Starting a trade business involves more than finding customers, quoting jobs and getting the work done. Before worrying about tax, BAS, bookkeeping or increasing revenue, one of the most important decisions is choosing the right business structure.

Should you operate as a sole trader? Would a company provide better protection? Do you need a trust? The right answer depends on your circumstances, your assets, your plans for growth and the type of business you want to build.

In Episode 2 of Tradie Pat, Latitude Accountants Client Director Patrick El-Bitar, CA, breaks down the key considerations for tradies when choosing a business structure. He explains the differences between sole traders, companies and trusts, while also looking at the three common types of tradie business owners: the hustler, the technician and the businessman.

The structure that is simplest today may not necessarily be the right structure for the business you want to build in two or three years.

Why Business Structure Matters for Tradies

Your business structure can affect several important areas of your business, including:

• Asset protection
• Tax obligations
• Administration and compliance costs
• Workers compensation and superannuation requirements
• How profits can be retained or distributed
• Your ability to grow and reinvest in the business
• The potential cost of restructuring in the future

For tradies with personal assets such as a family home, property or personal savings, understanding the potential liability associated with different structures is particularly important.

The key is to choose a structure based on the business you are building, rather than simply choosing the cheapest or easiest option available today.

Sole Trader: The Simple Starting Point

A sole trader is one of the simplest structures for starting a trade business. The business operates in your personal name, making it relatively straightforward and inexpensive to establish.

For someone starting, this simplicity can be attractive. However, there is an important consideration: the individual and the business are not separate legal entities.

Asset Protection as a Sole Trader

If something goes wrong with the business and you become personally liable, your personal assets may be exposed.

For example, if a dispute or legal claim resulted in significant liability, personal assets could potentially be at risk depending on the circumstances.

This is why tradies should consider their personal assets, the level of risk involved in their work and their future plans before automatically choosing a sole trader structure.

Tax and Administration

As a sole trader, business profits are generally included in your individual taxable income and taxed at your applicable marginal tax rate.

There can also be lower accounting and administration costs compared with more complex structures.

However, lower administration costs should be considered alongside the potential risks and limitations of operating personally.

Company Structure: Separating the Business

A company, commonly structured as a Pty Ltd, is a separate legal entity from its owners.

This separation can provide a level of protection between the business and an individual’s personal assets, although it does not provide absolute protection.

Directors still have legal responsibilities, and personal liability can arise in certain circumstances. Personal guarantees and secured business lending can also create exposure to personal assets.

Tax and Reinvestment

One reason a company may be considered by growing trade businesses is the ability to retain profits within the company for future business purposes.

A company may be taxed at the applicable company tax rate, subject to eligibility and current tax rules. The business can then potentially retain funds for purposes such as:

• Purchasing vehicles and equipment
• Buying additional tools
• Employing staff
• Expanding operations
• Building working capital

However, company money is not simply personal money. There are rules governing how owners can take funds from a company, including through wages, dividends and certain loans.

Tradies should also be aware of Division 7A rules when dealing with loans or payments from private companies to shareholders or associates.

Trusts: More Complex Does Not Automatically Mean Better

A trust is another possible business structure, but it is generally more complex to establish and administer.

A trust involves a trustee controlling assets or income on behalf of beneficiaries. A corporate trustee can also be used, which may provide an additional layer of separation.

However, a trust is not automatically the “best” or most sophisticated option for every trade business.

When Does a Trust Make Sense?

The right structure depends on what problem the trust is intended to solve.

Trusts can involve additional establishment, accounting and compliance costs. There are also specific rules around how trust income is distributed and taxed.

For this reason, tradies should consider the purpose of the trust and obtain professional advice before establishing one simply because it appears more advanced than a sole trader or company.

How Much Does Each Structure Cost?

Cost is another consideration when choosing a structure.

Based on the examples discussed by Patrick El-Bitar, a sole trader may have relatively modest accounting and compliance costs, while a company generally involves higher annual accounting and compliance costs.

A trust can cost more again to establish, particularly where a corporate trustee is involved.

