The decision to start a business is usually pretty exciting. It’s often someone’s dream finally coming to life. In these early stages it is quite easy to gloss over some aspects that aren’t particularly fun or money making in order to get things up and running. However, whilst they aren’t money making they could very well be costly and as accountants, we hate to tell our clients that there could have been a better outcome if a few things were different.
The first big financial decision is the structure of the business. Quite often in the very beginning a Sole Trader is the preferred way to operate as setup costs are limited – quite often a popular set up for trades people or the like. However there are some advantages to structuring your business differently.
A big advantage of having a trust or company is the limited liability. This simply means that owners are not necessarily financially responsible for faults or accidents, as the business is a separate legal entity. In extreme cases of financial debt, there will be no access to the personal property or assets of the business owners if the business is carried out through a trust or company. Unlike a sole trader, who is personally liable for financial debts and damage claims made by customers.
Another advantage of operating under a trust or company is the ability to distribute profits amongst other beneficiaries or shareholders under certain circumstances. This is unlike operating as a sole trader, profit can only be income for the individual business owner.
So whilst there are important decisions to make, branding, business location, menus, pricing, staff etc, all the things that will attract your customers or clients, don’t forget about the things they won’t see. Those financial set up decisions will have a bearing on your bottom line and after all, why do the hard yards if you’re not getting the best financial outcome available. We may be tax accountants, but we love to see your business thriving and being proactively involved to help you grow.