How to Get a Business Grant for Your Startup

So, you want to start your own business in 2023? Good job! Today you start as a sole proprietor and run your business independently without other people. Sole proprietors are often referred to as “self-employed” because they run their businesses and are not employees of a larger organization. They are responsible for everything that happens in their business, including paying taxes and keeping records.

There are other entities you can use for your business; however, in this business blog article, we’ll explain the pros and cons of being a sole proprietor, including:

  • Retailer explained.
  • Legal stuff
  • Get paid.
  • Tax requirements
  • Take over, employees.
  • Other considerations

Advantages and disadvantages of a sole proprietor

Let’s start by explaining the sole proprietor status.

What is a sole proprietor?

A sole trader is someone who owns and operates their own business. As a sole proprietor, you’re responsible for all aspects of your business, from finding clients and getting work done to tracking your income and expenses and paying taxes on your profits.

Being a sole proprietor is different from being a business owner because there is no legal difference between you and your business. This means that you are personally responsible for any debt or loss incurred by your business. It also means that you can keep all profits after tax – unlike in a company where profits are shared among shareholders.

Key elements to becoming a sole proprietor.

Here are a few important things to keep in mind when considering becoming a sole proprietor.

Registration

You need to register your company with the relevant authorities – in New Zealand, this is the Companies Office, and in Australia the Australian Securities and Investments Commission (ASIC).

Bank account

You need a business bank account to separate your personal and business finances.

Company name

You must include your company name on all marketing materials, websites, and social media accounts. As a sole proprietor, you can choose to operate under your name or a trading name. A trade name is a business name that is different from your name. You must register a trading name with the Companies Office or ASIC if you use a trading name.

How do sole proprietors pay?
Sole proprietors can choose how they want to be paid through salary or dividend. A scholarship is an amount you pay yourself each month, just as an employee would be paid.

A dividend is a distribution of profits from your company that you can take as cash or reinvest in the company. The advantage of a premium is that you only pay tax on the money once – when you pay out of your business account. The downside is that you may end up paying more tax overall because dividends are taxed at your tax rate (which can be higher than the corporate tax rate).

What are the costs of becoming a sole proprietor?

The cost of becoming a sole proprietor varies depending on the country you’re in and the type of business you want to start. For example, registering as a sole proprietor in New Zealand is free of charge – you can do this online through the Companies Office website. While in Australia there is a $50 fee for registering as a retailer with ASIC. You’ll also have to pay an annual registration fee, which is currently $87 for businesses with less than $10 million in annual revenue.

Let’s say your revenue is more than $10 million. In this case, you’ll have to pay a higher annual fee – currently $360 for businesses with revenue between $10 million and $100 million and $1800 for businesses with more than $100 million in revenue.

What can sole traders claim tax on?

How to run your business as a sole proprietor
How to run your business as a sole proprietor

Is a Sole Proprietorship Right for You?

If you want to start your own business but don’t necessarily want to form a limited liability company (LLC) or partnership, starting a sole proprietorship might be the best fit for you. Maybe you have a business idea and want to start small to see if it could work. A sole proprietorship is an easiest and fastest way to begin. Maybe you still have a full-time job and want to freelance on the side, render a service or sell a product. As long as you are the only owner you do not have to take formal action to form a sole proprietorship. As with all businesses, however, it is important to obtain any necessary licenses and permits needed to operate.

If you’re on the fence between the two types of business formation check out the full Sole Proprietorship vs. LLC comparison.

As a sole proprietor, you can claim all expenses incurred “wholly and exclusively” in the course of your business operations. This includes the cost of goods sold, office expenses, travel expenses, and marketing expenses.

You can also claim deductions for using your home as an office — for example, if you have your own home office or workplace, or use part of your home to store supplies or equipment. To claim these deductions, you must keep records of your expenses and how they relate to your business.

Can sole proprietors hire employees?

Yes – as a sole proprietor, you can employ employees in your company. They must comply with labor law and pay their taxes and pensions.

What are the advantages and disadvantages of a sole proprietor?

One of the main benefits of being a sole proprietor is that you have full control over your business – you don’t have to be accountable to anyone and you can make all the decisions about how your business is run. Another advantage is that it is relatively easy and cheap to start a business as a sole proprietor – in most cases, this can be done online in just a few minutes.

The main disadvantage of being a sole proprietor is that you are personally liable for all debts and losses incurred by your business. If your business is sued or unable to pay its debts, your assets — such as your home or savings — could be at risk. Another disadvantage is that raising money as a sole proprietor can be more difficult than for a business. This is because potential investors are more likely to invest in a company structured as a company. After all, they are not personally liable for the company’s debts.

Should you start your business as a sole proprietor?

Whether you start your business as a sole proprietor or as a business depends on many factors – including the size and nature of your business, how much money you need to raise, and whether you agree with the level of personal liability involved. If you’re starting a small business and don’t need to raise a lot of money, being a sole proprietor might be the best option. This is because it’s relatively easy and inexpensive to start as a sole proprietor, and you have complete control over your business.

However, starting a business may be a better option if you need to start a more significant business or raise capital from investors. This is because companies can offer limited liability to shareholders, meaning they are not personally liable for the company’s debts. No matter what structure you choose for your business, make sure you understand the pros and cons of each option before making a decision. And if you’re ever unsure which structure is appropriate, seek professional advice from an accountant or business lawyer.

 

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