New business, got some questions

[Scod]

G'day guys, I'm hoping you can clear a few things up for me.

Firstly, I'm looking at leaving my current employer and starting my own business which will be in direct competition to him. A number of companies we do work for have actually asked me to do this as they find him too hard to deal with, so I know that there is enough work available to make it viable. Are there any legal ramifications to this?

I'll need to employ an offsider and plan to pay $18 per hour, but how much will this really cost me? And am I better off having an employee and having to pay holidays, sick days, insurance etc or should I tell him to get an ABN and work as a subcontractor?

I already have an ABN for a small business which is really just a bit of a hobby at the moment, and I understand I only need the one ABN for both businesses. Can I just use my name in conjunction with the ABN (I read that the ABN is linked more to me personally than to the business, or something to that effect) or do I need to create a business name if I wish to hire an employee?

The more I think about things the more questions arise, so any help I can get is greatly appreciated.

Thanks in advance.

Scod

[KarenC]

Hi Scod, I would strongly suggest you contact the ATO www.ato.gov.au which will give you free advice. To hire an employee you have to be registered with the ATO. And you will be subject to paying Workers Compensation Insurance Premiums and Superannuation and more. You don't need a different ABN, you just have to be registered.

However, if you sub-contract to another person with an ABN, they have to worry about their own tax etc but you will have to pay a higher rate per hour. And it depends if it's varying (sub contractor) or regular hours (employee). In the long run, subcontracting would be more cost effective for you.

However, I can't stress enough - you need to seek good advice. Either from the ATO or a good accountant.

[mybusinesshelp]

Hi Scod

Starting a business means so much doesn't it? Well to answer your questions, you definately need to seek advice from a trusted accountant. I can recommend Angela from It All Adds Up (www.italladdsup.net.au).

There are other things you need to consider also, especially on the legal side of things (like entering the same market as your current employer) and I would recommend seeing an attorney/lawyer for some advice. Again, I can recommend someone who specialises in this sort of thing - Rebecca Stalenberg www.markyourterritory.com.au - she also does trade mark law which is something else you need to consider.

All the best in starting your business, this place is a great place to get advice. If you need some marketing tips for your start up, check out www.mybusinesshelp.com.au for free marketing action plan templates and ideas.

Let us know how you go!

Amanda

Originally Posted by Scod

G'day guys, I'm hoping you can clear a few things up for me.

Firstly, I'm looking at leaving my current employer and starting my own business which will be in direct competition to him. A number of companies we do work for have actually asked me to do this as they find him too hard to deal with, so I know that there is enough work available to make it viable. Are there any legal ramifications to this?

I'll need to employ an offsider and plan to pay $18 per hour, but how much will this really cost me? And am I better off having an employee and having to pay holidays, sick days, insurance etc or should I tell him to get an ABN and work as a subcontractor?

I already have an ABN for a small business which is really just a bit of a hobby at the moment, and I understand I only need the one ABN for both businesses. Can I just use my name in conjunction with the ABN (I read that the ABN is linked more to me personally than to the business, or something to that effect) or do I need to create a business name if I wish to hire an employee?

The more I think about things the more questions arise, so any help I can get is greatly appreciated.

Thanks in advance.

Scod

[gregpritchard.virtualcio]

Scod,

Firstly, best of luck with the new business.

I won't reiterate the points covered above - getting formal advice in legal, accounting, etc. when starting your business is always a good idea.

Ignoring the non-compete issue for a moment; something that I would ensure before taking the plunge is that you lock in these clients with written agreements before you wear the risk of starting the business based on their assurances.

Not to be pessimistic; but promises are worthless. Get contracts locked in. What you will find is that clients' desire to leave their current provider doesn't always outweigh their inertia. Not to mention; if your current employer knows that the clients are thinking of leaving, especially to a former employee, don't underestimate the lengths people will go to retain clients - on principle, even if it doesn't end up profitable.

I have a rule - when someone promises future business, discount it by 90%. That is, if you have 20 prospective clients ready to go with you, assume you'll have 2 and you'll be in the ballpark. Anything more can be considered a bonus.

This isn't meant to be negative; just help you prepare for guaranteeing the clients you're expecting to come on-board.

For the cost of an employee; I budget in my business around 20-25% for employment costs (super, insurance, etc.); plus another 20% or so for incidentals. So, rounding your $18 - budget for $30 and you'll cover all your costs. But get advice on the legals, tax and accounting around it.

Once again; all the best with your endeavours.

Cheers,
Greg

[arswa]

Hi Scod

Regarding setting up in competiiton to your employer, I would check your current employment contract to see if there are any restrictions mentioned in there which supposedly prevents you from moving to or setting up a competitor in the area.

I say "supposedly" as you may be able to argue restriction of trade if they attempt to prevent you from setting up in the locality. It is well worth checking with a lawyer.

Good luck with the venture.

Adrian
Accounts Receivable Solutions WA

[Accounts Studio]

Hi

Agree with comments above. Re competing with your current employer - do you have a contract with him? You may find that whilst some clients come over to you others may view you going into competition the opposite way and boycott your services as a result.

