global Demand for Sole Trader Businesses
According to the World Bank, there were about 582 million entrepreneurs in the world in 2019, of which about 70% were sole traders. [3] The global demand for sole trader businesses varies depending on the industry, location, and market conditions. Some of the advantages of being a sole trader are the low start-up costs, the flexibility, and the independence. Some of the disadvantages are the unlimited liability, the difficulty of raising capital, and the lack of continuity. [2] [4] Some of the industries that are popular for sole traders are professional services, retail, construction, and agriculture. [5] The demand for these industries may increase or decrease depending on factors such as consumer preferences, technological changes, environmental issues, and competition.
References:
https://www.ssm.com.my/sites/default/files/guidelines/OWNER%20RESPONSIBILITY_new.pdf
http://gst.customs.gov.my/en/SiteAssets/doc/Registering%20for%20GST%20Amend%201.pdf
https://en.wikipedia.org/wiki/Sole_proprietorship
https://www.investopedia.com/terms/s/soleproprietorship.asp
https://www.worldbank.org/en/topic/entrepreneurship
https://www.bbc.co.uk/bitesize/guides/zpx7gdm/revision/3
https://www.bbc.co.uk/bitesize/guides/zdc6mfr/revision/1
https://www.business.gov.au/Planning/Business-structures-and-types/Business-structures/Sole-trader
https://www.ato.gov.au/Business/Starting-your-own-business/Before-you-get-started/Choosing-your-business-structure/Sole-trader/
