small-business

How do I start a small business in Australia?

Ever wondered how to start your own business in Australia?

Embarking on a new business venture is both exciting and terrifying in equal measure. On the one hand, you'll finally be the boss; the master of your destiny who's pursuing success in something that you're truly passionate about. On the other hand, you now have a laundry list of things that you need to tick off before you even start to make sure everything kicks off smoothly.

Whereas working for someone else alleviates these responsibilities, the startup owner takes on all these stresses themselves. Not only that, every country has different laws, regulations and requirements to get your business up and running. So, even if you've started a business in one country, you've still got to do a pile of research to make sure you do it properly in another.

The day you open your small business will likely be one of the most memorable and fulfilling days of your career. But as you plan your grand opening, it is important to remember that not all small businesses are destined to succeed. Starting a successful small business in Australia requires strategic planning, hard work, and dedication. If you embody these qualities, your odds of long-term prosperity will rise. Below are the steps to starting a new business in Australia.

What is a small business?

A small business is defined differently by different regulators and laws.

ASIC administers the Corporations Act 2001, and this defines a 'small proprietary company'. From financial years commencing on or after 1 July 2019, a 'small proprietary company' is defined as 'small' for a financial year if it satisfies at least two of the below criteria:

  • annual revenue of less than $50 million
  • less than 100 employees at the end of the financial year, and/or
  • consolidated gross assets of less than $25 million at the end of the financial year.

For financial years commencing before 30 June 2019, a proprietary company is defined as 'small' if it satisfies at least two of the below criteria:

  • annual revenue of less than $25 million
  • less than 50 employees at the end of the financial year, and/or
  • Consolidated gross assets of less than $12.5 million at the end of the financial year.

For taxation purposes, the Australian Taxation Office defines a small business entity as having less than $10 million aggregated turnover.

For employment purposes, Fair Work Australia defines a small business as one that has less than 15 employees.

Many regulators use the Australian Bureau of Statistics (ABS) definition, which is a business that employs fewer than 20 people.

Are you eligible to start a company or business?

Some people are automatically disqualified from managing companies or operating businesses in Australia.

Can a bankrupt, disqualified or convicted person become a company director or manage a company?

If a person is bankrupt, they cannot manage a company during the period for which they are bankrupt. For more information, see bankruptcy and personal insolvency agreements.

ASIC has the power to disqualify or ban you from managing a company for up to five years if:

you have been involved in two or more failed (liquidated) companies in the last seven years, and a liquidator has lodged a report with ASIC for each of the companies about the companies' inability to pay its debts.

Suppose a person has been convicted of certain offences, including fraud. In that case, they are automatically disqualified from managing a company for five years from the day they were convicted, or if imprisoned, from the day they were released.

Can you register a business if you have been disqualified from managing a company?

Certain entities are disqualified from holding a business name if ASIC has disqualified the entity from managing a company. An entity can be:

  • an individual
  • a body corporate
  • a company
  • a partnership
  • any other unincorporated association or body of persons
  • a trust
  • a superannuation fund

You must notify ASIC if you, or a person involved in the management of your business, is disqualified from holding a business name. It is a criminal offence to manage a company when disqualified.

How to Start a Business in Australia

Make a plan

Anyone can think of an idea. It's the execution and strategy of your idea that matters. If you do this, you can turn your hobby into a successful home-based business. Your business plan should be your guide when it comes to running your business.

Your plan should identify clear goals, opportunities and financial forecasts that you want to achieve over a specified period. It's also important to plan how you're going to respond to any setbacks. Planning for a business is not merely day to day; you also need to map out what you want your business to do over the next 6 to 12 months.

Some questions to consider before starting your business include:

  • Who will be the target market for your product/service?
  • What does your budget allow for?
  • Where do you see your business in 12 months?
  • How might you price your products and services relative to your competitors?
  • Do you have a formal marketing plan in mind?
  • What structure do you want your business to be?

