Home – New Forums Tell me straight… contract out whole of sole trader business instead of selling??

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  • #996986
    alison_onyx
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    I have run my own personal services sole trader business for the last three years, gst registered as the turnover is high and the volume is high but the profit margin is lower due to the nature of the service. all has been going well, great customer base and referrals and ok part time income. However I’m now moving back to a 12 month fulltime position as an employee as its time for me to get back to corporate work (i know, sorry, that’s a dirty word in here!!).

    I was looking to sell my business however its not something just anyone could take on so my pool of potential buyers is a little limited. assets are only business name, domain, customer list, goodwill etc – no physical stock, vehicles etc etc.

    I have found a person who does similar work and they are interested in the business but prefer to contract to me for a 12 month period to do all the work rather than buy it straight away. This would mean i would still own the business and then they would invoice me the same amount or less a percentage or set amount (depending on what is agreed) of the orders.

    Can I ask if anyone has done this before and any considerations, pros or cons, that should be discussed or thought through first? This wasnt my initial option so I havent done as much research into it. Are there any tax implications from doing this? things I may not have thought about?

    I was hoping to sell it outright but agree that at the end of 12 months I may not continue on with corporate work or that the business may not suit this contractor in the end so it would have an out for both of us. I do however want the service to continue for my client base i’ve built up so dont want to just stop it for 12 months and would like someone to continue it on.

    your collective wisdom would be very much appreciated as this is new ground for me!
    thanks in advance :)

    #1209864
    elissa.doxey
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    On the surface, it sounds like you’d be wearing most of the risk with this. If the other person performs similar work already, then you would have to question whether it’s reasonable to allow them full access to your client base without paying anything except a slight cut to an already thin profit margin.

    There may be steps you can take to try and mitigate the risk if things don’t turn out in 12 months time, but it would probably involve spending money on legal advice, or spending time on protecting your list of clients, etc, and limiting control that the other person has over the company.

    If the other person is unable to finance an all-out purchase of your company, would it be possible to arrange installment payments instead?

    Tax implications are best answered by an accountant, but I would suggest you take into account any extra paperwork and time spent keeping track of invoicing, etc, and how that will affect your taxable income when declaring your main job (employee) as main income source.

    Regards,
    Elissa

    #1209865
    alison_onyx
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    thanks elissa. i thought there was something uneasy that i couldnt put my finger on so thanks for finding the words for me! that’s exactly it.

    #1209866
    bb1
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    elissa.doxey, post: 250453, member: 88225 wrote:
    On the surface, it sounds like you’d be wearing most of the risk with this. If the other person performs similar work already, then you would have to question whether it’s reasonable to allow them full access to your client base without paying anything except a slight cut to an already thin profit margin.

    There may be steps you can take to try and mitigate the risk if things don’t turn out in 12 months time, but it would probably involve spending money on legal advice, or spending time on protecting your list of clients, etc, and limiting control that the other person has over the company.

    All very valid points, but it is also making an assumption that everyone is just in it to rip off customers. Sure some people may do that, but if we all make that assumption we will never employ anyone of advance our business’s.

    Put the legal framework in place, sure it may cost a dollar or 2, but it’s not worth just throwing your business away because you don’t trust anyone to run it.

    There are 1000’s and 1000’s of business that are run by managers, consultants, staff, etc, etc. Which run very successfully without the owner been ripped off, consider employing someone and you keeping the management control.

    #1209867
    elissa.doxey
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    You must know more cheap lawyers than I do, Bert!

    #1209868
    Burgo
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    Sounds like a good idea but you need to have everything in writing.
    You could also look at a Partnership.

    #1209869
    Precise Tax Solutions
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    The tax and legal implications will depend on how the new “venture” is structured.

    Sounds like you’re going to be working a full time job as well as running the business for the next 12 months at least?

    If you can manage both, why not just do both?

    Cheers

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