How To Select The Right Home Business Model

Having the right idea is only the start of setting up a business. To run it successfully will depend on the type of business model you select from the beginning. It is wise to speak to an accountant on which option is right for you, however I’ve put together five business models and some key points to consider before deciding.

Business Model #1 – Proprietorship

This is the simplest and most common type of business model. There are no legal obligations to consider you can simply set-up shop and start selling your product or service. If in Australia you will need your Tax File Number and a Business Number to buy from other businesses. Registering for Goods and Services Tax is optional and is only needed once you earn over a certain threshold. A proprietorship gives you great flexibility to start your business on the “cheap” and without any major commitments apart from declaring your sales at tax time. But you should know that setting up this type of business means that you are legally responsible for anything and everything. Other than that this is a very tax efficient business model for small businesses.

Business Model #2 Partnership

A partnership is a relationship between two or more people who come together to run a business and share the profits earned. It is also sometimes know as a “firm”. Typically you would use an accountant and sometimes a lawyer to set it up, but mainly to formalise the rights and duties of all the partners and decide each partners share of the profits.

They are easy to set-up and it means that the business has access to more capital as there is more than one person contributing. Depending on how many people want to form the partnership you may need to check if there are too many of you. One drawback is the fight over power and you do need to check liabilities because personal assets are targeted should there be an issue with credit default.

This model works well for professional service firms such as accountants, lawyers, doctors etc.

Business Model #3 – Company

A company is just one person or a group of people. There is also a variety to choose from depending on the business model such as private, public listed, not-for profit, etc. When I started my business I opted for a private company but setting it up is complex process, expensive and involves much paperwork. But once it is set-up you can run many entities underneath. It is separate legal entity and involves at least a director but can also have shareholders and a board if it’s publicly listed. The best thing about a company is the limited liability. If there is a credit default, personal assets of directors and shareholders stay protected – although you should note since the global financial crisis there has been a big crack down in this area and cases where directors have been fined. For a start-up this business model should only be selected on the advice of your accountant.

Business Model #4 Franchise

A franchise is where you are the boss but don’t have to worry about branding. marking, product creation etc. This hard work is all done for you and is turn-key in the sense that the Franchisor instructs you on the exact method to set up your business so you hit the ground running from day one. The downside is that the marketing, product development, branding and working side of the business are in the hands of the Franchisor so there is little scope for innovation from the Franchisee. There are also royalty fees to pay and the up-front commitment cost.

Franchises come with high levels of support and an established brand name., is that you can find a business to suit all pockets, no matter which industry you want to set foot in. You should consider this model is you don’t like risk and want loads of support and handholding.

Business Model #5 Trust

Many people don’t think of Trusts as a business model but they are a great addition to a company structure. This was the option I also included when I set up my business. The trust becomes the majority shareholder and the trustees are primarily responsible for managing the assets and business for the benefit of the company.

I don’t recommend setting up a Trust on your own. They are often regarded as a Tax loophole and that’s because there is so many was of setting up a Trust. So get your accountant to do it for you.

Trusts allow you to keep control over your assets. This is perfect when you venture into property and don’t want to lose your assets to a relationship that goes sour. Trusts are therefore idea for family businesses, where you want to create a structure that preserves assets for future generations. You could also use a trust where you want to keep long-term control over managing the business.

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