8 Easy Steps On How To Start A Business In Australia
The Australian economy is driven by over two million businesses,2 which provide jobs, services, and products for the rest of the country. If you’re thinking of joining the ranks and starting your own business, there’s a few key things you’ll need to do, and to make things easy for you, we’ve broken these down into eight clear steps. Here’s a simple summary on how to start a business in Australia, including every resource you need to get cracking.
Table of contents
- Pick a business structure
- Choose a business name
- Register your website domain
- Register your business
- Get your licences, permits, and codes of practice
- Set up a bank account
- Get an accountancy system
- Find a business location
Setting up a business in Australia—what to do before you start
We don’t want to disillusion you, but running a business is hard. According to the University of Technology in Sydney, one in three new small businesses in Australia fail in their first year of operation, two out of four by the end of the second year, and three out of four by the fifth year.1 It’s important for you to understand the challenges and lifestyle changes that come with running a business, so that you don’t waste your time.
Ask yourself these questions
Before you start, ask yourself these questions:
- Do you have the skills? — are you trained in the thing you’re trying to do? Will you be able to manage the finances of the business, and potentially hire and manage staff members? These skills can be acquired of course, but this can be a big task in itself, especially if you’re completing a qualification.
- Are you willing to work long hours? — if you could spend a breezy 30-hours per week running a business, everyone would be doing it. Instead, most successful businesses are run by diligent dynamos who are willing to commit to ten hour days, sometimes on weekends too.
- Do you have the capital? — starting a business requires a few upfront costs that you’ll need to cover, as well as ongoing costs. You may also not be able to pay yourself a salary until the business is a little more established. You’ll need to identify each of these costs and plan accordingly.
- Are you tenacious? — when things get tough with your business, whether it’s losses, failures, burnouts, or all three, do you have the tenacity to muck through them?
- Are you willing to take a risk? — there’s no question that starting a business is risky, but if you’re prepared to work hard, you can create something to be proud of.
Validate your business idea
If you’re fully committed to starting a business, and have the determination and money to do so, you’ll want to be confident about your business idea. And this confidence should (mostly) come from research and analysis, not hubris!
Here are some key ways to validate your business idea—something known as market validation:
- Identify the value of your product—people won’t buy things unless they satisfy some kind of need, whether psychological or practical. Pin down the value of your product to understand whether people will actually want to buy it.
- Identify your target audience—what does your ideal customer look like? What are their demographics? Their problems? You might even consider completing basic buyer personas.
- Identify your differentiation—if you’re selling a product or service in a competitive market (likely), how will you differentiate yourself from your competitors? Will you offer a lower price, better customer service, or a more durable product? There’s tons of ways that you can differentiate, and it’s necessary because it can provide people with a reason to buy from you.
- Write down your hypotheses—your hypotheses are your beliefs about the business idea. You may think that your product will be a hit, that your pricing model will work, and that your target customers will consume your products like rabid wolves. And that’s fine—just make sure you write down these hypotheses, and then try to validate them with research.
- Assess the market size and share—this is one of the toughest things to do, but it’s absolutely crucial. Check out this guide from the MaRS Startup Toolkit on how it works.
- Interview people—if you’re not used to this, it may be weird and a little uncomfortable, but it’s a fantastic way to learn about people’s motivations, preferences, and needs. You can also hire a market research company to do this for you if you have the capital.
- Talk to family and friends—family and friends can provide great advice, also be cautious about this because people are usually polite for the sake of social etiquette, and will tell you what you want to hear.
Step by step guide on how to start a business in Australia
Starting a business in Australia (or any country) is fairly complicated, but by breaking it down into individual steps, it becomes much more manageable. Here are the eight things you need to do to start a business in Australia.
We’ve tried to provide a basic overview as part of this article. You’ll definitely need to do some more research for certain steps, but they should give you a clear guide on the approach.
First, you’ll need to choose which type of business structure you want to operate under.
1. Pick a business structure
The type of business structure that you select depends mostly on whether you’re going into business with someone else, and whether you’re planning on building something big. These are the structures that you can select in Australia.
Photographers are a common example of sole traders. They work alone, and don’t need a complicated company setup
Sole traders are best suited for people who are just getting started by themselves, and don’t want to spend too much money from the outset—it costs just $39 to register a business name and start trading. Common sole traders include graphic designers, carpenters, and photographers, who typically work for themselves and don’t hire people (although sole traders can hire others).
A sole trader is not a separate legal entity, so any income you earn is included in your tax return, which can include plenty of deductions for your work. There’s no division between your business and personal assets, which means you can freely withdraw money from the business. On the downside, you have full responsibility for any debts you incur.
Companies are usually a better idea for people who are planning to grow and employ others. It’s much more expensive to set up compared to sole traders—$55 to reserve a company name, $39 to register a business name for one year, and $538 for registering the company itself (this is for a proprietary limited company—the most common type).
A company is a separate legal entity, which requires its own tax return and therefore more bookkeeping. You will need to keep the company’s money in a separate business bank account, and you aren’t able to just withdraw it whenever you need. Instead, it must be received as wages or directors’ fees.
When it comes to the debts of the business, they are the responsibility of the company rather than yourself. However, as the director your personal assets may be at risk if you can’t pay the debts.
Partnerships are similar to sole traders, but with two or more people. They are suited for people who don’t want the expense of setting up a company, and don’t have grand plans for growing a business that employs lots of staff. The cost of setting up a partnership varies based on your state, but it’s a similarly low cost to sole traders.
