Conversations on Your Business
Extracts from the book
Sole trader business are the simplest and cheapest of business structures. Also, they are usually the way that new businesses are structured.
A sole trader is you, the owner and the person. Therefore a sole trader is a legal entity because the law recognises you – you can sign contracts, sue and be sued, own property, take out loans, have bank accounts and so on. Partnerships are not legal entities and cannot do this – I’ll cover that in the next chapter.
So, you start or buy your business, paying from your personal bank account or a separate business account (ask your accountant about the best options here, before you start) and, from whatever account you use, you make business purchases – assets and expenses. This is exactly like making private purchases.
If you don’t repay your mortgage, the mortgagor can sell your house and then sue for any shortfall and you can lose other personal assets.
The same with your business: if your business spending is on credit and you don’t pay, the creditor, lender, mortgagor or bank can sue you and get the court to take your personal and/or business assets. Because the business is you, the legal system doesn’t see any difference between your business and your personal assets. Companies avoid this problem and you can read about that in two chapters’ time.
As you are your business and it is you, legally, so the business income is yours. Whatever profit (or loss) you make from your business, it’s added onto your other income. So, if you have interest and other income of $10,000 and your business makes a profit of $30,000, your taxable income is $40,000 (10,000 + 30,000 = 40,000). If your other income was $40,000 and your business made a $25,000 loss, your taxable income would be $15,000 (40,000 - 25,000 = 15,000). Simple maths.
The disadvantage of this is that all the business income (or loss) is yours – you cannot spread it to other members of your family to reduce tax, as you can with a partnership or company.
Your business’s Tax File number will be your existing personal tax number.
Any business in Australia has to have an Australian Business Number (ABN) so you’ll need to get that [not applicable in other countries].
You have to register for GST, VAT or Sales Tax, depending on what country you’re in, just like partnerships and companies have to.
You Trade Alone
When you die, the business ends, unless you provide for the assets to be passed on in a will. You can’t pass on your shares in the business as you can with a company.
You can only borrow money against your personal assets. A company gives you more access to finance and I’ll cover that in two chapters’ time.
As with every ownership structure, there are advantages and disadvantages. Above, I explained the three main issues and below is a summary of the advantages and disadvantages of a sole trader ownership structure.
Advantages of Sole Trader
Disadvantages of Sole Trader
GOOD REASONS NOT TO START A BUSINESS
THE LAWS OF PROSPERITY
The Ten Laws of Money
Ten Steps To Getting Out Of Debt
Business Ownership Structure - Sole Trader
Business Ownership Structure - Partnerships
Business Ownership Structure - Company
Creating a Life Plan
Business Plan - Introduction
The Business Plan - The Why
The Business Plan - The How
Financial Budget Plan
Business Plan Template
MEASURING & MANAGING YOUR BUSINESS
Daily Management with KPIs
KPIs for Managing Your Greatest Asset - People
Credit Control - Getting Your Own Money Back
MARKETING ON A BUDGET
Talk To Your Customers
Adding Value to Customers
Increasing Sales - Being The Expert
To Sale Or Not to Sale
Turning Complainers Into Campaigners
Raising Sales Without Having A Sale ...
Ten Effective Strategies in the Art of Closing the Deal
ACCOUNTANTS - THEIR USES AND TERMS
An Accountant Or A Bookkeeper?
Clarifying Accounting Terms ...
The Flow of Finance Through a New Business
The Flow of Finance Through an Existing Business
HAVING EFFECTIVE & COMMITTED STAFF
Simple and Effective Ways to Find the Right Staff
The 10 Rules of Delegation
Effective Leadership and Vision
BUYING AND SELLING BUSINESSES
Shaken Not Stirred - lessons in selling a business
Divorce and Your Business … Practical Issues
Divorce and Your Business … A Case Study
Business Succession Plan - The Why
Business Succession Plan - The How
Walking the Line Between Family and Family Business
WHAT'S WORKING FOR BUSINESS TODAY?
Ten Business Drivers for 2010
Business Actions That Are Succeeding Today
Four Steps to Beating the Credit Crunch
Clearing the Clutter
The Lonely Entrepreneur
The Two Ps of Success - Passion and Persistence
ABOUT THE AUTHOR