You have your idea and you're keen to get your business set up so you can start taking your product or service to market. So what are the key issues you should consider when looking at starting a business? There are likely to be many. Different industries and businesses will most certainly have unique legal considerations. In this article, we will cover off on matters that are general across all business in Australia for establishing a new business.
Develop your Business Plan
This is a must for any business, big or small. A business plan will assist you to write down and develop your strategies for how your business will operate as well as what risks and opportunities you are identifying within your business profile. Your business plan should be a living document which you refer to and constantly update. If you need some help getting started, the Australian Government has a template here: https://business.gov.au/planning/business-plans/develop-your-business-plan
Once you have developed your business plan, it is a good idea to have it reviewed with your business team. See more on your business team below.
Do Your Numbers
Each different type of business will require different amounts of capital to start up and also require a different amount of cash flow in order to break even. It's important before starting any business that you understand how much money you will need to begin and what sort of buffer you may need in order to stay afloat whilst you develop your customer base. This is also usually covered in your business plan.
Doing your numbers includes not only the financials for the business but also numbers relevant to your industry. So much in business now is reliant on different types of data that are of use to understanding how your business works. It is important for you to be able to recognise what numbers are important to your industry, product, or service. In retail, most businesses understand foot traffic and numbers relating to website traffic. For those in agriculture, the tonnage yield on a crop or drop of a calf per cow are numbers that could determine a profit or loss for that year.
Whatever your industry, good, or service you are providing, it is important that you understand the numbers that you will require to set up a successful and healthy business or to understand whether or not a particular business, service, product, or location are viable.
How will you structure to carry on your business?
Structuring your business from the outset can be vital to your business' success. In high-risk industries, such as construction or mining, having a structure that will allow you to take on projects which have a high payoff but also carry high risk is vital if you wish to ensure that your own personal assets don’t vulnerable to satisfy creditors of the business.
There are many different types of structures in Australia, however, the most common business operating structures are:
- Sole trader: where you operate the business in your own name as an individual;
- Partnership: where you and at least one other business partner operate the business together in partnership;
- Company: whether proprietary or public, a corporate entity is a separate legal entity to you, with its own corporate personality; or
- Trust: where the assets of the business are held on trust for a set of beneficiaries, a trading trust is a common business entity in many industries.
Most businesses just starting out are more likely to commence as a sole-trader until the business outgrows that model and restructures to another structure such as a company or trust. In industries where there is a high risk of the business faltering or litigation, we would certainly recommend that a limited liability structure offered by a company or an incorporated limited liability partnership would be better. You should seek advice in respect of what structure is right for you.
Obtain Your Business Registrations and Licences
Once you have determined your structure and before you commence trading you will need to obtain some registrations with ASIC as well as the ATO and also any industry-specific registrations you may require with professional bodies or NSW Fair Trading ie. building licences or real estate licences.
At a minimum, the registrations that any business will need are:
- Registration of the business name with ASIC (it is an offence under the Business Names Registration Act 2011 (Cth) not to unless you qualify for an exception);
- An Australian Business Number with the Australian Taxation Office; and
- A tax file number.
It is not compulsory for you to have an ABN, however, any business you deal with will have to withhold 47% from any payments made to you for tax purposes. So, for this reason, it is a must.
If you are using a company setup, or you expect to need to hire any employees, you will need to register for Pay As You Go Withholding with the ATO.
If you expect to make more than $75,000 per annum in turnover then you will also need to register for Goods and Services Tax (GST) with the ATO.
If you need more information on what registrations or licences you may need, you can head here: https://business.gov.au/registrations or contact us for further information specific to you.
Protect Your Business Assets
At the outset, depending on what sort of business you are carrying on, the assets of your business are more than just your tools of trade or physical plant or equipment. You may not even realise that your business has assets even before you start trading. You and your business plan are an asset of your business! You and your business plan are worth protecting. Further, that important brand name, product logo or label which you may create from the outset should be legally protected ideally before you commence trading.