Partnerships are not separate legal entities, so any profit that it makes goes directly into the partners income. Each partner will pay tax on their share of the profit, on separate returns. Partners are also responsible for the debts of the business.
There are three types of partnerships based on how you want to split the responsibilities and liabilities of the business:
- General partnership (GP)—all partners equally responsible
- Limited partnership (LP)—partners whose liability is limited to the amount of money they have contributed. This is common for passive investors who don’t help to run the business.
- Incorporated limited partnership (ILP)—one partner must have unlimited liability for the debts of the business, but other partners can have limited liability.
Trusts are rarer business structures that are best suited when you’re carrying out business for the benefits of others (trustees). A common example are family trusts, which is created to manage the family’s assets such as their property or shares. They are expensive and complicated to set up, and usually require the help of a lawyer. It’s highly unlikely that you’ll want to set up a trust.
2. Choose a business name
The name that you choose for your business will become a core part of its identity, so it shouldn’t be taken lightly. Ideally, it will be relevant to what you do and also catchy, which will help people to understand what your business is all about and remember it when they need to.
Coming up with a killer business name doesn’t come naturally to most of us, which is why we created a step-by-step guide to help. It leads you through a series of questions and creative tasks that will lubricate your brain cogs and help you to generate a ton of great ideas. We even made downloadable worksheets that you can fill out as you go. Check out the article here: how to come up with a business name.
Once you’ve invented a name you love, you will need to check whether it’s already registered at the government’s business names register, and whether it has been trademarked. That’s why it’s best to come up with a few names, which we encourage in our guide.
3. Register your website domain
Every business needs a website, and you’ll want to secure a website domain that closely matches your business name. This helps people to find you easily, and also reinforces your branding. It isn’t always possible though, and you will pay more for domains that are popular, so register as early as you can to avoid overpaying.
There’s lots of places where you can register/buy domain names, so you may want to shop around for a good price. Domains tend to be pretty cheap, starting at around $10 a year.
We recommend registering two domains if you can afford to: an Australian-based .com.au domain, and a global .com domain. That way, if your business grows to the point where you want to start selling internationally, you already have the .com address ready to go.
4. Register your business
Now that you’ve chosen a business structure and name, you can officially register the business! As part of this process, you’ll also select additional registrations like GST, PAYG withholding, and Fuel Tax Credits (FTC) if they are applicable to your business. It can be tricky knowing which you’ll need, and the easiest way to find out is by using the government’s “help me decide” questionnaire. But the most common registrations that you’ll need are as follows (although this varies, so we strongly recommend using the government questionnaire):
- Sole trader: ABN, Business name, GST
- Partnership: ABN, Business name, GST, TFN
- Company: ABN, Business name or Australian company name, GST, TFN, PAYG
You can get these registrations through the government’s business registration service.
5. Get your licences, permits, and codes of practice
You will need to obtain certain licences and permits depending on the type and structure of your business, your local council, and the operations that you’re planning to undertake. You’ll also need to comply with certain codes of practice.
For example, if you’re a Brisbane sole trader plumber who plans on hiring people and promoting your business, you’ll need 18 individual licences and permits, and will need to comply with six codes of practice. Sound complicated? It is. That’s why we recommend using yet another government service to figure out which licences you need: the Australian Business Licence and Information Service. It asks you every key question they need and gives you a clear list of licences, permits, and codes of practice at the end. Once you have that list, you can apply for the licences and permits here.
Just to warn you: depending on how many licences and permits you need, this can get expensive.
6. Set up a bank account
As a business owner, it’s a good idea to keep your business finances separate from your personal finances. While this isn’t strictly necessary for sole traders or partnerships, it makes everything much easier to manage if you do it regardless. Be sure to shop around for the best business bank accounts, paying close attention to account fees, limits, overdraft facilities, and whether they have branches close to you.
7. Get an accountancy system
An accountancy system like Xero will allow you to easily send invoices and quotes, and accurately capture all of the business’s finances in a single system. If you’re planning on becoming a sole trader, you’re legally obliged to keep financial records for up to 5 years. This extends to seven years if you’re setting up a company, and having an accountancy system is the easiest way to collect these digital records without having to complete manual work. They can be pretty cheap too—around $50 a month.
8. Find a business location(s)
Your business location can be extremely important
The final piece of the puzzle is finding a suitable location for your business (if you need one). This obviously depends on your specific operation, and could include any of the following:
- Stores—if you have a physical store, the location can be the difference between success and failure. You’ll need to consider local competition, foot traffic, accessibility, the wealth of the area, local demographics, and more.
- Storage facilities—if you sell products that need to be stored, you will need a facility to do so. Location is important here too. You want it to be as close as possible to your customer base to reduce shipping costs, but far away enough from your city’s centre to not overpay in rent.
- Factories—if you’re planning on manufacturing your own products, you’ll need a building to do so.
- Offices—an office can make your company seem professional and legitimate, and serves as a place where you can take meetings. More and more employees are wanting to return to the office too, after becoming bored with working from home. But in saying that, remote working is certainly something to consider, in which case you may be able to work right out of home.
- Meeting rooms—if you don’t need an entire office, you can rent meeting rooms for relatively cheap.
Most businesses choose to lease their commercial locations, as it keeps things more flexible, and negates the need for large purchase deposits. You will almost certainly want to rent your location if you’re just starting out.
Starting a new business—summary
There’s a lot involved, but starting a new business is actually the easy part. Generating a profit is where it gets tricky. But if you’ve identified a clear need for your products or services, and have the skills and tenacity to thrive, you could become a successful Australian business, and will help to support our economy in important ways. Good luck!