How to start a Business in Australia

Starting your own small business in Australia can be a fantastic way to boost your financial situation and take control of your income. Whether you’re turning a hobby into a side hustle or launching a full-scale operation, Australia has a straightforward process for getting started. In this guide, we’ll cover the best and most cost-effective ways to set up your small business, the impact it may have on securing a mortgage, and the steps needed to succeed.

Choosing Your Business Structure

The first step in starting your business is deciding on its structure. In Australia, there are three main structures to consider: sole trader, partnership, and company. Each has its own set of benefits and considerations. A sole trader is the simplest and most inexpensive structure to set up. It involves one person owning and operating the business. This structure gives you full control over decisions, but it also means you are personally liable for any debts or losses your business incurs. Registering as a sole trader is straightforward, and while registering for an Australian Business Number (ABN) is free, you may need to pay a small fee to register a business name if it differs from your own name. The cost for this is around $37 per year or $88 for three years.

Operating as a sole trader can positively impact your ability to secure a mortgage as it demonstrates self-sufficiency. However, lenders often require at least two years of consistent income from your business to assess financial stability. This can be a challenge for new businesses that are yet to establish steady revenue streams.

If you decide to go into business with others, a partnership might be the right choice. A partnership allows two or more people to share responsibility and costs, making it a collaborative effort. However, this structure also means you share liability, and it is important to have a formal partnership agreement in place to avoid disputes. Registering a partnership name involves similar costs to those of a sole trader, but you should also budget for the legal fees required to draft a partnership agreement. Partnerships can show a lender that risks are shared, but they also introduce complexity in income assessment, as lenders may need financial details from all partners.

For those looking to scale their business or limit personal liability, setting up a company might be the best option. A company is a separate legal entity owned by shareholders, offering limited liability protection. While this structure provides more credibility and makes it easier to raise capital, it does come with higher setup and ongoing costs, as well as more stringent reporting obligations. Registering a company through the Australian Securities and Investments Commission (ASIC) costs $538, and there are annual review fees starting at $45 for small proprietary companies. While a company structure can enhance credibility and expand your borrowing options, the increased paperwork and higher costs might slow down your financial progress initially.

Registering for an ABN

An Australian Business Number (ABN) is a unique 11-digit number essential for operating a business in Australia. It is required for invoicing clients, claiming Goods and Services Tax (GST) credits, and avoiding withholding tax. Applying for an ABN is free and can be done online through the Australian Business Register website. If your business is expected to earn over $75,000 annually, you are also required to register for GST. This can be done at the same time as your ABN application. Having an ABN not only helps with tax compliance but also adds legitimacy to your business.

From a mortgage perspective, having an ABN and registering for GST demonstrates that your business is legitimate and earning above a certain threshold. However, lenders may scrutinize your financial records more closely to ensure consistent income before approving a loan.

Securing a Business Name and Domain

Choosing the right name for your business is crucial, as it reflects your brand and helps establish your identity in the market. If your trading name differs from your personal name, you must register it with ASIC. Once you have chosen a business name, securing a domain name for your website is equally important. A strong online presence is vital for any modern business. Platforms like GoDaddy or CrazyDomains allow you to register a domain name, with costs typically ranging from $10 to $50 annually. If you are targeting Australian customers, consider using a ".com.au" domain, as it lends credibility to your brand. To register a ".com.au" domain, you will need an ABN.

Having a professional business name and online presence can positively influence a lender's perception of your business. It shows you are serious about your operations, which is important when presenting your case for a mortgage.

Opening a Business Bank Account

Separating your personal and business finances is essential for effective financial management. Setting up a dedicated business bank account ensures that all your business income and expenses are tracked separately. Most major Australian banks, including Commonwealth Bank, Westpac, ANZ, and NAB, offer business accounts tailored to small businesses. When opening a business bank account, you will need your ABN, identification documents, and business registration details. A dedicated account not only simplifies bookkeeping but also adds professionalism when dealing with clients and suppliers.

