Do I Need an ABN? Do I Need to Register my Business Name? Do I Have a ‘Hobby’ or a ‘Business’? And What’s the Deal with GST??

 

 

 

Create & Thrive Q&A on ABN, Business Name, Tax, and GST

Today’s question is from Majay, who writes:

“I am just in the planning stage of creating a little online creative business. I’m 7 months pregnant now ( first one ). I know its crazy but I am trying to make some goods to sell online before the bub comes, ’cause I don’t know how busy am I going to be.

I have been contemplating this idea for a long time now, as I love creating and I am a huge fan of handmade stuff, and now that I’ve finished my full time job I thought I needed to enact my little dream of having a little online store.

I just want to ask, do I need to get an ABN or register a business name? I am sure I will not have $75,000 profit a year with my handmade goodies.

I did a bit of research but still I am confused: I don’t want to get in trouble!

Majay”

For those of you outside of Australia, you may not know what most of the title of this post means – but bear with me! The local equivalents to these questions in your country is something you NEED to figure out asap.

Also – let me just state that I’m not an accountant or tax agent, so I’m just giving my personal advice based on my understanding of Australian business and tax rules. Please do your own research based on your situation and talk to a professional if you’re unsure of what you need to do.

 

Okay, so, let’s look at Majay’s questions.

 

People often conflate – ABN/Business Name Registration/GST/Putting business income on their tax – as one big morass, but it’s actually 4 separate – though inter-related – issues. Let’s look at each one individually.

 

Getting an ABN (Australian Business Number)

From the Australian Government website here:

“An ABN is not compulsory, but it does allow you to:

  • facilitate a single Business Activity Statement (BAS)
  • confirm your business identity to others when ordering and invoicing
  • avoid Pay as You Go (PAYG) tax on payments you receive
  • claim Goods and Services Tax (GST) credits
  • claim energy grants credits
  • obtain an Australian domain name.

 

Some of the above is pretty irrelevant when you’re starting out. That said, I would encourage anyone starting even a very small business to register for an ABN. It’s free, easy, and gives your business legitimacy. Also, of course, you can’t get an Aussie domain (.com.au) without one.

An ABN is just a number that other businesses and the government can use to identify your business. It’s kinda like a TFN (tax file number) for your business.

Your ABN isn’t linked to any one business, either. If you register as a sole trader, you can use the same ABN for multiple enterprises (in my understanding).

This is connected to the whole ‘do I put my income down on my tax return as a ‘business’ or a ‘hobby‘.

 

Do I Have a Hobby or a Business?

I know Majay didn’t ask this directly, but it’s a question I hear so often that I thought I’d just throw it in here. It’s actually pretty easy to work out. Are you trying to make a profit from what you’re selling? Then you’re in business. The actual amount of money you make is completely irrelevant here.

If you’re not sure, here’s what the ATO has to say:

“Definitions

A hobby is a spare-time activity or pastime pursued for pleasure or recreation.

A business requires some form of investment and enough customers to whom its goods or services can be sold on a consistent basis with the intention of making a profit.

When selling online becomes a business, the income you earn from it is subject to tax. If this is the case, you may also be eligible for tax deductions.

Quick Checklist

There are questions you can ask yourself to work out if you are undertaking a hobby, or carrying on a business that should be declaring income:

  • Did you set up your online sales with the intention of being a business? (bolding mine)
  • Do you pay for your online-selling presence?
  • Is your main intention to make a profit?
  • Do you make repeated or regular sales?
  • Do you sell your online items for more than cost price?
  • Do you manage your online selling as if it were a business?
  • Is what you are selling online similar or the same as what might be sold in a ‘bricks and mortar’ business?

Each time you answer ‘yes’ to a question the likelihood that you are carrying on a business increases. However, all of the questions need to be considered together to get an accurate picture of your personal situation.”

 

I’m guessing pretty much everyone reading this would be answering ‘yes’ to most of those questions. Therefore, you are in business, and need to put your income on your tax return.

Frankly, I don’t know why anyone wouldn’t put themselves down as a business on their tax return… especially because if you do, all those delicious supplies you’ve bought to make your creations with become tax deductible! As are online courses, books, subscriptions, travel to conferences, etc. that you spend money on in order to improve your business.

If you’re spending the money anyways, why wouldn’t you offset it against your business income?

 

Registering a Business Name

Yes. You need to register a business name, unless you’re trading under your own name.

