Last time we covered reasons for being in the GST system. Let’s look at the other side, if your turnover is under $60,000 pa.
If your customers are individuals rather than corporates, your price may be lower if you don’t add GST. Especially if you run a labour-based business and don’t buy many supplies.
With lawn mowing, for instance, most customers shop on price. Being outside GST may make you more competitive, gaining you market share.
Steering clear of GST also reduces compliance costs. Even if you do your own GST returns with great software like Xero, it takes time. And when your accountant does your annual return, their fee should be less if they don’t have to process GST.
Next time we’ll discuss how often you should do your return if you are registered for GST.
These are general comments. You should take independent advice before acting.
Whatever your business size and structure, there are good reasons to register for GST.
If you expect your annual turnover to exceed $60k from supplying goods and services, GST registration is a must. This $60k excludes non-core (e.g. interest or domestic rent) income.
If you expect to turnover less than $60k, you might still register voluntarily for GST. Because if you spend money (e.g. on plant or equipment) you can claim the 15% GST and put it back in your business
Another reason to register is if your clients are councils or corporates. Many won’t deal with non-GST-registered suppliers as it’s too much bother for their accounts people.
GST registration even denotes size and credibility. Some clients fear dealing with ‘little fish’ who turn over less than $60k.
These are general comments. As every person’s situation differs, it’s wise to seek independent advice before acting.
Your advisors agree you can start a business. Should you be a sole trader?
Cheap and easy to set up, this structure has fewer compliance costs than a company or partnership. You call all the shots (including the coffee).
On the flip side, you’re personally liable. If something goes wrong, you could lose your home.
As all profits must go to the owner, being a sole trader isn’t ‘tax effective’. This may not seem a problem. But if you prosper (and why else would you start a business?) you can’t easily channel income to loved ones.
When a sole trader dies, so does the business. Unless you sell it first. We’ll cover that later.
For now, know that the structure you choose will have profound and lasting implications. So wise up before you do!
So you want to start a business. Great! But before you do, there are people you should consult.
Your spouse/partner. As they’ll be hugely impacted by what you do, you really need them on board.
Other business owners. They’ve been through the uni of hard knocks. They can tell you what it’s really like and save you making the same mistakes.
The bank. Launching without funds is like diving without water.
An accountant. Someone who can explain the pros and cons of franchise, sole trader, partnership and company options. (We’ll cover these separately in future articles, as picking the wrong horse, or changing mid-race, is very bad news.)
It’s vital to sit down and talk things through. Don’t just think five months ahead, think five years.
Wise people seek advice. The wisest take it. What kind of business will you have?
Starting a business may sound fun: work when you want, take breaks any time and stop when you’ve had enough. If you’ve worked for an organisation for a while, you may have many reasons to make the leap and be your own boss. But being great at your job doesn’t mean you have what it takes to own and run a business. The sad fact is that around 80% of businesses fail in the ﬁrst ﬁve years!
How conﬁdent are you?
As accountant to hundreds of businesses over 17 years, I’ve learnt ﬁrst-hand what it takes to succeed in business, and the kind of person who’s likely to make it. You could be that person. But before you make any sudden moves, this series of fortnightly articles is designed to help you decide if being in business really is for you.