Last financial year, 167,646 businesses in Australia were created, an increase of 7 per cent on the previous year. Of those businesses, more than 80 per cent were non-employing businesses or sole traders — many of them were Australians monetising a hobby.
As the economy gets tougher, more and more people are exploring hobbies and interests and turning them into side business ideas, however most don’t know where to begin!
We had a chat with our Director, Katrina Purcell, about the rise of the ‘side hustle’ and her accounting checklist for all new entrepreneurs!
MLP: Katrina, a record number of Australians are creating new businesses on the side of their full-time careers, is there a reason why?
KATRINA: It’s certainly a combination of more people working from home, the unstable economy, the rise in interest rates and Australians concerned about finances as the pandemic gripped the nation. However, it is not always money-driven. It’s a chance to pursue a passion, which in turn is also a chance to earn a little extra income as the cost of living rises.
MLP: Does a new business need to be in my current line of work to best succeed?
KATRINA: Not at all, while some individuals can make money on the side from their chosen career, many are turning their hobbies, such as gardening or jewellery making, into money-making businesses.
MLP: What are the first steps from an accounting point of view to set up this new business?
KATRINA: It’s important to forecast to determine what you will need and how big you envision the business to be. You need to think about aspects such as:
- What are you going to charge for your services?
- How much tax will you then have to keep aside?
- The set-up and ongoing costs?
- How big will this side business be and how much of your time will it take?
IDENTIFYING YOUR BUSINESS TYPE
Your answer to the above questions will dictate how you set up this business. A fairly small and simple business with limited risk, may be best set up in your personal name as a ‘sole trader’. But a larger, more complicated or risky business might require other structures such as companies, trusts or mixtures of both.
Depending on your business’ size and setup, business income tax returns, business activity statements and various payroll related docs could be required which needs to be taken into account.
KEEP RECORDS
Once the framework of the business is ready, I would recommend getting your record keeping process in place, as this will be vital come tax time, and also to track how your business is going from a profitability view.
There are many cloud-based accounting packages available for monthly subscription costs to simplify these requirements. The best ones can connect with your bank account to save you data entry time whilst tracking money coming in and out of the business.
MAKE A BUDGET
Put together a budget so you know how much income you need and your spending limits to be profitable. These budgets can also often be entered into those accounting packages to make it easier to track your actual performance against the budget.
PLAN TO SUCCEED
Although only a side business, the cliché of “failing to plan is planning to fail” still rings true. There are many aspects to navigate when starting a business, which is why a good accountant will help you identify your obligations and put together a plan to make sure you don’t fall behind with your lodgements and payments, and can assist in creating a roadmap for your business now and into the future.
The decision to start a side business is not one to be taken lightly. But if you do it right it can be thoroughly rewarding both financially and personally.
For more information about starting your own business or to make an appointment with a specialist from Moore Lewis & Partners click here.
In the meantime, the ATO has plenty of information about the requirements for small businesses.