From a mortgage perspective, having a business bank account is critical. Lenders will look at your business bank statements to assess your income and expenses. A well-maintained account with consistent cash flow can improve your chances of mortgage approval.

Obtaining the Right Licenses and Permits

Depending on the industry you are entering, you may need specific licenses or permits to operate legally. For example, businesses in food, construction, or childcare often have stringent licensing requirements. The Australian Business Licence and Information Service (ABLIS) is a valuable resource that helps you identify the licenses and permits required for your business type and location. Ensuring compliance with these regulations is crucial to avoid penalties or disruptions to your operations.

Failing to obtain the necessary licenses can harm your business's reputation and reduce its profitability, which in turn could negatively affect your ability to secure a mortgage.

Setting Up Accounting Systems

Managing your finances effectively is critical to the success of your business. Investing in reliable accounting software like Xero, MYOB, or QuickBooks can streamline your bookkeeping, invoicing, and expense tracking. These platforms offer affordable plans starting from around $25 per month. For more complex financial needs, hiring an accountant or bookkeeper can provide additional support, especially during tax time. Accurate financial management not only helps you monitor your business’s performance but also ensures you are meeting your tax obligations.

Having organized financial records is vital when applying for a mortgage. Lenders will examine your business’s profit and loss statements, tax returns, and other financial documents to ensure your business can support regular loan repayments.

Securing Business Insurance

Protecting your business with the right insurance is a vital step. Public liability insurance is essential for businesses that interact with customers or the public, while professional indemnity insurance is crucial for service-based businesses. Product liability insurance is important if you manufacture or sell goods, and workers’ compensation insurance is mandatory if you employ staff. The cost of insurance varies depending on your industry, business size, and risk factors, so it’s worth shopping around for a policy that suits your needs.

Having adequate insurance can reassure lenders that your business is protected against unforeseen events, reducing the risk associated with lending to you.

Building Your Online Presence

In today’s digital age, having a strong online presence is non-negotiable. At a minimum, you should create a professional website that showcases your products or services. Platforms like Wix, Squarespace, and WordPress make it easy and affordable to build a website, even if you have no technical experience. Social media platforms like Facebook, Instagram, and LinkedIn are also powerful tools for promoting your business and engaging with customers. Leveraging these platforms effectively can help you reach a wider audience and build a loyal customer base.

A robust online presence can demonstrate to lenders that your business is modern, adaptable, and capable of growth, which may positively impact your ability to secure a mortgage.

How Long Do You Need to Be in Business to Secure a Loan?

If you plan to apply for a business loan or mortgage in Australia, most lenders require a trading history of at least 12 to 24 months. This allows them to assess your business’s financial performance and stability. For startups, the process can take longer, as lenders may need additional guarantees or collateral. To support your loan application, you will need to provide detailed income documents, including bank statements showing consistent revenue, profit and loss statements, and tax returns for at least one to two years. Some lenders may also request a comprehensive business plan, particularly for startups seeking funding.

Relying on your business as your sole income source can complicate the mortgage approval process. While successful self-employment can show lenders you have control over your finances, the lack of a stable, long-term income history can make them cautious. Preparing thorough documentation and working with a mortgage broker who understands self-employment can improve your chances of success.

Additional Tips for Success

Marketing is an essential component of growing your business. Cost-effective strategies like social media advertising and local networking events can help you reach potential customers without breaking the bank. Additionally, explore government grants and incentives available for small businesses through platforms like business.gov.au. Joining local business groups or chambers of commerce can also provide valuable networking opportunities and support.

Starting a small business in Australia doesn’t have to be overwhelming or expensive. By following these steps, you can launch your business and set it up for success. Once your business is established and generating income, you’ll also be in a stronger position to apply for loans or other forms of financial assistance. Whether you’re looking to improve your financial situation or achieve a lifelong dream, there’s never been a better time to start your own business. If your business will be your sole income source, proper planning and consistent financial records are crucial for securing a mortgage. Need more advice on managing your finances or securing a loan for your business? Contact Mortgage Base Finance today on: 03 8678 1871