In detail:

“You’re required to register your business name with the Australian Securities and Investments Commission (ASIC), unless you plan to conduct your business under your, or your partner’s, first name and surname, or initials and surname.” {source}

{For more information on ABN and Business Registration issues, check out this page.}

Fair warning – this can be a frustrating process. However, it’s necessary, so just grin and bear it!

This isn’t free, but it’s pretty inexpensive.

 

Registering for GST

GST is the Australian Goods and Services Tax. Whenever you buy pretty much anything here in Australia, 10% of the cost price is this tax.

If you’re just starting out, I can say with 99% certainty that you don’t need to register for GST. In fact – I have only JUST done this as of April 2014, as I have exceeded the income threshold, and didn’t have a choice any more.

As stated by the ATO here: “You must register for GST if you run a business or enterprise and your GST turnover is $75,000 or more”. GST turnover is basically just your gross income – from Australian AND international sources.

Unless you’ve come up with the handmade equivalent of the first iPhone, I’m pretty confident you’re not going to be making this much in your first year in business. However, as one of my friends who owns his own building business has said to me ‘I don’t know why anyone wouldn’t register for GST, because you then get 10% back on all your purchases’. That is – when you buy stuff from another Australian that is business-related, you can claim the 10% GST back on that item. If you’re doing all your business buying and selling within Australia, this is certainly a good point. BUT, most of us are buying and selling stuff across international borders, so it’s a bit more complex than that.

For me, adding GST is something I wanted to avoid for as long as possible, because about 80% of my jewellery sales are international. That means I can’t just put the GST into my prices, because it wouldn’t be fair for all those international customers to be paying the extra amount (I’m pretty sure that’s illegal, too).

I have had to set up my online stores so that the tax is put on as an additional charge at checkout for Aussie customers. Thankfully, all the software I use to sell (Etsy, Ecwid, and e-junkie) make this very quick and easy to do. But I hate that my Aussie customers now have to pay more.

 

So, Majay, I hope that clarified things! And for everyone else – don’t neglect figuring this stuff out. If you’re starting a business, treat it seriously, and do it right. I’m the first person to cringe at the thought of bureaucratic paperwork, but starting a creative business isn’t just all about the fun stuff! You’ll be clearer and more relaxed when you know you’re doing things right and legally.

Image source: Death to the Stock Photo

Three Questions with Megan Auman ~ March 2014

 

 

 

 

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Please welcome the fabulous Megan Auman – jeweller, business strategist, artist, designer, brilliant entrepreneur, and my lovely friend. Megan is going to be stopping by every other month to answer three of your burning questions – think of her a little like a whip-smart, no-nonsense business advice columnist.

Take it away, Megan…

1. I see online many line sheets are titled by season/collection. What if many of my pieces are 1- 2 years old and/or good for all year round? Are you always changing your line sheets? I don’t come up with a new collection every six months as much as that would be nice!

While you should be at least tweaking your line sheet twice a year to coincide with the major trade show seasons, that doesn’t mean you have to do a complete overhaul, especially if you aren’t a true fashion brand.  (Meaning you aren’t designing two brand new collections a year – and most of us aren’t!)

Retailers want to see what’s new, but they also want to be able to reorder their favourites and best sellers, so you’ll want to strike a balance between the two.  Each season, give yourself some time to go through your line and ask the following questions:

  • What items sold the best?
  • What items didn’t sell?
  • What items were most profitable?
  • What items were least profitable? (Or not profitable at all?)

And finally, are there any gaps in the line?  Are there items that retailers have been requesting?  (Such as earrings in a different size or a different metal option.)

With these questions in mind, you can make changes to your line (and line sheet) that keep buyers interested but don’t require the substantial effort of designing a new collection every season.

 

2. I realize many retailers expect wholesale to be 50% of retail prices. I struggle with this because until now, I have generally done that, but I ‘fudge’ prices on a case by case basis depending on which location/type of boutique I am in. Some retailers want to match my retail so will only buy half price, others will charge more and just ask me for my asking price. In attempts to polish up one price point for the line sheet, I am considering raising all my wholesale prices, unless you think there is some flexibility with the 50%?

This questions actually looks at wholesale pricing from the wrong perspective.  Retailers aren’t looking for a discount off of retail, they are looking to mark up a percentage from your wholesale price.  That means if you are selling to stores, it’s your job to establish a set wholesale price.  From there, your retailers will mark the price up anywhere from 2 to 3 times.  (2.2 and 2.3 are also common wholesale markups.)  As a vendor, you can suggest a retail price (MSRP), but you’ll likely not be able to enforce it.

