Being a sole trader is arguably the easiest way to start a business.
Sole traders are people who start in business on their own, without registering as a company.
Many small business owners, contractors and self-employed people begin as sole traders.
It’s the cheapest and easiest option.
It’s relatively easy to start a business as a sole trader, you don’t need to go through
a legal process or to register yourself or your business with a government agency.
A sole trader operates a business on their own.
There is no formal business structure, and everything is in their personal name.
They can buy and sell, can employ people, and they control, manage, and own the business.
They are obviously entitled to all profits.
There is no formal structure or approval needed and most sole trader business can be established
without any paperwork.
It is common enough for a business to start as a sole trader and then move to a limited
liability company structure as the business grows.
Being a sole trader can be a flexible way to work.
You are your own boss and you can employ staff, but you may also be your entire staff, too.
As a sole trader, you pay tax on all the income you earn from your work.
You can claim work expenses to reduce your income tax.
You are personally responsible for all your business debts, but you also keep control
of the business and its profits.
At the end of each financial year you must complete a tax return and submit it to Inland
Revenue.
To become a sole trader, you must have: • a personal IRD number for paying income
tax and/or GST.
• A New Zealand Business Number (NZBN).
This is a unique identifier for your business, and you can register for an NZBN online.
You’ll also need to tell Inland Revenue you’ve become a sole trader and you’ll
need to register for GST if your revenue is over $60,000 a year.
For more information about registering for GST, have a look at this video here.
Depending on the type of business that you are running, you will also need to be sure
you have the local government licences and permits your business needs and any qualifications
or registrations for your trade or profession.
It’s never too early to think about intellectual property (IP), which includes your logos,
trademarks and inventions.
Sole traders can’t advertise their services using their personal name if someone has already
registered that name as a trademark in their industry.
To find out how to check whether your name has been registered as a business name, trademark,
web domain or social media, have a look at this video here.
As a sole trader you are responsible for all work-related debts.
You can draw money from your business’ profits as you need them for personal use, but make
sure you keep a record of money taken from any work bank accounts for your living expenses.
You can claim back many of the expenses you incur in the day-to-day running of the business
to help reduce your tax bill.
But you must keep accurate and complete work records.
This includes banking information, proof of your income, expenses, invoices and cashbooks.
If you’re not confident about looking after your books, think about getting online accounting
software and/or a bookkeeper to help.
Check out this video for an overview of cashflow forecasting etc.
I have probably repeated myself many times, but it is important that you get the right
advice and I strongly suggest you talk to an accounting professional to help you structure
for tax, budgeting etc before you start out.
They can help you to make sound decisions in the best interest of you and your business
To sum up, the good stuff includes: • It’s easy and fast to set up
• Start-up costs are low — there are no legal or registration fees
• You control the business and get all the profits and can deduct expenses
• You can convert to a Limited Liability Company at a later date
The not-so-good stuff • You are personably liable for all debts
• Getting loans or investment from banks can be more challenging
• It’s harder to sell as a working business.
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Until next time.
See you then.