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Electricians: Start as a Company or Sole Trader | 167 · Simplified Sparky Marketing

• 0:00
  SPEAKER_00: How you should start your company today, I would say to you, start as you mean to go on.
• 0:05
  SPEAKER_00: We're gonna go for a little drive and we're gonna have a little chat.
• 0:07
  SPEAKER_00: This week an electrician asked me what is the best way to start your company?
• 0:12
  SPEAKER_00: Should you set up as a company or should you set up as sole trader?
• 0:17
  SPEAKER_00: In my honest opinion, this isn't financial advice.
• 0:20
  SPEAKER_00: This is literally what I've done, and I am just an electrician saying it how it is.
• 0:25
  SPEAKER_00: This isn't what I'm telling you to do.
• 0:26
  SPEAKER_00: You can do whatever the hell you want.
• 0:28
  SPEAKER_00: If you are starting business or if I was to start my time again, I wouldn't change anything to how I have done it.
• 0:33
  SPEAKER_00: Now, how I have done it is I've set up my company as a proprietary limited company.
• 0:36
  SPEAKER_00: So that means it's a separate entity to me.
• 0:39
  SPEAKER_00: So it's almost like I am working for a company that I've set up and I'm the director of.
• 0:44
  SPEAKER_00: Now the reason I did this was a few things.
• 0:46
  SPEAKER_00: Number one is really liability.
• 0:48
  SPEAKER_00: Now, I don't want to be liable for anything that may happen or could happen.
• 0:53
  SPEAKER_00: I don't want my personal assets, my belongings taken because I didn't set the company up correctly.
• 0:59
  SPEAKER_00: So with the company, what the gist of it is, now don't quote me in these figures, but company tax for small businesses is approximately 25%.
• 1:07
  SPEAKER_00: So you can move money around your company in different ways where you can utilize the tax loopholes, as it were, to benefit you better, better than you would as a soul trader.
• 1:20
  SPEAKER_00: So with the soul trader as well, you're kind of capped on what you can do and what you can earn as well.
• 1:31
  SPEAKER_00: You can earn as much as you want, but it's going to get taxed heftier.
• 1:35
  SPEAKER_00: So, for example, if you've got a company, hypothetically, and you make a million dollars, and you're a sole trader and you make a million dollars, with the company, you can buy assets, you can invest it into property, you can do whatever, and you can pay yourself a wage, 150 grand, 180 grand, 200 grand, and you will pay the separate tax on that threshold.
• 1:57
  SPEAKER_00: So hypothetically, if you're paying wages, let's say, for instance, you pay yourself 150 grand, uh 30, 40 grand of that, maybe even 50 grand, will make its way to the government through the taxing brackets at the moment.
• 2:10
  SPEAKER_00: However, the rest of the money still stays in charns around the company.
• 2:14
  SPEAKER_00: So then you'll have stuff in the company, like you'll have overheads coming out of it, the cost of business, the cost of running the actual business will come out of it.
• 2:21
  SPEAKER_00: And whatever's left over at the end of it, after everything is paid, all your bass has been paid and stuff like that.
• 2:27
  SPEAKER_00: That's your profit and that's what gets taxed on.
• 2:30
  SPEAKER_00: Now, don't get caught into this loop where you buy a vehicle outright as well.
• 2:35
  SPEAKER_00: Spoken to members about this inside and simplified Sparky, and I think my mind shift changed to buying a new vehicle when you realized that by just doing business correctly, you'll make the profit to pay that extra$1,000 a year you're borrowing to have the ability to have a brand new vehicle under your ass on the road, regarded in your company name, zero kilometres on the clock, brand new tires, doesn't need a service.
• 3:01
  SPEAKER_00: The warranty is such a big thing.
• 3:02
  SPEAKER_00: You could spend 40 grand on a Toyota hi-Ace that's seven years old.
• 3:06
  SPEAKER_00: You drive it down the road and the engine blows up, you're putting an engine in that for God knows what, five, ten grand.
