How to start your own business

Fastforward nine years and Michaela’s creative energy has evolved from learning to sew, to creating items to sell and then an online presence, needing larger quantities, and finally to ordering from other suppliers and embarking on a business venture with our sibling, Ange Spinks. My sisters’ online home and giftware business Frank & Bernie evolved in 2013 from one simple idea.

“We wanted to have something to think about other than the kids, the farms and our husbands,” explains Michaela with a smile. “Until the kids were of an age when we could go back to work, we were going to be at home on the farm. We missed our work life; we missed doing something for ourselves.” The business name was inspired by our farming grandfathers, Frank Moloney of Patchewollock and Bernie Beard of Caniambo in Victoria. Ange drives the creative and design side while Michaela runs the accounting, online shopping site, sales and packaging. “Ange has a sixth sense for what is going to be popular next in design and homewares,” says Michaela. “I often don’t believe her that people will buy something, and then they do and it’s a success. She has a real talent for seeing what others don’t.”

Although six years apart in age and living over a thousand kilometres from each other, this pair of businesswomen are cut from the same cloth. Both Ange and Michaela share a love for design and a passion for rural life. Both married generational farmers and had careers in rural banking with top-tier banks. They even became pregnant at almost the same time and gave birth within months of each other (twice). Hence, their children are all around the same age.

Michaela’s life with Nick and their three children — Matilda, 13, Beau, 11, and nine-year-old Pippa — revolves around Inverell, near Armidale, on the northern tablelands of New South Wales. Nick’s work with Angus Australia takes him all over the country as part of the Angus Sire Benchmarking Program, and when he’s at home, he’s working the family cattle property at Bundarra. Michaela works as a bookkeeper for other local businesses, as well as for the family’s pastoral enterprise.

It’s not unusual for farming folk to set up a side hustle as my sisters did with Frank & Bernie. Sometimes it sits alongside the serious business of running the main property, while others decide to embark on a standalone enterprise. There is something of a regional renaissance occurring across the nation at present, an exodus from the cities following the reimagination of lifestyle that was a result of COVID-19. Your new business might be a creative or artistic pursuit, food and drink related, an on-farm diversity project, a farmstay or accommodation offering, a professional consultancy: the list is long. After you’ve had your big idea, you might then start to think about the details, but whether it’s a side project or the main enterprise, the first questions you should ask when looking to run a business are what sort of business structure will suit best and what will it involve?

There are four main types of business structure, which each offer advantages in different situations. Let’s break it down.

SOLE TRADER 

Cheap, popular and easy to set up, with this form of business you will be running business income as your personal income through your tax return, which means all profit belongs to you.

All risk, taxes and losses also belong to you. You’re responsible, too, for organising your own superannuation and, as you’re not an employee, you must remember that you don’t get paid annual or sick leave. You’ll need an Australian Business Number (ABN) and if earnings exceed $75,000 per year you’ll need to register for the Goods and Services Tax (GST). Many businesses start out at first operating as a sole trader to see how things go and later upgrade to a partnership or company structure.

Frank & Bernie operates as a sole trader with Michaela at the helm. “This was how we set it up to begin with when we were testing the waters,” explains Michaela, “and we just never got around to changing it.” Their business model is modest, with no overdraft and no debt. “We run the business income back into the business. Frank & Bernie was established for us to have a creative outlet, so we don’t pay ourselves a wage, although we can purchase goods at wholesale if we want them.”

Senior commercial solicitor Sarah Verstak advises her clients to seek advice early. “It’s easy to get carried away by a good idea and not think about the tax and accounting side of the business until later, when it can be harder to change habits and structures,” she says. “If your business starts out as a sole trader, but is growing and now you want to get other investors on board, then that is a the perfect time to see your accountant and discuss the most effective way to set up your enterprise. It might be a company; you might need a unit trust. It depends. Get advice. Everyone’s situation is different.”

TAX TIME TIP: If your total personal income is $18,200 or less, you don’t pay any tax, whether earned from employment or from income as a sole trader. This is called the ‘tax-free threshold’. Anything above that amount will be taxed according to the amount of money you have earned.

