Starting a business is an exciting and challenging process. You dream of what will be and focus on your vision for the business. Despite the exhilaration entrepreneurs experience during this phase of business there are some less exciting and often overlooked considerations that need to be addressed long before we start registering names and building websites.

One such consideration is your business structure. It is easy enough to jump on the Australian Business Register and apply for a personal Australian Business Number (ABN) but that is not necessarily the best idea. In fact, that step may be setting you up to fail from day one and could cost you thousands of dollars to fix later on.

As a professional accountant working with small business owners I see this almost every day and have the less than enjoyable experience of letting my clients know that they have a massive tax bill I can’t do anything about and fixing their structure to stop it happening again in the future is going to trigger a capital gains tax bill as well.

So, rather than continue on this destructive path lets fix the problem. Make sure you understand the basics of business structuring and seek some professional assistance before you start your business. Your future self will be grateful you did!


Choosing Your Business Structure – What to consider

There are a number of business structuring options available to small businesses and one solution does not fit every business situation. Its important that you consider your personal situation as well as your long term goals for the business. The choice of structure depends on factors such as:

  1. The type of business you operate and in which industry;
  2. Your personal financial situation;
  3. Whether the business is just you or if others will own part of it;
  4. How large you intend to grow the business; and
  5. Whether you are building the business to operate or to sell.

As a professional advisor my focus is always on the structure that will give my clients the most flexibility in planning for cashflow and tax management as well as protecting their personal assets without being so expenses to operate that the cost outweighs the benefit. Sound complex? It can be, but the subject is too important not to cover off on all the variables.


Choosing Your Business Structure – Your Options

Under normal circumstances small business owners have four general structuring options available to them under Australian law. A basic comparison of the four options is outlined below. While each structure will be covered in more detail later in this series of articles the table below is a handy way to compare their pros and cons in one place.

  Sole Trader Partnership Company Trust
Cost to set-up and maintain Low Medium High High
Complexity Simple Moderate Complex Complex
Reduce risk to owner No No Yes Yes (with the right Trustee)
Do I receive all the profit? Yes No No No
Can I employ staff? Yes Yes Yes Yes
Do I have to pay myself superannuation? No No Yes No
Ability for smart tax planning? No Limited Limited Yes
Is it easy to raise capital? No No Yes Yes
Is it easy to close down or exit? Yes Yes No No


Each of the four options brings with it advantages and disadvantages as well as giving the business owner different tax and reporting obligations that need to be managed effectively. Your accountant or business adviser can help you make the right decision here and if they’re not taking steps to ensure you are properly structured then you are working with the wrong accountant.


Where Do You Go from Here?

This article is the first in a series. Each Business Structure in the table above is covered in more detail later in the series. To learn more about a particular structure I would recommend reading the rest of the series as each article is published.

For some professional advice on Business Structuring Contact Us.


Working with Panic Atax

Panic Atax is a Brisbane based Accounting and Business Advisory firm specialising in building strong relationships with clients and removing the stress and hassle many small business owners experience around financial reporting and tax. If you’re looking for an accountant to build a great, long term working relationship with we’d love to hear from you.