Find your structure

One of the first things you need to do when starting a business is deciding on its structure. Choosing your business structure comes with important tax implications, liability limitations, and reporting obligations. Your business's structure will, therefore have a significant impact on how you run your business and what you'll have to do to be legally compliant.

The three main Australian business structures are:

  • Sole trader (or sole proprietorship)
  • Partnership
  • Company

Certain structures will be more suitable depending on your circumstances and the kind of business you want to start. For example, if you want to work on a solo basis as an electrician, being a sole trader may benefit you. Sole traders do not, however, have limited liability. This means your assets may be collateral, and your profits will be taxed as part of your income. Further, if you want to trade under a commercial name, you will have to register a separate business name.

Alternatively, if you do not want to be financially liable, you may be better off registering a company. Your business's profits will be taxed separate to your income and will enjoy the lower company tax rate. Registering a company also means that you won't be liable for your business's losses (unless you sign a director's guarantee).

Find your space

Running a business from home allows for flexibility and comfort, but you should also dedicate an area in your home to running your venture. This can be simply a desk which will serve as your office or a dedicated room where you will manage your business's operations. Doing this will put in the frame of mind of doing business, and help minimise any distractions that may be present in your home. You should also check local council guidelines to see what rules apply to your local area. Different local governments have different rules for home-based businesses, and some even require approval.

tax strategies on paper

Register for an Australian Business Number (ABN)

Regardless of which business structure you choose, you should register for an Australian Business Number (ABN). An ABN is a unique number that identifies your business for tax purposes. You are required to have an ABN if you intend to register for GST or PAYG Withholding. Further, you will need to display your ABN on invoices and receipts you issue to customers.

Note that if you are applying for your ABN as a company, you must first register for an Australian Company Number (ACN). Once you have completed your ACN registration, you may then apply for a new company ABN.

Build a digital and social media presence

Building a positive online presence is important for any small business. A website is your first point of contact with consumers and reflects the credibility of your business. Your website provides information about your services, generates leads, and builds your brand image.

In a digital age where 79% of Australians are smartphone users, and 81% of consumers research a product online before buying, having a digital presence is essential to starting a successful small business from home. Further, most small business owners are surprised to find that the cost of maintaining a website is very affordable.

Consider your legal needs going forward.

It is important to ensure that you have the right legal documents to ensure that your website is legally compliant and protected under Australian Consumer Law. These include terms and conditions and privacy policy for your website.

As your small business grows, you might need employment agreements when hiring employees or increased asset protection and decide to apply for company registration. By taking our free Legal Health Check, you will be able to identify the legal gaps of your small business and keep up-to-date with all your legal obligations.

Identify your funding source.

If you're like the majority of new startups, cash flow will be your primary concern. You can have the best business plan in the world, but it won't be of any use if you don't have the money to keep the lights on while you're getting your feet on the ground. With this, it's important to know what resources are available to make the initial growth period a lot easier.

While there aren't many government grants to help you start your business, there are plenty of options that are specific to each state. For example, if you're starting a business in Adelaide, you can apply for a cool $20,000 Small Business Development Fund.

Choose your software stack.

As you get started building your business, you have a lot of big decisions to make. One of the most important choices is strategically choosing software that can make your life easier as you scale.

While your exact software choices depend a lot on the type of business you are building (a SaaS company will require slightly different tools than a coffee shop), there are several tools that are worth considering for every business.

Nearly every company should utilise a CRM to keep track of important customer information in one central repository, an accounting or bookkeeping software to keep finances in order, and an analytics tool to measure business growth.

Register for the correct taxes.

As the saying goes: "The only certainties in life are death and taxes." Unfortunately, this is also true if you start a business in Australia - you absolutely must register for the correct taxes to avoid any potential legal implications. The taxes you must register for are dependent on the type of business you choose to start, with some applicable to every type and others only mandatory for certain types.

