How to start contracting as a sole trader

When working as a contractor, you have the option of trading as a sole trader (using your own name), as a company or through a trust. A sole trader is the cheapest and easiest structure to set up, requiring only an ABN to be registered. Companies or trusts are more costly to set up and run each year, however they can be tax-effective if you are offering your services to a wide range of clients. They can also offer protection of your personal assets in the case of litigation. We would recommend speaking to your accountant regarding the best structure for your business.
In this article we discuss the key steps to starting your contracting as a sole trader. We recommend working with your accountant through this process, using them as a guide to be able help you make each step easier.

Step 1: Draw up a business plan and decide on pricing
Before beginning any business, we recommend drawing up a business plan. This should encompass things such as the starting point and vision for your business, expected expenses, profit or loss, necessary items to begin trading, marketing plan, risk management and so on. Your accountant can help with this, and there are good resources online at under the Planning section.
Do some research into pricing within your chosen industry. Your industry association may have information about this, or you may be able to make decisions based on previous experience. Decide on your pricing and how you will charge your customers. Consider whether you need an hourly or project rate, standard prices for basic services or service packages with regular instalments. Your accountant can help to model scenarios and project cash flow, according to different pricing models. They can also assist with budget preparation.

Step 2: Decide on a trading name
You have the option of trading through your own name or registering a business name. Once you have decided on a trading name, it may be a good time to investigate having a logo or brand designed for you. This can then be applied to business cards, email signatures, websites, social media and letterheads. It is not a necessity, but gives your business a professional touch that impresses potential clients.
If you are unsure of the process, your accountant can assist with business name registration.

Step 3: Register an ABN
An ABN is registered with the Australian Business Registry. A tax agent can assist with the filing of the required forms to obtain this registration. If you have decided to trade through a business name, this will be completed at the same time as your ABN application.
You will also be required to register for GST if you anticipate receiving more than $75,000 of income per financial year.

Step 4: Set up a bank account
Once you have obtained your ABN, go into a bank branch to open a business bank account. You will need to present the bank with a copy of your ABN registration details, together with the normal ID requirements for opening accounts. Most banks offer products that are similar in cost, however some offer perks such as free meeting spaces and hot desks. It is worthwhile doing your homework and investigating business bank account offers before you decide which bank offers the best deal for your business model.

Step 5: Set up cloud bookkeeping software
Cloud bookkeeping software is one of the biggest time savers that you will find as a contractor. This software receives your bank transactions on a daily basis, allowing you to keep up-to-date on your bookkeeping in a simple way. You can prepare budgets to plan for your expenses throughout the year, and it also allows you to prepare and email your invoices and track who has paid you.
There are many cloud bookkeeping products in the market; all have their strong and weak points. We believe that Xero is currently the most user-friendly product on the market, however it is also one of the most expensive. A lower-cost option is QuickBooks Online which still has a large range of features. Your accountant can assist you with training to use these programs if you wish.

Step 6: Make your bookkeeping easier by using add-ons
There are add-on products available for your bookkeeping software that automatically enter your expenses into your bookkeeping file. For example, some add-ons will download your phone bill from your provider and automatically record the details of it in your bookkeeping software. Some add-ons can provide payment options on your invoice so that clients can pay by credit card, Paypal or direct debit. There are a large range of add-ons with a huge range of features; again, this is worthwhile investigating with your accountant.
To begin with, we recommend having a look at Hubdoc or Receipt Bank to see how these products could help save you time.

Step 7: Set up insurance, industry registrations and subscriptions
Each industry is different with regards to trading restrictions. For example, some will require that you obtain a license to trade or be registered through an industry body. You should research what is necessary in your industry and make sure that you are adequately insured. As well as work-specific insurance, also consider looking into income protection and life insurance, particularly if you have a partner or dependents. We can help with contacts in this industry through our referral network.

One last step: set up a work-specific email, website and social media presence
By setting up a work-specific email address, you will keep all your work emails separate from private correspondence. You will also present a more professional face for your communications when trying to attract work.
As your reputation grows, you will have people recommend you to their friends. Often these potential new customers will search online for your business; without a website or social media presence then it will be hard to find you. This can be as simple as a page with a small blurb about your business, your basic services and contact details, or it could extend to regular social media postings or a blog.

We hope that these tips help with you take your steps into contracting. Should you have any questions please feel free to contact us at Red Spark Consulting.

Copyright © September 2018 Michael Lawry and Red Spark Consulting Pty Ltd. All rights reserved.