For many people who want to start their own business, handling all of the details as well as the significant decisions can feel very daunting. Aside from determining what your business will provide, one of your most important decisions as a new business owner is the type of business structure you want for your company.
The decision is vital because so much of your future success begins right now. Choosing your business structure will help you make sense of the essential facets of your company, such as business insurance.
Which Business Structure is Right for Me?
There are several business structures to choose from when opening a business in Australia. These structures include,
- A Sole Tradership – The easiest of all the structures, a sole tradership means you are responsible for all aspects of the company, including any debts incurred. A large number of business owners choose to start as sole traders because it is simple to begin.
- Company – You create a legal entity separate from yourself.
- Partnership – A business where two or more people share income and losses between themselves
Three other types of business structures, which are more complex, include,
- Indigenous Corporation
What is a Sole Trader?
Essentially, in this structure, the owner is entirely responsible for the entire business. It is often said that the owner of a sole tradership IS the business.
A large percentage of Australian businesses start by using the sole trader organisation model because there are several advantages to this structure.
These advantages include,
- Comparatively, the easiest type of business to open and operate
- You have absolute control over your business, the decisions, and the assets
- You will have fewer government reporting requirements, regulations, and paperwork
- A sole tradership is less expensive to maintain
- Because you operate as a sole trader, you are not considered an employee. This means you do not need to pay superannuation contributions, payroll tax, or worker’s compensation
The main disadvantages to this structure are,
- You are personally accountable for paying taxes on income earned
- You have unlimited liability if something goes wrong.
How to Set Up a Business as a Sole Trader
Once you have covered the basics of your business, like, what services you offer, your business name, and your location, you still have more details to cover before you are officially operating a business in Western Australia.
- Get Your Australian Business Number (ABN)
You can get your number by applying online using the Business Registration Service. There is no charge for your ABN.
- Register Your Business Name
Your business name must be registered nationally with the Australian Securities and Investments Commission (ASIC).
- Register Your Domain Name
Your domain name is your website’s address on the internet and will be a huge marketing tool for your business. You should register your domain name as soon as possible to make sure you can claim it once your website is up. You can register by going to Go to ausregistry.com.au and choose an authorised registrar to take you through the process.
- Get Your Tax File Number (TFN)
Make sure you comply with all aspects of the tax code. There is no charge to apply through the Australian Taxation Office (ATO)
- Search for Business License Requirements
Depending on your industry, there may be licenses or permits you need to operate.
Hope is opening a mobile beauty salon where she will come to clients in their homes. In addition to the standard business registration for all Australian businesses, Hope must get licenses allowing her to carry out her business. She will need a Home Occupation License and a Notification of a Skin Penetration Premises, which is necessary for any business performing procedures that involve cutting, shaving, tearing or puncturing the skin.
As a sole trader, the last thing you want to do is try to save money by avoiding insurance. As stated earlier, you are personally responsible for any liabilities due to your business. If you operate without the necessary insurance, you are gambling with all of your assets. You need to consider whether your business, home and savings are worth risking to save a little money each month.
When deciding which types of insurance you need, consider the following factors.
- Risk – While you want to protect your business from potential problems, think about the worst possible scenario. For example, if you are a caterer, your biggest disaster could be giving a room full of people food poisoning and being sued. If you install windows, your concerns would be about damaging homes or property. That is the level of protection your insurance must reach. Once you find the point of deepest concern, you can determine the most significant risks you face.
- Cost – The saying you get what you pay for is true in the insurance industry. While it is normal to want the most for your money, skimping with cut-rate insurance can cost you. For example, you are a dog groomer and purchased the least expensive business insurance possible. One day the unthinkable happens, and a customer’s pure-bred poodle escapes from your shop and is injured. The dog’s owners are furious and seek payment of the medical bills as well as emotional trauma for themselves. If your policy does not pay enough to take care of the costs, YOU will be making up the difference, even if it means selling your new van to make the payment.
- Waiting Period – You will want your payment as soon as possible after an incident occurs. However, your claim can take anywhere from a few weeks to several months. When considering your insurance cover, ensure you have the quickest disbursement time possible.
Insurance Cover to Protect Your Business and Yourself
Your business ought to have several types of insurance, so assets are safe. These include,
- Business Insurance – A standard business insurance pack typically covers your premises and contents against loss, damage, or theft, as well as cover against any resulting financial loss from an insured interruption to the business.
- Public Liability – This cover protects you if a third party suffers a loss because of your company’s actions.
- Professional Indemnity – If you are in an industry that offers professional opinions to clients, a professional indemnity policy will protect you if the advice turns out incorrect.
- Worker’s Compensation – Worker’s compensation insurance is compulsory in all Australian states and territories if you hire any employee (full-time, part-time, casual, or apprentice).
- Income Protection Insurance – An income protection policy is something sole traders need. You cannot claim worker’s compensation if you are injured at work. However, that does not change the fact that you cannot work. An income protection policy will help you stay afloat financially while you recover from illness or injury.
If you are starting your business as a sole trader and are unsure what to do about your business insurance, do not hesitate to contact us at Grace Insurance. We have provided professional insurance services to Western Australians for over 20 years. Our brokers and underwriters are among the best in the business. Allow them to put their skills to work for you.