PARTNERSHIP

This is a popular business structure for farming enterprises and creative outlets alike. Often when family members or friends start a business, they decide to ‘go into partnership together’. For example, 34-year-old Bryan Carrigan works the family cattle property in central New South Wales in partnership with his parents on a fifty–fifty basis. His parents own the land through their self-managed superannuation fund and lease the land back to the partnership. Bryan couldn’t afford to buy into the land, so this arrangement gives him a return on investment that suits for now.

Partnerships are inexpensive to establish and, like sole traders, partners are personally liable for the risks and losses of the business, but also personally benefit from the profits. Sarah adds a word of caution: “A disadvantage is that the partners are jointly and severally liable for all debts and obligations of the partnership. For instance, if one partner enters a supply contract with a third-party supplier and the partnership business cannot afford it, the supplier can personally sue any of the business partners for debt or liability, even if the other partners were not involved in entering into the contract.”

When considering partnerships, especially at the beginning of the arrangement, there is an opportunity to have a lawyer draft a partnership agreement to specify who does what, how each partner benefits and how the workload and responsibilities are allocated. While not specifically necessary, where there are two people or entities involved in an enterprise, there is potential for conflict. It’s usually better to spend your time running your business than running an argument, so why not set out the rules before you start? Remember to include an exit strategy if one party wants out.

TAX TIME TIP: What happens at tax time for partnerships? The Australian Securities and Investments Commission (ASIC) advises: as a partner in a partnership, all the money you earn from the partnership is treated as personal income on your individual tax return, so the tax-free threshold will apply. All of your income, including money earned through your business, will be taxed at your individual tax rate. Although the partnership must also lodge a tax return, the partnership doesn’t pay tax separately.

COMPANY 

If you want your business to be operated by a separate legal entity (which you can still be the boss of), then you’ll need to set up a company. Just like you, a company stands alone. It can incur liabilities, make a profit, sue and be sued, file a tax return and own assets. It has the same rights as a natural person. As it is separate to you, a company structure can offer an umbrella of protection for assets in your personal name (such as your residential property), reducing your personal risk if the business venture is unsuccessful. Sarah explains: “For example, if your company is in financial difficulty and is sued or wound up and you own your family home in your personal name, your house cannot be attacked by creditors of your company because your house is owned by you personally, not your company. By contrast, if you operate your business as a sole trader and you become bankrupt, the creditors can issue legal proceedings against you seeking funds owed to them via the sale of your family home if the house is owned in your personal name.”

The company makes the profit or incurs the loss; that is to say, the money earned by the company belongs to the company. The company owns the assets so, as a director or shareholder, you cannot treat company property, assets or funds as if they are your own. Every company has a company secretary, and one or more directors and shareholders. Often the same people occupy both roles in private family companies. Companies bring with them a raft of reporting obligations to ASIC, which are managed by company officeholders.

What is the role of a company director? The person who makes decisions about what the company does every day and who operates the business. Directors must comply with their legal obligations pursuant to the Corporations Act 2001, such as running the company in a fiscally responsible manner and ensuring it does not trade while insolvent. Along with company secretaries, they attend to the reporting obligations to ASIC for the company. Directors may be held personally liable if they are found to be in breach of their legal obligations. The company can pay them a fee for their work.

What is a shareholder? Directors may make the decisions, but the shareholders are the ones who receive the profits, if any. The shareholders own the company, and the directors are answerable to them. Shareholders are not liable for the company debts. Their only liability is to pay the company any amount unpaid on their shares, if called upon to do so. You’ll have a sense of how this works if you’ve ever owned shares with large public companies such as Telstra or the Commonwealth Bank. You own shares and if the company makes a profit, you get a cut of that profit, called a ‘dividend’. Depending on how well or poorly the company performs that year, your dividend might go up or down. If on a downward trajectory, the shareholders might call the directors to account for the company’s poor performance at the company’s annual meeting. These types of meetings for large public companies often make the evening news if there has been any drama. For private companies, there may be only one or two directors and shareholders. Annual meetings are simpler affairs, too: perhaps a family meeting at the kitchen table over a pot of tea? News crews are usually absent, and you may have to bribe a family member with cake to take meeting notes.

