The secrets of sole trader success
If you’re starting out in business operating as a sole trader – as opposed to operating in a company structure – makes a lot of sense.
It’s a sector that’s on the rise.
According to research conducted by recruitment firm Kelly Services nearly a fifth of the Australian workforce is self-employed, with numbers swelling in the wake of redundancies sparked by the global financial downturn.
Being a sole trader is a good way to reduce the administrative burden on a fledgling business.
But if you’re on your own you have to be an exceptional time manager and be clever about branding to give yourself the opportunity to punch above your weight and take on larger companies.
Starting on your own
Andrew Pride, a business coach with Smart-BIZ Consulting, says rarely do start-up businesses go straight into a company structure.
“You would only do that if you were operating a high risk business and needed the limited liability protection a company structure offers or if there are a number of different people in the business,” he says.
Pride says that generally speaking: “Until the business starts earning a decent revenue – say roughly more than $50,000 a year – you usually wouldn’t look at a company structure because it’s not until that point that what you’ll save on tax paying the company tax rate will cover the costs of setting up and running the company.
“Running a company is more expensive than operating as a sole trader because of the increased accounting and registration fees.
“Usually start-ups have enough on their plate worrying about how to pay tax and setting up the right insurances, so using the simpler sole trader structure makes a lot of sense.”
Pride says key dynamics sole traders need to manage are overheads and workload.
He says a start-up will often begin to market the business, which will generate work, but then make the mistake of putting on a full time employee to cope with the influx of work.
He says a smarter approach is to use casual labour to ensure that the business is not burdened with overheads it can’t cope with.
Amber Daines is a sole trader who runs PR and media training consultancy Bespoke Communications.
She says rather than pitch for really big jobs, such as work from huge FMCG brands, she concentrates on smaller, more manageable jobs so that “all my resources are not tied up with one client”.
She says: “The benefit of working with me is that each client gets access to director level expertise rather me making the connection with the client initially then getting junior staff to do the actual work.
“I do work with freelancers when I need to but I manage these resources myself and the client always has a direct line to me.
“It’s all about having a personal relationship with the client and it’s important not to exaggerate what you offer.
“I only outsource work to experts and let the client know some work will be outsourced. I often find clients approach me after having had a bad experience with a large agency.”
Daines acknowledges that working with smaller clients increases the risk that they will have less capacity to pay her invoices but says “there’s also that risk if you work with larger businesses”.
Battling against the odds
Paul Knotts, who runs Total Injury Prevention Specialists, which consults to businesses to help curb workplace injuries, took the plunge to go out on his own in mid-2010.
He says initially he was overwhelmed by how much he needed to do to get his business off the ground in terms of marketing and administration but he feels more comfortable now.
“I’ve had to draw on my internal fortitude to progress,” he says.
“Being part of networking groups such as BNI Australia is also a good way to share your anxieties and talk to other sole traders.
“It gives you the confidence to know if you do the right things the business will come good.
Knotts says before deciding to go out on your own it’s important to do stringent research so you know there is demand for the services your business will provide to give you confidence the business will be viable.
“It’s about overcoming your fear and having the gumption to make the leap,” he says.
Keeping the balance
Sandy Barrett, managing director of BRCS Software, is another entrepreneur who set up as a sole trader.
He says for him one of the most important aspects of operating as a sole trader is to make sure he has a balance in his life.
He says: “I set aside an hour each day which I spend doing brain training exercises to help give me the energy and the patience I need to run the business.”
He admits that some people balk at doing business with a sole trader but: “I try to present the business as having a certain amount of strength to give people the confidence to use my services.
“I do have extra resources I can draw on when needed but I don’t need to engage them too often. But if I find I have too much work on I do have those resources available.
“This keeps the business lean which keeps the costs to the customer down.”
Being the boss
Initially Barrett focused on providing software solutions to small-to-medium firms, work he could handle because he operates on his own.
“The approach I took initially was really a confidence thing but now the business has matured I’m more confident working for larger firms, for me the sky’s the limit.”
Barrett says he prefers working as a sole trader because “the buck stops with me. I also prefer to see a job through to fruition, without the hurdles of having to deal with colleagues who might have different ideas to me. I like to control and set the pace and direction of the business.”
But ultimately, says Barrett: “You are responsible for everything, which can encroach on your life, although for me the benefits of operating as a sole trader outweigh the downside.
“Being a sole trader suits someone who is self-motivated and ambitious and willing to put in a bit of elbow grease and take full responsibility for what’s going on in the business.”