Category

Business Law

business structures for tradies

What is the Best Business Structure for a Tradesman Wanting to Start their Own Business?

By | Articles, Business Law

If you’re a tradesman contemplating going out on your own, there’s probably a bunch of things going on in your mind, one which may be how do you legally set up your business?

Integral to that question is what business structure you should consider. Should it be a company, a partnership or a sole trader? Well, to find out more, Elisha Hodgson, a lawyer at OMB Solicitors discusses the topic.

TRANSCRIPT

Dan: Elisha, where does a tradesman start in their thinking about this structure?

Elisha: That’s a good question. Really, before you even start thinking about what business structure might be right for me, I think it’s important that you think about what are the traits of my business and what do I want to achieve in the next 5, 10, 15 years? Are you looking at employing more people? Are you looking at expanding the business quite rapidly? What is the size of your business and I guess what are similar businesses in the industry doing themselves?

Elisha: I think those sorts of questions you need to ask yourself just before you even think about the type of business structure because, really, there are a lot of options. It will come down to what is most suitable to your personal circumstances, whether that be reducing your tax is important to you, or if you’re looking at limiting liability. Those are the sorts of things that you need to start thinking about before implementing any business structure.

Dan: I’m assuming that most tradesmen would be thinking that, okay, sole trader is probably the easiest because it might not incur as much cost as perhaps setting up a company, etc. Is that your experience?

Elisha: Yes, definitely. It certainly is one of the most popular options amongst the tradies, especially those at the subcontractor level with not many staff.

Elisha: But as a sole trader, you are the business, so you have control of everything, which makes up that business. It’s quite quick and easy to set up, there’s not a lot of ongoing accounting obligations, as opposed to some of the other business structures. So, yes, certainly it is quite a popular option amongst the tradies.

Elisha: But, like all types of business structures, there are some advantages and disadvantages. I think that’s what each individual needs to weigh up in their own circumstances.

Dan: For a sole trader, what would be some of those risks? I’m thinking that are they protected should the business go bad, and they’ve got people that want to chase them for money?

Elisha: Yes.

Dan: Are they protected in that case?

Elisha: Well, certainly the other sort of business structures, such as a company, would provide a higher level of asset protection.

Elisha: As a sole trader, one of the key risks is that you are the business, so any loans, credit facilities, supply guarantees, and any other debts or liabilities that you incur in running that business could potentially and generally does become the personal responsibility of the individual sole trader. Really, if things start going pear shape, then you don’t have that extra level of asset protection that something like a company structure would provide, so there are risks.

Elisha: I think it’s important that, depending on the amount of staff that you have involved or the level of risk put in your individual business, I think that’s something that you have to weigh up in terms of whether or not to stay in the sole trader position, which is the most common, or if they want to transition to it something a little bit more sophisticated, like a company or a partnership or a trust sort of business structure.

Dan: Elisha, it probably makes sense for a tradie prior to making a move to get advice. Because I was just was thinking that whilst it’s okay for us to have a discussion around this, and we’ve got reasonable knowledge about what the structures are and the risks and opportunities, does it make sense to consider all those options in consultation with a lawyer?

Elisha: Yes, certainly. I also think seeking advice not only from your lawyer, but also an accountant would be appropriate as well. I think in consultation with all parties involved and having considered what you want to achieve with your business longterm, I think having a roundtable discussion will really seek to achieve great things for your individual business in terms of asset protection, even tax savings, and also just the general progression of your business, particularly if you want to expand with your business.

Elisha: This is certainly the case if you start talking about some of the other business structures like partnerships and companies and the like, and even trust, you certainly would want to be seeking legal advice quite early on, particularly when you start coming to drafting a trustee or shareholders agreements or partnership agreements.

Elisha: Those sorts of things might be quite foreign to a tradesman; however, that’s where our level of expertise can come in and really assist the business in achieving what they want to do.

Dan: Elisha, thanks for joining me.

Elisha: Not a problem. Thank you.

how to sell your business

What You Need to Know Before You Sell Your Business

By | Business Law, Podcasts

For many business owners, they’ve dedicated years and years of blood, sweat, and tears into their enterprise, hoping that one day, all their efforts will pay off when they sell the business. This, of course, is particularly the case for business owners who, perhaps, haven’t paid into a superannuation fund, who see the sale of the business as going towards funding their retirement. But, of course, when it comes to selling the business, there is a lot to it, and many smart people would say that your planning needs to start years before you hand over the keys.

In this podcast, OMB Solicitors Partner, Simon Bennett discusses the key things you need to consider for selling your business.

Transcript:

Dan: Well, today, I’m with Simon Bennett, a partner at OMB Solicitors. Simon, what is the starting point for a business owner contemplating all this?

Simon: I think, Dan, it comes down to organisation. A business owner who has put, as you said, years of effort and time into developing and growing their business, would like to maximise not only the price that they’re going to receive for the business, but the efficiency and speed with which that business will sell. Now, quite often, that process can be complicated by a seller not being organised. And what I mean by that is be organised in respect to all aspects that a buyer might want to look at. Any prudent buyer of a business will want to conduct a due diligence and those things will start with the information that I’m gonna talk about.

So some of the key items are your finances. You’ve got to have your books in order. You need to see a qualified and experienced accountant to make sure that your books and your financials are in order. Because no one’s going to buy a business and no one’s going to pay good money or top dollar for a business that can’t justify that purchase price or sale price with the returns. And a really prudent buyer will investigate those figures to determine the strengths and weaknesses of the business. So that’s the key number one. If they can’t finance the business through the figures, they won’t purchase it.