Re employees - I would initially start the person off as a contractor - apart from the reasons mentioned above, it will also give you time to get to see how that person works and how well they fit in with your business. Contractors are much easier to get rid of than employees. You can always change them to an employee down the track if you wish. Just make sure they are not classified as an 'employee' in the ATO's eyes - you can check here -

http://www.ato.gov.au/businesses/con...t/00095062.htm
http://www.ato.gov.au/print.asp?doc=/content/19159.htm
(copy entire link and paste)

Re ABN - yes you can hire employees if the ABN is in your personal name rather than a company name - but you will still have to register with the ATO as an employer.

[Scod]

Thanks for all the input so far.

I don't currently have a contract with my employer that says I can't go into competition with him.

A little bit more info on my situation as it may impact the legal side of going into direct competition. I'm essentially running his business at the moment, my boss kicks back at home while my offsider and I do all the work. The only thing he needs to do is the invoicing, which he doesn't do, so on several occasions now we haven't been paid for up to 6 weeks because he waits until the money runs out and we complain that we haven't been paid, then he does the invoicing, and clients don't pay for 30 days. Finally we'll get our money and then the cycle starts again. He doesn't see any problem with this and always has an excuse.

I also haven't received any superannuation for the past two and a half years. I've been on his case about this for the last 6 months, he does nothing about it, so I'm about to go to the tax office or workplace relations or whoever it is I need to talk to if he doesn't get it sorted in the next week. I'm pretty confident that he won't and probably can't pay up and this will put him out of business, opening the door for me entirely.

Regardless of this, I have guaranteed work from our biggest client who hates dealing with him and have told me they only use the business because of me, so I know I have work. In fact they've also offered to hire me a vehicle at a great rate to help me get on my feet. My current offsider will come with me when I go out by myself, so I know I've got a good worker.

So as you can see it's not a great situation to be in and I've let things drag on for far too long, but I've given myself until the end of the month to try to get all my money paid up and then my business will be up and running.

I think I'll get the offsider to work as a contractor for starters and then see how we go from there.

[arswa]

Originally Posted by Scod

Thanks for all the input so far.

I don't currently have a contract with my employer that says I can't go into competition with him.

A little bit more info on my situation as it may impact the legal side of going into direct competition. I'm essentially running his business at the moment, my boss kicks back at home while my offsider and I do all the work. The only thing he needs to do is the invoicing, which he doesn't do, so on several occasions now we haven't been paid for up to 6 weeks because he waits until the money runs out and we complain that we haven't been paid, then he does the invoicing, and clients don't pay for 30 days. Finally we'll get our money and then the cycle starts again. He doesn't see any problem with this and always has an excuse.

I also haven't received any superannuation for the past two and a half years. I've been on his case about this for the last 6 months, he does nothing about it, so I'm about to go to the tax office or workplace relations or whoever it is I need to talk to if he doesn't get it sorted in the next week. I'm pretty confident that he won't and probably can't pay up and this will put him out of business, opening the door for me entirely.

Regardless of this, I have guaranteed work from our biggest client who hates dealing with him and have told me they only use the business because of me, so I know I have work. In fact they've also offered to hire me a vehicle at a great rate to help me get on my feet. My current offsider will come with me when I go out by myself, so I know I've got a good worker.

So as you can see it's not a great situation to be in and I've let things drag on for far too long, but I've given myself until the end of the month to try to get all my money paid up and then my business will be up and running.

I think I'll get the offsider to work as a contractor for starters and then see how we go from there.

As you have no contract with your current employer and have not signed anything to the effect that you will not set up in opposition to him, then go for it.

On the super matter, he has a legal obligation to contribute to a super fund for you for the whole time that you are an employee of his. You certainly need to get proper advice on this. I'm no expert here so cannot provide that advice, but it seems you need to pursue this as a matter of urgency.

Regards
Adrian

[Gordon Akman]

I don't like your idea at all. Legally you will be fine. Even if you had a non-compete clause in an employment contract these extremely rarely get enforced because judges do not generally like to prevent people from making a living. But it is your reputation. I personally would not trust you in business or as a person if you started a company and contacted existing customers of your previous employer. Don't take this personally as I am speaking generally.

To give you an example, I worked for an international Sales Recruitment firm before resigning and starting my own recruitment business. Not only did I not contact any clients of that business I also didn't do any Sales Recruitment for six months after starting my business (I worked on positions in other industries). This cost me money but my reputation is of the utmost importance to me.

As far as your super goes you should be happy your employer hasn't paid your super. All you have to do is inform your super fund of this and he will have to pay you double what he should of paid you originally and may also have to pay a significant fine. If this causes him to go out of business as you suggest than my view would be his 'former' clients are fare game lol

[JohnSheppard]

I'm with Gordon.

Which ever way you look at it, you are taking your bosses 'good will' while taking his money at the same time....so he's a bad boss, that doesn't really justify it.

Legally you might be Ok, but anyone with common sense will see it differently.