“A useful reason for having a company as your business structure is that you can have shareholders buy in and out of the business,” Sarah Verstak advises. This is particularly relevant for regional family enterprises, as it could assist with succession planning. As the older generation sells their shares in the family business and retires from directorships, the younger members may step up and become the directors and shareholders, while maintaining the family brand and goodwill. Sarah observes, too, that “it is useful to have a shareholder agreement which governs the rights of shareholders and can regulate the purchase and sale of shares for the company”.

And really, anything that reduces conflict in predominantly family-owned enterprises has got to be a good thing.

TAX TIME TIP: If your turnover is higher than $75,000 per year, you must register your company for GST. ASIC also advises that companies and directors have key legal and reporting obligations they must comply with, including:
• Keeping ASIC updated within 28 days of important
changes to company details
• Recording detailed information
• Understanding and complying with directors’ duties and obligations.

TRUSTS

A trust is a structure in which a trustee carries out the business on behalf of the trust’s members (otherwise known as ‘beneficiaries’). Companies are often corporate trustees for a trust, with family members appointed as directors and/or shareholders: ABC Pty Ltd operating as Trustee for the XYZ Family Trust. “In a trust structure, a trustee holds your business for the benefit of others (the beneficiaries). According to the Australian Government’s Business website, business.gov.au, a trustee can be a person or a company, and is responsible for everything in the trust, including income and losses.” The trustee manages the business and decides how profits should be distributed to the beneficiaries.

If your business is making the sort of profit that would suggest you consider setting up a trust, no doubt your accountant is already leading the discussion. “If your income is high, then consider setting up a trust with a corporate trustee,” says Michaela Butcher, “and you can have you and your partner, and the children, as beneficiaries of the trust.” While complicated and expensive to create, trusts are a common feature in the corporate landscape and are often used in family businesses, so the assets of the business are protected for the beneficiaries (the family members).

Two popular types of trusts are a discretionary trust (in which the trustee can direct the profits at their discretion to the beneficiaries), or a unit trust (in which the beneficiaries subscribe for the profits in much the same way as shareholders in a company subscribe for shares). Trusts are governed by a document called a trust deed, which details every element of the trust, how it works and who is involved in it.

TAX TIME TIP: Always look in the trust deed to see who is the appointor or settlor of the trust. This will be listed in the Schedule. Why? Because the key thing you want to know about a trust is who is in control of it. Who is making the decisions about where the money goes? It might be the trustee, but the appointor or settlor can hire or fire the trustee and appoint someone else to be in charge.

WHAT’S IN A NAME? 

So, you’ve got your brilliant business idea, and you’ve had a think about what sort of structure might best suit your operations. Now, what about that all-important business name?

If you’re using your own name for the business (with no extra words), then there is no need to register it. If you’re going to use a business name that is not your own personal name, you’ll need to register the business name with ASIC. Business names are inexpensive to register with ASIC ($39 per year or $92 for three years) but provide branding and the opportunity to build goodwill in the name. Multiple business names can be registered to a single ABN. If you sell your business, the purchaser will usually also buy the business name, which will then need to be transferred to them.

If you’re thinking of ideas for business names, it pays to consult the ASIC business names register to check if someone else thought of it first. If so, you might need to tweak the name a little to differentiate it. Do your market research, look at available internet domain names, think about who the competition is and how you can make your business stand out. A great business name can make all the difference.

When choosing your business name and logo, don’t forget to secure a domain name and social media handles to match. When many regional enterprises don’t even have a shopfront, > the internet is everything. It is your digital storefront and, if you don’t have the name sorted, people will walk on by. “The game has changed with social media,” explains Michaela. “Pretty pictures and a clever handle aren’t enough anymore.

Now you must create reels and put your face on there,” she says, giving me the feeling this is not her cup of tea. “The other change in retail is that you don’t need to go to trade fairs,” she says. “It’s too expensive these days. You can travel to Sydney or Melbourne and make an appointment with your supplier. Also, you can get almost anything online and via social media; just contact the brand and order it. Retailers are using Instagram as a shopping catalogue; finding inspiration from other people’s stock and ordering it in from the source.”