A more complex structure involving a trading company, holding entity and family trust can require several entities and therefore significantly higher establishment and ongoing compliance costs.

The important point is that the structure should be selected based on the needs and future direction of the business, rather than simply the upfront cost.

The Three Types of Tradies in Business

Choosing the right structure is only part of building a successful trade business. Patrick also identifies three common types of tradie business owners.

1. The Hustler

The hustler is excellent at generating opportunities.

They are usually good at:

• Finding work
• Talking to customers
• Selling jobs
• Building relationships
• Creating new opportunities

However, they may struggle with administration, quoting, invoicing, cash flow and follow-ups.

A hustler can generate significant revenue without necessarily building a profitable or organised business.

2. The Technician

The technician is excellent on the tools.

They take pride in their workmanship, understand their trade and often have strong relationships with customers.

The challenge is that the business can become too dependent on the owner. If the technician believes nobody can perform the work as well as they can, delegation and hiring can become difficult.

This can make it harder to grow beyond the owner’s personal capacity.

3. The Businessman

The businessman focuses on the bigger picture.

They think about:

• Margins
• Cash flow
• Budgets
• Forecasting
• Systems
• Staff
• Processes
• Business growth

However, a business-focused owner can also lose touch with the practical side of the trade if they are too far removed from the work and customer experience.

Building a Stronger Trade Business

Most tradies will naturally be stronger in one of these areas than the others. The goal is not necessarily to become an expert at everything.

Instead, successful business owners can identify their weaknesses and bring in people who complement their strengths.

For example:

• A technician may benefit from help with sales, financial management and systems.
• A hustler may need administrative support and stronger financial discipline.
• A businessman may need skilled tradespeople who can deliver quality work.

This support could come from employees, outsourced specialists, advisers or business partners.

The key is recognising that being excellent at your trade does not automatically mean you have all the skills required to run a growing business.

Future-Proofing Your Trade Business Structure

Your business structure does not necessarily have to remain unchanged forever.

As your business grows, your circumstances may change. You may employ staff, acquire significant assets, retain more profits, expand into new areas or take on greater commercial risk.

That is why it is worth considering not only where your business is today, but where you want it to be in the future.

Before choosing a structure, consider:

• Do you have significant personal assets?
• How much risk does your trade business carry?
• Do you plan to employ staff?
• Do you expect the business to grow?
• Will you reinvest profits into the business?
• Can you manage the additional administration and compliance?
• Could restructuring become costly later?

There is no universal structure that works for every tradie. The right choice depends on your circumstances and your business goals.

Frequently Asked Questions About Business Structures for Tradies

Is a sole trader structure suitable for a new tradie?

A sole trader can be a simple and relatively inexpensive way to start a business. However, consider personal liability and future growth plans before choosing this structure.

Is a company better than a sole trader for tradies?

Not necessarily. A company can provide greater separation between the business and its owners, but it also comes with additional costs, administration and legal responsibilities.

Does every tradie need a trust?

No. A trust is more complex and should have a clear purpose within the overall business structure. Get professional advice before establishing one.

Can I change my business structure later?

A business can potentially be restructured as circumstances change. However, restructuring can involve additional costs and tax or legal considerations, so it is worth planning.

What type of tradie business owner am I?

You may identify primarily as a hustler, technician or businessman. Understanding your strengths can help you identify the skills, systems and people you need around you to build a stronger business.

Get Advice on the Right Structure for Your Trade Business

Choosing a business structure is an important decision for any tradie starting or growing a business. Rather than choosing a structure based solely on today’s costs, consider your personal assets, risk, tax position, administration requirements and long-term business goals.

Latitude Accountants provides free discovery meetings for ABN holders and people looking to start a business.

Speak with the team to discuss your circumstances and understand the business structure options available to you.

Latitude Accountants

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Disclaimer

This article provides general information only and does not constitute financial, legal, tax or business advice. Business structures, tax rates, compliance obligations and eligibility requirements can vary depending on individual circumstances and may change over time. Speak with a qualified accountant, tax adviser or other appropriate professional before making decisions about your business structure.