Ways to legally protect your business name and brand are to:
- Register your business name with ASIC;
- Register your brand name, logo images, or product branding as protected trade marks through IP Australia;
- Purchase and register domain names online for your business name and those close to it;
- Have relevant confidentiality documentation for any affiliates or business partners or distributors who you are going to be closely involved with or have access to important business information; and
- Take out relevant policies of insurance.
Protecting your IP through trade mark registration can be a cost effective method of ensuring that those who are in the market can see your protected brand and also entitle you to rights to use, license and sell your registered mark. Once registered, no one else in Australia can commercially use your trade mark for the same goods or services you have registered for. Trade mark registration lasts for 10 years and so is a very cost effective and long lasting way to protect your business.
Whilst a policy of insurance will not necessarily protect your business from potential claims, it will protect your business from the effects of a potential claim, such as the losses or legal costs incurred from defending a claim or the economic consequences as a result of a particular event ie. disruption of trade out of your control such as a natural disaster or supply chain shutdown. It's important to obtain the right type of insurance for your business and discuss such policies with a broker, the insurer themselves and/or your legal adviser.
Gather your business team
It is incredibly important that you engage with, and surround yourself, with people who understand your business and are able to advise you in areas that you may not have a deep understanding of. After all, whilst you may be an expert in your business operations, it is rare for business owners to know all the exact legal, tax, accounting, financial, and insurance issues that may impact their business. It is however important that you have a general understanding of these factors so that you can recognise when to seek assistance from your trusted business team.
Your business team may include your accountant, lawyer, professional or industry body advisor, financial planner, business coach, or mentor.
It is important you understand the laws that may regulate or underpin your business as well as have an understanding of how laws in Australia regulate and control transactions between you and your customers. Australia is a heavily regulated jurisdiction with laws that intersect various industries. Anyone who is selling any kind of product or service should be familiar with basic contract law as well as the Australian Consumer Law. It is important to understand any licensing or regulatory laws which may impact your business such as employment, work health and safety, privacy, and industry specific licensing.
Gathering your business team and catching up with them for regular updates can not only assist with helping you grow your business and spot opportunities for growth but also allow you to predict and manage risks as they arise. From a legal perspective, often many legal issues can be headed off or dealt with at minimal cost if dealt with from the outset, rather than waiting until the issue becomes larger than it was initially.
Prepare Your Trading Documentation
When you engage your customers, whether business to business or business to individual, you are entering into a contract. It is important you have documents that ensure that you are adequately protected when you want to commence trading. If you are looking to operate an e-commerce or online business, having the right legal information displayed on your website to protect your business is important.
We would recommend that at a minimum all businesses should have the following documentation ready to use when you commence trading:
- Terms of trade (including terms of use if you are selling via a website) setting out the terms upon which you will provide your product or service to your customer;
- Privacy policy: if you are taking personal information and data from customers you will likely need a privacy policy that complies with relevant privacy legislation;
- Returns policy: if you are selling goods, which could be included in your terms of trade or otherwise;
- Employment agreements and workplace policies: if you intend on hiring staff, it is important that you have employment agreements and workplace policies for your staff to follow ready; and
- A work, health, and safety policy.
Having good contracts and written documentation can assist in avoiding costly disputes as well as set out the obligations and responsibilities of each party to a deal. Written agreements and contracts can also assist in ensuring you have peace of mind for your business including:
- That you can lock in the terms between you and your customers which dictate how your goods or services will be provided;
- Protect your business by having the terms determined in writing and clear and plain for everyone to see; and
- Ensure that payment timeframes are clear, the work which will be provided, and how disputes will be determined are covered.
The above is a good start for any business to get set up. In the following articles, we will be discussing more industry-specific businesses and the legal and business issues they face.
Contact our Business team today on (02) 6331 2911 if you are thinking about starting a business now or in the future to set yourself up for success.
Andrew Kelly | Director