Whatever your business structure, you’ll need to find your point of differentiation from all the online and in-person offerings. How can you stand out in a congested and increasingly noisy marketplace? For Frank & Bernie, it is about identity, a sense of place. “We’re from the land,” says Michaela. “We’re both hands on; we don’t just post a photo on the socials and pretend to be. We are the ones out in the paddocks mustering. We hand-fed the stock during the drought. Someone could come up to me at the yards and talk about Angus cattle and artificial insemination. We drench, we load the stock for sale and wave them goodbye, then do the accounting when we get home. We’re not perfect and our nails aren’t done,” she laughs.

DO YOU NEED TO REGISTER A TRADEMARK? 

People often ask whether or when they should trademark their business name or logo. Sarah Verstak advises her clients to register their trademark as soon as they can afford to. It often comes down to cost, she says. “You can register it yourself or get a lawyer to do it for you with IP Australia [the government’s intellectual property register].” Trademarks don’t just cover logos: according to the IP Australia website (ipaustralia.gov.au), a trademark can be “a letter, number, word, phrase, sound, smell, shape, logo, picture, movement, aspect of packaging, or a combination of these”. Think of it as a form of brand protection that distinguishes between your products or services from those belonging to your competitors.

There are two main hurdles to registering a trademark, advises Sarah. “First, your trademark cannot be substantially identical or deceptively similar to an earlier filed trademark. Second, your trademark needs to be distinctive of the goods and services, but not ‘descriptive’ of what you do,” Sarah explains. “The trademark examiner says you can’t have a monopoly over something that is used in the ordinary course of trade.” For instance, you couldn’t trademark ‘Wheat Supply’, as it is descriptive and commonly associated with the supply of wheat, a task common to the grain industry. The cost can be prohibitive for new business owners. There are 45 classes of goods and services in which a trademark can be registered. Sarah advises, “It costs $300 to $400 in government fees per class to register, plus lawyer’s or agent’s fees, so it can escalate quickly if you’re registering in more than one class.”

So why bother? Well, have you ever heard the theory of the universality of a good idea? If you have had a cool idea, chances are someone else is also having that same, or similar, clever thought. It’s the Zeitgeist. However, if you’re the first person to have registered that concept as a trademark, your registration takes priority over all subsequent registrations. You got in first. Similarly, if you’re late to the Zeitgeist party and someone else has already trademarked your brilliant logo idea, then theirs takes priority over yours.

There is commercial value in a trademark: it is intellectual property that can be sold or licensed. The sooner it is registered, the sooner you can protect your bright and shiny idea. Sarah adds, “Once your trademark is registered you can protect your brand by issuing trademark infringement proceedings against other traders who are using trademarks that appear to be too similar to yours. Regardless of whether you have a registered trademark, you can issue legal proceedings if another party is ‘passing off’ their business as yours, if the trademarks are too similar or if another party is engaging in ‘misleading or deceptive conduct’ by using similar branding to yours. However, legal action for passing off and misleading or deceptive conduct require the plaintiff to prove that they have developed a ‘reputation’ in their trademark, which is usually a very costly and time-consuming process. But if you have a registered trademark, you can issue trademark infringement proceedings without the additional time and expense of proving that you have acquired a reputation in your trademark. If you didn’t have your idea registered as a trademark, it would be much harder to protect.” As to the cons of registration? Sarah advises there are none, apart from the cost.

TAX TIME TIP: “Because a trademark is an intellectual property asset,” says Sarah, “if you transfer a trademark between entities, it can trigger a capital gains tax [CGT] event, which is even more reason to make sure you’ve selected the right business structure to start with.” This is also relevant to the sale of a business where trademarks owned by that business are sold as assets, potentially triggering a CGT event and a tax liability.

Setting up your regional business is exciting. Whether you’re taking it slowly or growing exponentially, taking the time to think about how the business is structured, your taxation obligations, branding and the story you want to tell will set you up for success, whether you’re sewing at the kitchen table or sowing crops. Who knows where it could lead? Given the regional renaissance we are now witnessing, anything is possible.