Since you’ve been approaching your wholesale pricing from the standpoint of a retail price, it’s very likely that you’ll need to do some new calculations and set new wholesale pricing.  It’s essential that you are profitable at the wholesale level.  That means your wholesale price needs to take into account your materials, labour, overhead, and profit.

You’ll also want to make sure that if you’re selling retail (on your website or at a retail market) that you’re marking up in a way that’s comparable to your retailers.  Every industry is different (jewellery tends to mark up higher than other products) so make sure you ask around so that you aren’t undercutting your retailers.

 

3. I have many one of a kind (ish) items that could be made again and/or slight variations. I am afraid my line sheet will be way too long if I include all the options. For earring styles that come in different colours, would you suggest putting an image for each different stone, or just one photo with an option list of all the different stones? Also, real gemstones often vary slightly, so one batch of amethyst may be more faceted or dark purple then another. How should I handle this?

It’s important to understand the distinction between true one of a kinds (which are pieces that can never be reproduced again) with items that include options or variations (like different stone choices).   While it’s not impossible to wholesale one of a kind items, it does produce it’s own set of challenges and often involves communicating designs to buyers in creative ways.

In your case, you’ll just need to communicate to buyers all of the options that are available for each style.  You’re right in thinking that your line sheet will be incredibly long if you showed a full image of each variation.  Instead, you’ll want to show one image and then show a cheat sheet of the options, such as an index that shows all the stone options available for your collection.

As far as variations go, that’s completely understandable when working with natural gemstones (or any other natural material) and buyers will understand.  Just make sure you note on your line sheet that variations can be accepted.  If you really want to ease buyer concerns, let them know that if they don’t love a particular stone, they can always exchange the piece for another one.  Buyers will rarely take you up on this, but it gives them enough peace of mind that they’re more likely to place an order!

 

Want more wholesale advice?

Looking for the basics of selling your products to retailers?  Join Megan for a FREE, 3-day online class on Creative Live on June 19, 20, and 21.  

 

Got a question for Megan Auman?

Leave it in the comments below or email it to megan@createandthrive.com (that’s direct to Megan Eckman, Assistant Editor).

C&T Q&A – Finding the Balance Between Blogging and Making {VIDEO}

Finding the Balance Between Blogging and Making - Create & Thrive with Jess Van Den

It’s Q&A time!

This month’s question comes from Miranti, who asks…

Hi Jess,

I wanted to pick your brain a little and ask how you balance “making” with blogging? I often find that blogging takes up a lot of my thoughts and time, and I really want to focus more on making goods for my store.Wondered whether you might have any pearls of wisdom on this?

Thanks a bunch!

Miranti

 

Ahh, balance. It’s definitely a struggle at times to find the balance between making and blogging – goodness knows I’ve been through this.

In the video I share how I personally walk this line – and what I recommend you do if you’re finding it difficult to balance blogging time with making time.

 

 Is this something you ever struggle with?

C&T Q&A – Wholesale? Consignment? Help! {VIDEO}

should you sell your craft via wholesale or consignment - and how do you go about it

Hey there Thrivers!

I’ve got a video for you today, answering a lovely reader’s question about wholesale versus consignment.

Have you ever wondered if you should be selling your work on consignment, or only via wholesale?

Or do you wonder just how on earth you go about getting your stuff in shops at all?

In this video, I give you the 6 steps to follow in order to get your work in the right shops – whether via wholesale OR consignment.

I also explain when you should go with consignment – or when you should stick to wholesale.

If you’ve gotten your work into shops, I’d LOVE to hear your tips below in the comments!

I’d also love to hear if consignment has worked well for your business – and if so, why?


 

Want to sell to retail shops, boutiques, and gallery shops, but don’t know where to start? Join us for Wholesale Know-How. This eCourse will take you – step-by-step – through everything you need to know and do to get your work into retail spaces.

C&T Q&A – How Do I Use Autoresponders Properly?

how do I use autoresponders

Today’s question comes from Jessica (awesome name btw), who writes (bear with us, it’s a long question!):

I really enjoy reading your newsletters, and especially your recent C&T e-course. Tons of great info, thank you so much!! (Ed: You’re welcome Jess!)

I am writing to ask a question about autoresponders, and I hope you don’t mind helping me out?

I am having the hardest time trying to keep everything straight. I’m using MailChimp, and I love it! I recently purchased a paid subscription so I can use autoresponders. Setting them up is a breeze, but the trouble I’m having is because I don’t know how to keep everything separate.