Some examples include:

  • Goods and Services Tax (GST) - this is compulsory if your business has a turnover of AUD 75,000 or higher
  • Pay as You Go (PAYG) withholding tax - this is required if you need to withhold an amount for tax purposes, such as paying wages or salaries
  • Fringe Benefits Tax (FBT) - if you're lucky enough to be able to provide perks like a company car to your employees, then you'll need to register for this

With the above essentials sorted, you're almost good to go. But, we do have one last tip for you - starting a business is a tough task that's made a lot easier if you can find ways to save money and build a solid network of peers and partners to work with.

A great way of doing both is to set up shop in one of Australia's many coworking spaces. You'll save a tonne of money on office costs and also open the door to networking opportunities which can lead to other benefits down the line.

Whatever you do and wherever you decide to start your business, we wish you the very best of luck!

Before you start a business:

  • There is a range of support available from the government and other organisations.
  • There is a difference between running a business and having a hobby. Establish your status early as it will affect your tax and deductions.
  • Look to attend small business workshops to assist with issues such as planning, financial management, innovation, employing staff and exporting. Networking can keep you up to date on industry and local information.
  • It is essential to plan for your business for the success of your business. Regularly review and revise your plans as an ongoing business activity.
  • A business and marketing plan provides direction. Consider a social media plan, export or import plan, succession plan and emergency response.
  • Good financial management is critical to the ongoing success of your business. Know how much funding you need, where you can get it and how to manage your financial arrangements.

How can I start a small business online?

Starting a small business online can be assisted by the following:

There are agencies such as the Department of Communications and the Treasury that are available to help.

Know where to get Information Technology (IT) training to set up a secure website. You can employ services and hire a specialist web designer or do it yourself. Design and build an easy-to-use website. Use keywords, social media and search engines to drive traffic to your site.

Once your website is completed, it's important to ensure that it's properly protected to prevent sensitive data being stolen, corrupted or destroyed. The Stay Smart Online website and social media channels provide information on the simple steps that individuals and small businesses can take to protect their personal and financial information online. Unless properly protected, sensitive data can be stolen, corrupted or destroyed.

Follow the same laws and regulations as if you were operating from a shopfront. For an online business, there are also additional regulations like spam laws and privacy obligations which are a must to protect your customers' personal information that you collect both online and offline. If the Privacy Act does not cover you, your business should still aim for good privacy practice. Review your relevant state and territory consumer laws and contact your state or territory consumer affairs agency.

Consider Having a Soft Opening

"The biggest mistake that new entrepreneurs make is they start with a big grand opening celebration right away. Then they find out that the computer system still has some bugs, they did not hire enough staff, and the phone system is not working properly. That is why every business should have a soft opening at least 30 days prior to the grand opening." – Diane Seltzer, Small Business Marketing Tools.

In your eagerness to start serving customers, you might be tempted to schedule your official opening before you have worked out some common kinks. You can help avoid some of the typical problems that plague business owners during their first operational week by scheduling a "soft opening" roughly 30 days before you officially open your business to the public.

A soft opening will allow you to assess the effectiveness of your website, phone system, production line, and other key facets of your business. Most importantly, it will help ensure that things flow smoothly during your first official week of operation.

Finally

Preparation and planning is key to starting a business from home. Make sure you also understand your local council's guidelines and comply with any zoning laws. You should also ensure that you have home and contents insurance to protect your business assets if anything happens. As exciting as it might be, it is important to analyse your business goals and set up a sound legal foundation to ensure that your business is legally compliant.

Launching your first small business is one of the most exciting things you may do in your life. And by following the steps above, you can put your small business on the path to success from the moment you officially open your doors. 

To learn more ways to propel your business to success in Australia, we invite you to contact us at Klear Picture. In addition to guiding you through the phases of starting your business, we will help you maximise your company's financial future through our personalised super savings advice and tools. We look forward to helping your small business grow and thrive!  

 

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