The second thing I’d say you need to look at is all the other bits. The ancillaries. So things like what licences do you need to run the business. If it’s a restaurant, have you got food licences in place? Is the business name in place? If those things aren’t in place necessary to run the business, you will fall foul of the purchaser, and potentially lose yourself the sale.

Then there are things like a business name. Are you operating under a business name? Is it registered and is it current? Because if someone is gonna buy value in a business, and that value includes the goodwill, which would include the name that the business is operating under, we want to make sure that that is current and up to date, and you’ve got the rights to it, not someone else.

We want to look at the equipment list. What do I get? A purchaser wants to know what does the purchase price include? Does it include stock? Does it include equipment? And with that equipment, is it owned outright, that is unencumbered? Is it leased? And if so, what are the terms? Or is it under a rental or some other form of agreement? And if so, again, what are the terms? Can they be assigned, or will a buyer take them over, or will you pay them out as part of the sale process?

So these are key elements that a seller can start to plan well prior to listing their business for sale.

Dan: Not to mention, Simon, even employees, as well. I’m assuming that there might be employment contracts that also need to be considered in the mix.

Simon: Yes, exactly. What’s going to happen? Are there key employees that must stay with the business? So if you put your shoes in the buyer’s position, if I’m buying a business, do I need that key employee, that key staff member business manager or what have you, to come over to enhance the goodwill of the business? If so, as a seller, I’d want to lock that employee in and make sure that I would be able to transfer them across to a new business owner and purchaser.

But it also leads into something else. Are they prepared, if the buyer wants them to, to stay in the business for a period? What would be the terms of that? Would it be documented? And if not, one of the key considerations for a purchaser, so therefore, the seller organising and thinking ahead will say, “Am I prepared to sign a restraint? So if I sell this business, am I then prepared to be restrained from competing against that business?” For example, again, in the food industry, if we were to own a restaurant, surely a purchaser will not allow us to compete within a certain area or radius because then we can erode their goodwill. So upfront consideration of these type of items is key to knowing what terms you’re gonna be listing your business on.

Dan: Simon, is it the case that for a person considering selling their business, that should happen, all the thinking should actually happen two years prior, three years, or five years? Is there any sort of recommended timeframe to do this work?

Simon: I think two or three years prior is too long. I think realistically, in the year you’re selling the business would be adequate. However, when you build your business, you should have consideration as to what will be valuable, not only in the continued operation but also valuable to a purchaser, and that might start a little bit further out. So the way you create and the way you grow your business should have some consideration as to what a reasonable purchaser for the value would pay for that. But I think in preparing for an actual sale, we’d want to be talking about the particular year that you were going to be selling it in, maybe a little bit earlier if you are really organised. But certainly, for something like your books, that should be a constant and an ongoing.

Dan: And getting legal advice as early as possible is obviously a no-brainer.

Simon: Well, I think it is essential. It is really so important. You wouldn’t certainly sign any documents associated with a business sale or purchase without consulting with an expert, someone who has substantial legal experience in these matters because the devil is in the detail, as with a lot of legal documents. The business contracts are no different, and they need to be specifically tailored to each business, each individual seller, and what that business entails. Without that, you can’t use any generic form of document because they’ve just got to be tailored to that specific business. What the buyer and seller have agreed between themselves regarding some of those items I’ve talked about. Really important. Get good legal advice to draught the document. So quite different to let’s say a residential or a basic property deal whereby agents in Queensland are commonly drafting documents. That would not be the case in businesses. You need to see your lawyer before documents are drafted to do the drafting for you.

 

be the boss

Be The Boss

By | Articles, Business Law

Check before you become the boss and sign the cheques.

So you want to be the boss and control your destiny? Owning your own business is not a simple task and with regulation and rules on top of the difficult financial climate you must be sure that all your ducks are in a row.

From a legal aspect you need to ensure that before you enter into a contract to purchase a business that you consult your solicitor. Before you even get to a contract there are extremely important issues of structuring that must be considered. Don’t for a moment think you should just be buying in your own name, serious consideration should be had to owning the business in a company, trust or combination of these vehicles. This type of structuring when done correctly will provide asset protection and may also allow your accountant more flexibility when planning your taxation matters.

The contract must be properly drafted to ensure that you are protected as this is the single most important stage of the purchase. A sensible business contract should allow you the opportunity to investigate all aspects of the business before you are committed to buy. You need to make sure the accounts of the business are accurate and you should ensure your accountant verifies the figures. A trial period can be negotiated where you work in the business and get to see not only the workings but also the customers and the income.

It is essential that the premises from which the business operates is secure as often there is a large amount of the goodwill attached to the position of the business. Therefore your solicitor must check the lease and ensure you have security of tenure. All licences and approvals must also be in place to guarantee that you will be able to operate the business. Issues with staff, ownership and transfer of assets, business names, websites and the like form an integral part of the process. Franchises are often part of business purchases these days and it is essential that you are properly advised on these agreements.

Your solicitor will be able to guide you through the process and you will soon learn being The Boss simply means that you have responsibility for not only yourself but the whole business. Simon Bennett is a Partner and Accredited Property Law Specialist with O’Keefe Mahoney Bennett Solicitors.

This article was featured in Label Magazine – Summer, December 2008, by Simon Bennett

Book now