There are a million things to consider when starting a new business. Being fully prepared takes time, effort and money. To honestly know your business will be successful, you need to know your sector inside out. You need to be skilled and experienced in the field you are planning to work in. This experience takes time and money.
Business, Pleasure or Retirement?
Understanding some of the most notable differences between a business and a hobby can assist you in your business plan and funding applications. A hobby doesn’t usually incur any legal accountability, or hold you to any tax obligations. Suppose you find that your business is earning enough money to require paying tax. Then you must consider the fundamental characteristics of your business to be able to determine how your activities are classed.
Maybe you are thinking of buying a business to save for your retirement and are considering ways to fund it. If you have a self-managed super fund, applying for SMSF loans could be a reasonably simple way of making your money grow throughout your career, ensuring you are nowhere near outliving your savings.
How to Structure Your New Business
In western countries, the vast majority of business ventures fall into one of the following four categories:
- Sole trader – This is when the business owner is registered and is the sole owner of the business. If this is you, it means you are responsible for all of the tax, debt, profit and other legal aspects of running the business. Sole traders are still allowed to hire people to work for them.
- Partnership – If two or more people or entities run a business between them, then it is considered a partnership.
- Company – A company is a wholly commercial business that has a separate legal existence to that of its shareholders.
- Trust – If a third party has a company or entity hold their assets, wealth, or cash for them for an extended period, it is known as a trust.
The type of structure you adopt for your new business has an impact on a variety of factors, such as:
- The amount of public liability insurance you will pay
- How much control you can dictate
- How you will approach health and safety in the workplace
- How much tax you will need to pay
Always remember it is worth giving some serious consideration as to how you will structure your business. Speak with your accountant or legal advisor before making any significant financial commitments.