• 3:12
  SPEAKER_00: So I'm going off the beaten track here.
• 3:14
  SPEAKER_00: Back to the company structure.
• 3:16
  SPEAKER_00: I set mine up at a company prior to limited, and I do this as I said, I wanted a separate entity.
• 3:21
  SPEAKER_00: Now, something to be mindful of if you are setting your electrical business up as a separate company and entity, proprietary limited or trust, you have to have a trading license for that company.
• 3:32
  SPEAKER_00: So the company itself has an electronic contractor's license that you nominate yourself to do.
• 3:36
  SPEAKER_00: And with this, you can't just have a proprietary limited company and you're like, sweet, I'm a I'm the director, I'm a licensed electrician, I've got a contractor's license, that that will suffice.
• 3:47
  SPEAKER_00: That isn't the case.
• 3:48
  SPEAKER_00: You need to get a dedicated contractor's license for your company.
• 3:52
  SPEAKER_00: And then technically, you can actually operate your company under a supervisor certificate, which is really weird, but that's just another thing you'll need to know about going company.
• 4:00
  SPEAKER_00: Now, with the Soul Trader, it just you leave yourself open to getting cleaned out.
• 4:05
  SPEAKER_00: Now, God forbid anything happens.
• 4:07
  SPEAKER_00: Usually stuff doesn't happen.
• 4:09
  SPEAKER_00: But let's say, for instance, you're working a very high-end home and you do something very silly and it costs millions of dollars.
• 4:18
  SPEAKER_00: Now that's where insurance will come into play, but there's other things and other liabilities that can happen.
• 4:23
  SPEAKER_00: They can come after you, they can come after your home, your cars.
• 4:27
  SPEAKER_00: That can all be taken from you if you operate as a sole trader.
• 4:30
  SPEAKER_00: And that's one thing, that's one aspect of it.
• 4:33
  SPEAKER_00: But another aspect is the poor man paying twice.
• 4:36
  SPEAKER_00: If you go and you're like, oh, look, I'm starting the business, I want to cheap out on this, and you actually go and you set up your zero, your service med, all that stuff under this specific Soul Trader ABN, what's gonna happen is when you realize, oh, I want to go a company now, you're gonna have to get a new zero account, new service med account.
• 4:55
  SPEAKER_00: It's a mess, it's a transition.
• 4:57
  SPEAKER_00: Do it once from the start, do it right.
• 4:59
  SPEAKER_00: You're gonna end up paying twice for things.
• 5:01
  SPEAKER_00: It's a mess with your accounting side of things.
• 5:03
  SPEAKER_00: Particularly if you operate as a sole trader for maybe a year or two and you backpedal, and then you're like, I want to go to a company now, you'll just pay for stuff twice.
• 5:11
  SPEAKER_00: And if you're like, oh well, I don't have the money to start a company, I'm a so I want to start as a sole trader.
• 5:16
  SPEAKER_00: Put it this way Do you want to pay for things twice or do you want to put the head down, make an extra couple of grand and set up as a fucking company?
• 5:24
  SPEAKER_00: Another thing you're gonna have to do as a company is you're going to have to register to do your BAS, which is your business assessment statement.
• 5:32
  SPEAKER_00: So what that is, it's an accumulation of your P A Y G tax.
• 5:36
  SPEAKER_00: So what you pay yourself, so if you pay yourself, I don't know,$1,000 a week,$2,000 a week, you might have to put aside$500 to$1,000 tax, have to pay at the end of this quarter.
• 5:46
  SPEAKER_00: So with that, along with your GST, so what you buy and purchase, you buy a 40 grand van, there's going to be three, six or four grand-ish give or take in GST that you can claim off of that.
• 6:00
  SPEAKER_00: Now, all you're doing with GST, it seems fantastic that you're claiming GST.
• 6:04
  SPEAKER_00: All you're doing is going around collecting additional tax for the government.