I’m sending out a ‘regular ole campaign’ to those currently subscribed, who subscribed before the date I set up the autoresponder. I’m then copying and saving that campaign as an autoresponder to add to my queue. I’m setting the triggers as 1 week, 2 weeks, 3 weeks after signup, etc. But I only have 3 saved so far, and all the while more people are signing up!

If someone signs up now, they’ll get the first 3 autoresponders, but then what?? I don’t think I can then add new material to the queue that these people will get, since they are now current subscribers – or maybe I’m wrong about that. I asked MailChimp for help and told them what I was wanting to do, and their answer was basically, “that’s not exactly how autoresponders were intended to be used.’

So I’m having the worst time trying to keep track of who signed up when, who already got an email this week from the autoresponder, and when they will run out of scheduled emails….and the more people who sign up the more confused I get. I sure hope I’m making sense. I don’t feel like I am :/

I’m finally reaching out to beg for your help after going back and reading your awesome e-book again! You say that as you create new content in your emails, you then add it to your autoresponder queue. So, how do you do it? Could you please give me a hint?

Thanks so much for your help. I know you’re really busy and I really appreciate your time!

Okay – for those of you who don’t yet use autoresponders, I’m hoping this post might convince you differently.

They are a fantastic way to ‘set and forget’ so-to-speak – a way to ensure you are still touching base with your list on a regular basis, even if you don’t send them out manual emails for a while. And don’t get me started on you if you’re not already using email marketing. You are, aren’t you?

What is an autoresponder?

When you set up a mailing list, you can set up automatic emails – autoresponders – that will go out to a subscriber at a certain point in time after they subscribe to your list.

Jessica, I’ve got a few answers for you.

1. First – please don’t stress that some of your current subscribers are missing out on your autoresponder emails. Frankly, you just have to accept that they won’t get all the autoresponders you’ve set up – and that’s okay. You can’t retrospectively send them those emails – they’ll just have to be content with the manual emails you send from here on in. I know that’s a bit frustrating, but it’s just the way it is.

2. That said – one way to get MORE of your current subscribers getting your autoresponders is to set them up further into the future. For example – if you set up an autoresponder to go out 3 months after they signed up to your list, you know that anyone who signed up within the last 3 months will get it eventually. So, if you want to think long-term, you could go ahead and set up autoresponders spread out over months, rather than weeks. Sure, some people will miss out on the earlier ones – but as I said above, that’s okay. Look towards what you CAN do now, not what you didn’t do soon enough.

3. Content. There are a few places you can get content for these autoresponders. I’m not sure what sort of emails you’re sending out, but I’m going to use examples from both of my lists (the C&T one and my Epheriell Silver Service). I’m in the process right now of setting up a HUGE batch of autoresponders for the C&T list – so I feel where you’re at – should I have done it sooner? Probably? Did I? No – so what I’m doing now will have to do 🙂

For these autoreponder emails, I’m using archive blog content. Here’s a screen-shot of one of these emails:

email

Basically, I send out a teaser with a link to an archive post here on C&T. The purpose of this email is to keep in touch with my subscribers by sending them good, useful content. The reason I link back to the blog, rather than putting the whole content of the post in the email, is that I want to encourage them to click back over here, hang out, and read more.

These autoresponders are on top of manual emails I send out each week to the C&T list. They’re short, to-the-point, and easy for people to read quickly (and hopefully act upon).

Now, for my Silver Service list, I use autoresponders much less. I have a couple set up spread out over the first 6 months of a person’s subscription to the list. One, for example, is a special discount code that sends out at a certain time milestone to thank them for staying subscribed. Another is a link to a blog post about my studio, so they can see ‘behind the scenes’. Setting up a few more autoresponders to those subscribers is on my to-do list – I’ll get there!

You can also use (as you mentioned) content from previous emails – so long as it’s evergreen content (it doesn’t age).

Other ideas for autoresponder content:

  • link roundup of useful posts by other people
  • link to a specific useful post or video by someone else
  • email about one of your products or services (make SURE to spread these out – here’s a good blog post about this)
  • a personal email – like the ‘here’s my studio’ email I mentioned earlier – that helps your readers get to know you in the context of whatever it is your list is for

There are lots of ideas, but those should be enough to get you going.

If you’ve got a mailing list, and you’re not already sending out some autoresponders, it’s a good thing to think about.

Goodness knows we’re all busy, so a bit of time spent to automate a little sliver of your marketing will pay off in the long run.

If you use autoresponders already, I’d love to know what and how often you send them out – share with us in the comments below!