This is how things typically go with our industry.
Me: I want to open my own salon
Accountant: Great! Let's just start you as a Sole Trader and when you get big enough, we will change you into a company (Lazy accountant who is not taking you seriously)
Me: Ok great (phew. Company sounds serious and complicated)
Fast forward to the end of the financial year
Accountant: It's normal to make a loss in the first year. We will check in again at the end of next year and see where you are at (zero care factor)
Me: Ok (Am I meant to be making money? I'm not taking a wage yet. Where did all the money go? Am I doing ok? Am I growing? How do I grow? I am going to work my ass off, and employ a few people, market the shit out of my business and make some money so I can start paying myself)
Fast forward another year
Accountant: Well, you certainly have grown, Well done you have employed a few people. You have managed to pay their super which is great. There is however a Tax Bill this year with your employees PAYG and BAS and you have made a small profit.
Me: Do I pay tax of the profit? (FUCK)
Accountant: Yes this is considered your wage, so its only at the lowest bracket as it is not very much (This chick has no idea)
Me: Ok (Where did that money go? I don't remember taking a wage so to speak. How am I going to come up with the money to pay the tax & staff PAYG? Ok now I really need to make a shit load more to pay for all this)
Fast forward another year
Accountant: Ok so we need to talk about this tax debt. You need to go on a plan with the ATO. Try to put more away each week to cover the next BAS in advance. (Why do these people start business when they don't know what they are doing)
Me: To be honest, I have been working my ass off for 3 years now, and I have not taken a wage. All I do is pay my staff & tax it seems. (Why am I doing this)
Accountant: Well the profit is your wage
Me: Yes but all the ‘profit' is just paying for the next BAS or the last BAS. I am struggling to get ahead
Accountant: You are growing quite rapidly, maybe we set that company up now (This is a sinking ship. She should probably protect her assets)
Me: Ok, what do I need to do for that? (This sounds complicated)
Accountant: Well it will be about $2000 set up
Me: I don't have that at the moment. Do I need to be a company? (surely I can just stay a sole trader)
Throughout the year an employee decides that you have been an asshole boss and leaves. They also decided to put in a claim for extra hours they worked. You stress, and end up in a Fair Work claim. You have to pay out a few thousand dollars
The tax debt is mounting
You still have not been taking that wage
You wonder why you are doing this. You think about closing up or selling. Really you just want to take what ever you can and pay out this debt.
This is a story I hear almost every day. If its not the Tax Debt, then it is something else.
Do you know, that if you are a sole trader, and you employ someone, you are no longer a sole trader? Think about it… Sole means ‘one'. It was designed for solo operation. When you open the doors to your business, and you employ, and you have clients etc. you have to be prepared to loose EVERYTHING if it turns to shit.
Yes it takes more effort, a little more money and probably a better accountant to start a company, but you are protected by that company veil if it turns to shit. The LTD stands for ‘limited liability'. That means, you have limited liability if it goes pear shaped.
And it does.
Every bloody day of the week.
Starting as a sole trader and waiting until you grow is poor and lazy accounting advice. Demand to be set up like the champion boss you are from the beginning. Own the director title from the get go.
I am also going to put it out there that I believe this is a gender issue. Most women are not taken seriously with their businesses. This is a predominately female industry. I may be completely off the mark, but it has never been suggested that my husband be a sole trader. Ever.
I have spent 10 years fighting for it. I finally have an accountant that gets me, and takes me seriously, and I now have the business structure that I deserve.
Make 2018 YOUR year to become a company if you are not one. I am warning you…. it is a pain in the ass becoming a company if you are a sole trader. New ABN, new bank accounts, you have to rehire all your staff on paper, fill out new trade account paperwork… It is annoying, and a little costly… But cheaper than the sleepless nights about worrying if you are going to have to declare bankruptcy because you can no longer service your debt.