• 6:07
  SPEAKER_00: And if you are consistently getting GST back, you're doing something wrong.
• 6:12
  SPEAKER_00: That is where you're not making money and you're spending spending and you've got you're actually getting a credit.
• 6:18
  SPEAKER_00: That's a bad thing.
• 6:18
  SPEAKER_00: You need to be making payments.
• 6:20
  SPEAKER_00: Making payments is a good thing in business.
• 6:22
  SPEAKER_00: It just shows that you're running the business properly and that you can earn a living and run a proper business.
• 6:28
  SPEAKER_00: The trust setup is another thing.
• 6:30
  SPEAKER_00: Now, I don't have my full bearings of how trusts operate, but all I know is that a trust is essentially, let's put it as a house.
• 6:39
  SPEAKER_00: So your house is, let's just say, your entire company.
• 6:42
  SPEAKER_00: You can set up a unit trust, which is going to be where the GSD gets paid, your wages get paid, and all that stuff gets paid.
• 6:49
  SPEAKER_00: You can then have other rooms in the house, which can be family trusts.
• 6:53
  SPEAKER_00: So you could have a family trust with you and your partner in there.
• 6:56
  SPEAKER_00: You might have another family trust of your brother who's part of the company or sister, and their family might be in another trust.
• 7:03
  SPEAKER_00: Now, with this, what happens with trusts is money waters down.
• 7:06
  SPEAKER_00: So you can take the earnings from the company, you can trickle to family A, to family B.
• 7:11
  SPEAKER_00: They might have more trusts off of that trust.
• 7:14
  SPEAKER_00: And it's just, it keeps dripping down and dripping down that it's beneficial for tax.
• 7:18
  SPEAKER_00: Now, with that, there's been a lot of rule changes lately with taxation, trusts, capital gains tax, that you really have to speak to your accountant with this.
• 7:27
  SPEAKER_00: And that this is why I say this is not financial advice.
• 7:30
  SPEAKER_00: This is purely what I've done is I've set myself up as a company.
• 7:33
  SPEAKER_00: I only have a gist of how trusts work.
• 7:36
  SPEAKER_00: Why?
• 7:37
  SPEAKER_00: Because I'm not a fucking accountant.
• 7:38
  SPEAKER_00: That is who you have to speak to.
• 7:40
  SPEAKER_00: And you have to speak to a good accountant who's got your back and will look after you, that they set you up in the best possible way, that they're not just like slap dash, get this done and set this person up, it'll be fine.
• 7:52
  SPEAKER_00: And then you realize down the track you didn't really question them, and then you've set up the company incorrectly and you want to do it again.
• 7:57
  SPEAKER_00: So always have a good account and have a good chat with the accountant and make sure that it's beneficial and it works best for you and particularly your family.
• 8:06
  SPEAKER_00: So, for example, if your spouse isn't working and you're the breadwinner, a trust format may be a better way to set that up where the company trickles, the company takes in the unit trust and it trickles down to the family trust.
• 8:19
  SPEAKER_00: And you may be able to give, if you've got kids over specific ages, you might be able to give them$18,000 each uh tax-free into their accounts, hypothetically.
• 8:30
  SPEAKER_00: But if I was to give my honest opinion, how you should start your company today, I would say to you, start as you mean to go on, start as a company if not a trust.
• 8:39
  SPEAKER_00: I would not start as a sole trader.
• 8:41
  SPEAKER_00: It's just too much is on you, and it's good to have a separation as well.
• 8:46
  SPEAKER_00: That you've got your personal like tax file number or whatever, and you've got your company set up, and the company would end up paying that tax file number that you've got.
• 8:55
  SPEAKER_00: So that is my two cents on what I would what I think honestly think about the company setup, the company structure, how I would suggest to people to start companies.
• 9:05
  SPEAKER_00: Essentially, that's it.
• 9:06
  SPEAKER_00: So there's the question answered.