Do Sole Traders Need an Accountant? Victoria Park Accounting Advice

Businesses come in many shapes and forms. That’s why, it’s hard at times to generalise a best practice that all businesses should follow.

That said, a question we tend to hear often relates to sole traders and their finances and business structure. So, today we are looking at the question, does a sole trader need an accountant.

The first thing to always keep in mind is that a sole trader is their own legal entity so even if not using an ongoing accountant for the business, meeting with one would help a business owner understand best practices.

To be your own legal entity simply means that whether it is a sole trader working on a house or any other product, if something goes wrong, the responsibility is fully on them.

This is one of the reasons why many do choose to set up a company or set up a company as a trustee rather than just the sole trading ABN.

That’s because a company provides an extra layer of protection, meaning, instead of the person being the legal entity, the company is.

This means that if something goes wrong, the company would be paying the bills and it won’t necessarily fall on the person.

What are your business goals?

We mentioned that every business is different. Well, if your sole trading business is a side hustle or a full time job with low risk of getting sued, the sole trader structure could be fine.

That said, the most important thing to weigh up is if one is dealing with a line of work where things have the potential to go wrong. If the answer to that is yes, it is highly recommended having the right protection and meeting with an accountant to chat about best options.

Cost vs Risk

Like many other business decisions, the biggest question a sole trader needs to ask themselves is does the cost justify it. Meaning, is the cost of insurance and the structure it offers worth the money? 

As this is a personal question and different for each business, it is not always easy to answer.

It likely depends on how much money the business is making.

As accountants and business advisors, our team can recommend best practices. However, as we said, it is a decision that needs to be made by the person or the business we are referring too.

The most important thing is to fully be aware and understand the risk that is involved in getting sued as a personal name vs a business name.

That’s why our team of accountants in Victoria Park find that the most important thing is that everybody understands the risk and knows what is at stake.

In the past, we have heard of stories where an accident took place at a job and the sole trader received a letter of demand.  

To put it lightly, if insurances, policies and documentation are not in place, the result could be horrific.

The most important thing to do is to understand that all the options and best practices can be covered when meeting with an accountant.

This is a step we recommend every sole trader and business does. Fully understanding best practices is crucial.

For any further questions regarding sole trading and business accounting, contact us at Eventum Consulting, we would be glad to help.