If you’re starting out in business operating as a sole trader – as opposed to operating in a company structure – makes a lot of sense.
It’s a sector that’s on the rise.
According to research conducted by recruitment firm Kelly Services nearly a fifth of the Australian workforce is self-employed, with numbers swelling in the wake of redundancies sparked by the global financial downturn.
Being a sole trader is a good way to reduce the administrative burden on a fledgling business.
But if you’re on your own you have to be an exceptional time manager and be clever about branding to give yourself the opportunity to punch above your weight and take on larger companies.
Andrew Pride, a business coach with Smart-BIZ Consulting, says rarely do start-up businesses go straight into a company structure.
“You would only do that if you were operating a high risk business and needed the limited liability protection a company structure offers or if there are a number of different people in the business,” he says.
Pride says that generally speaking: “Until the business starts earning a decent revenue – say roughly more than $50,000 a year – you usually wouldn’t look at a company structure because it’s not until that point that what you’ll save on tax paying the company tax rate will cover the costs of setting up and running the company.
“Running a company is more expensive than operating as a sole trader because of the increased accounting and registration fees.
“Usually start-ups have enough on their plate worrying about how to pay tax and setting up the right insurances, so using the simpler sole trader structure makes a lot of sense.”
Pride says key dynamics sole traders need to manage are overheads and workload.
He says a start-up will often begin to market the business, which will generate work, but then make the mistake of putting on a full time employee to cope with the influx of work.
He says a smarter approach is to use casual labour to ensure that the business is not burdened with overheads it can’t cope with.
Amber Daines is a sole trader who runs PR and media training consultancy Bespoke Communications.
She says rather than pitch for really big jobs, such as work from huge FMCG brands, she concentrates on smaller, more manageable jobs so that “all my resources are not tied up with one client”.
She says: “The benefit of working with me is that each client gets access to director level expertise rather me making the connection with the client initially then getting junior staff to do the actual work.
“I do work with freelancers when I need to but I manage these resources myself and the client always has a direct line to me.
“It’s all about having a personal relationship with the client and it’s important not to exaggerate what you offer.
“I only outsource work to experts and let the client know some work will be outsourced. I often find clients approach me after having had a bad experience with a large agency.”
Daines acknowledges that working with smaller clients increases the risk that they will have less capacity to pay her invoices but says “there’s also that risk if you work with larger businesses”.
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