The Top 5 Australian Sole Trader Benefits You Need To Know About
This article takes you through the top sole trader benefits and how they may impact you and your business goals.
The top benefits of being a sole trader include being your own boss, keeping all your profit, lower cost to setup & winddown, and less oversight.
If you’re thinking of finally taking the plunge and getting that business set up, then you have come to the right place.
It is essential that you consider all pros and cons before starting a business and how your situation may be affected as the benefits are only one side of the story.
Sole trader benefits need to be weighed against the security of full-time employment.
The top benefits are an increased share of the profits and less oversight from employers and the government.
What Is A Sole Trader?
To understand the sole trader benefits, we must first understand what a sole trader is? And is it the correct structure for me and my business goals?
A sole trader is an Australian business owner who has an ABN (Australian business number) and who solely owns and operates their business.
In this business structure, you are financially and legally responsible for the business and any of its operations. An excellent example of this would be an electrician who works for themselves.
As a sole trader, you can either work for yourself or have your own employees; however, unlike a company, you can not be an employee yourself.
How To Become A Sole Trader?
To become a sole trader you must apply for an ABN. An ABN is an Australian business number that is assigned to you once you have completed your application.
This number is used to identify you as a business in Australia.
The application for an ABN is made to the ABR (Australian Business Register). This government body is responsible for collecting and storing business and organisational details across Australia.
Once you have an ABN you operate as a sole trader (as long as you do need special licensing etc).
As a sole trader, you will still use your personal TFN (tax file number) and be bound under the same tax laws as an individual.
Sole Trader Benefits
1. You are your own Boss
The first sole trader benefit is the most popular by far, being your own boss. This seems to be the thing people aspire to the most and regularly associate with success.
Being your own boss can undoubtedly be challenging; however, the benefit of having complete flexibility and ownership over your work and business is fantastic for many people.
No more asking permission for a day off on your birthday or, even more important, no more disagreements about the approach you should take with a particular task or project.
Being your own boss means you get the final say every time.
Drawback: A drawback of being your own boss is that you will need to manage your own time and workload effectively.
Unlike an employee, you will not be provided with a structure or framework to work within, so it is essential that you build your own and sharpen those time management skills.
Note: Need a hand with time management? Check out our guide: Top Time Management Skills And Tips For Business.
2. You Keep All Profits
The next on our list of sole trader benefits is, of course, money.
When you work for someone you trade your time for a set hourly rate or a small percentage of revenue in the form of commission when you are a sole trader you keep it all.
Any profits the business makes go directly into your pockets.
This also means any losses incurred by the business are your responsibility, but the low start-up costs and uncapped upside generally makes the risk worth it.
Drawback: Unlike when you work for a company, as a sole trader you may not have a team of people who look after all your finances.
This means you will need to get familiar with all finance-related tasks and develop an understanding of basic economics. You will also need to learn any related software or tools.
We advise seeking professional advice before making any investments in a business and making sure you track all your finances using bookkeeping software.
3. Lower Set Up Cost
Setting up as a sole trader is a much cheaper alternative to creating a legal company. This is great as you may want to test your business before you decide to invest in the company set up costs.
The low cost also means you can try out many ideas without the added legal expenses each time.
All you need to legally trade as a sole trader is an ABN which is completely free. This sole trader benefit also extends to not having to pay yourself as an employee which will cut down on both time and expense.
You may also need to register for GST depending on your turnover. We advise seeking professional advice if you are unsure.
Drawback: Applying for an ABN and registering for GST comes with certain legal obligations which you will need to adhere to. While this is not a large issue, it is more time you will need to spend on admin.
4. You Can Wind Up Quickly
Things happen in business, you may change direction, move country, realise the business will not work, etc.
When you are set up as a sole trader the benefit if any of these things happen is you can quickly wind down the business with very little cost or paperwork.
Another great thing about this structure is your ABN can be used for another business ( As a sole trader ) without needing to re-apply.
So if you have another great business idea, you can set that business up under the same ABN.
5. You Have Less Government Oversight
Privacy is the next sole trader benefit, and it’s certainly one to be happy about. The reporting guidelines for a sole trader and much less invasive and strict when compared to a company or trust.
This gives you as a business owner much more privacy from the government and affiliated departments. This also gives you much more privacy when compared to an employee.
The Downside To Being A Sole Trader
While there are many benefits to being a sole trader, there are also downsides you should be aware of; below, we have listed the most common of these.
Security. Having job security is a significant advantage of being an employee, and of course, this is a disadvantage of being a sole trader.
A lack of job security as a sole trader is since you do not have the same protections under the law as an employee.
The other fact to consider is the financial security a large business may have to absorb market swings and still pay staff; of course, this may not be the case if you work for yourself.
Entitlements. As a sole trader, you are not entitled to personal or annual leave and therefore must fund your expenses should the need arise.
Superannuation. As a sole trader, you are responsible for your superannuation contributions. This can cause issues if you are not financially prepared.
That wraps up the top 5 sole trader benefits, remember, this does not mean there is no risk attached to starting a business.
It is important that you understand all the facts before starting any new venture.
Please seek advice from professionals and industry veterans before any business venture. In the meantime check out our guide below for a helping hand.