SOLE PROPRIETOR ( The tips and tricks thread )

bromster

bromster

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South Africa strongly promotes new Small Businesses as a means of improving overall economic growth, but there is very limited information available to the public on the ins and outs of actually starting a business on your own.

It would be great if there were some gurus out there who have been there and experienced the highs and lows of owning your own business and would be willing to share their knowledge with those people considering taking the plunge. Stuff like:

-How to make or find spreadsheets for bookkeeping
- Tips on allowable tax deductions
-Percentage of certain expenses that may be claimed ( rent, petrol etc.)
- VAT thresholds, advantages and disadvantages etc.
-Ideas for business plans and models

Fire away. I am personally interested in the allowable deductions for someone using about 33% of their home for doing business, as this is the boat I am in.

I found a great source of some basic spreadsheets and forms, invoices etc here:
http://www.vertex42.com/ExcelTemplates/business-templates.html

I look forward to everyone's input.
 
Good thread,I have a few questions .Yes the info is out there but an answer from personal experience is normally more helpful

1).If you were a sole proprietor,I believe that everything in the production of Income is tax deductible.In order to pay tax less tax,could you make sure you break even by increasing your expenses artificially by being extravagant Ie Instead of staying in Holiday Inn you stay at Four seasons,Fly business class etc etc.Could SARS say anything about that?
2)Also some clarity(do's and dont's) on a home office would be lovely.
3)Is it true that you could run the Sole Pro off your normal personal bank account
4)What do you need to fill in regards to tax and the different thresholds.
 
Register a Pty Ltd.

Sole props is for idiots...

New PI score rules mean you can get a pty ltd for peanuts anyway...

Also...excel for bookkeeping is a bad idea. Business owners generally don't know sht about accounting so business owners attempting to set up a accounting system rarely ends well. It ends twice as badly if the business owner *thinks* they understand accounting.

On the tax front...hire a professional.
Jaimbai
1) Yes should work...If you can justify it. Broadly speaking "extravagant" expenses still fly. To lazy to dig up the court case
2) Home office sucks..SARS nails ppl for this. Tread cautiously.
3) Bank account is irrelevant. Its about legal liability. Sole Props suck.
4) Same as normal info.
 
Personally, I am going the SP route just to get my feet wet. I understand the basics, but suspect that trying to run a Pty Ltd might take too much of my time as I also have a regular job.

Why do you suggest Pty Ltd Havok?
 
bromster said:
Why do you suggest Pty Ltd Havok?
Click to expand...
Because the company's liability is yours as well. That's the main reason I have a Pty Ltd.

A Pty Ltd is for all intents and purposes a separate legal entity (can be sued, fined, held accountable, etc)
 
HavocXphere said:
Register a Pty Ltd.

Sole props is for idiots...

New PI score rules mean you can get a pty ltd for peanuts anyway...

Also...excel for bookkeeping is a bad idea. Business owners generally don't know sht about accounting so business owners attempting to set up a accounting system rarely ends well. It ends twice as badly if the business owner *thinks* they understand accounting.

On the tax front...hire a professional.
Jaimbai
1) Yes should work...If you can justify it. Broadly speaking "extravagant" expenses still fly. To lazy to dig up the court case
2) Home office sucks..SARS nails ppl for this. Tread cautiously.
3) Bank account is irrelevant. Its about legal liability. Sole Props suck.
4) Same as normal info.
Click to expand...

A man with some serious sense here. Sole props= If business goes insolvent,banks come after you in personal capacity. If a company ie Havok (mentions (pty) ltd) goes after company assets and not you personally.

Yes there are tax benefits to having a sole Prop ie turnover less than 1 mill etc but alot more negative topositive

As stated above not a seperate legal entity
If business increases must register a company anyway
Tax benefits are generally negligible unless you have a tax consultant being tax savvy on the deductions for business use as opposed to personal use
High amount of limitations on the tax benefits

advice,register a pty limited,better off,easier to register and far easier to maintain in the long run.

Lastly as stated,excel is a bad choice for doing your books.
Bank accounts (business cheque accounts) provide a accounting package to doy our books for a minimal fee( I work for absa) So this is fact, "ie our business essentials" Hiring a tax consultant or accountant outsourced is really inexpensive depending on the size and income of your business.
 
Heard this from a guru once:

Sole Prop is like suicide. CC is like mutually assured destruction ( something along those lines anyways)

Point is your goal should be to separate your personal and business affairs as much as possible.
 
Greg C said:
Sole props= If business goes insolvent,banks come after you in personal capacity. If a company ie Havok (mentions (pty) ltd) goes after company assets and not you personally
Click to expand...

Unfortunately does not work like that in real life. The chances of a bank extending finance to a Pty without personal surety is close to zero.

Different story for creditors, where you will mostly be able to keep your personal estate seperate from business.
 
undesign said:
Unfortunately does not work like that in real life. The chances of a bank extending finance to a Pty without personal surety is close to zero.

Different story for creditors, where you will mostly be able to keep your personal estate separate from business.
Click to expand...

Yes and no my friend. I know thats ambiguous but take it from whence it comes(a banker). You are correct to the extent of the assets of the business,f we are talking about small to medium businesses as well as starting up obviously the company has nothing registered asset wise in its name and thus you are correct to say that assets on a personal nature for surety is used, but that slowly deminishes as the company and its assets/turnover,general account conduct and business increases. Simply put,you put surety on the assets on a personal side for the business assets,business pays off assets,become part of business thus enabling you to use newly aquired assets to be used for future surety and financing. So yes and no. Rome wasnt built in a day but it took a second to kill Julius Caesar. Lesson here is,be positive in what you want to start,be realistic on the size and invest in the future of your business.Having negative thoughts and connotations and a poor business model and plan will inevitably ruin you in the long run both personally and business wise.

And never be to proud to ask for help.

But ya dont touch a Sole prop.
 
Greg C said:
Yes and no my friend. I know thats ambiguous but take it from whence it comes(a banker). You are correct to the extent of the assets of the business,f we are talking about small to medium businesses as well as starting up obviously the company has nothing registered asset wise in its name and thus you are correct to say that assets on a personal nature for surety is used, but that slowly deminishes as the company and its assets/turnover,general account conduct and business increases. Simply put,you put surety on the assets on a personal side for the business assets,business pays off assets,become part of business thus enabling you to use newly aquired assets to be used for future surety and financing. So yes and no. Rome wasnt built in a day but it took a second to kill Julius Caesar. Lesson here is,be positive in what you want to start,be realistic on the size and invest in the future of your business.Having negative thoughts and connotations and a poor business model and plan will inevitably ruin you in the long run both personally and business wise.

And never be to proud to ask for help.

But ya dont touch a Sole prop.
Click to expand...

No my friend. Unless you are corporate, the jockeys will invariably stand surety. The risk of it being called on may diminish (or not as exposure also inevitably grows with growth). Even with larger businesses, sometimes more so with them,a fire sale will destroy asset values and make surety very relevant. Because if the owner/operator typically being the same these companies don't normally build up huge equity, so safety margins are slim. Take it from who it comes, a banker CA. :)
 
the fact that tends to be ignored is that most people have a sole proprietor business dealings because we trade things on our own account and generate income (or losses) in commerce in a personal capacity. By "going into business as a sole proprietor" what you are really doing is declining to isolate your business transactions from you personal estate for legal and tax purposes. The other big thing is that you conducting commerce and being responsible for the risks is not the same as an employee (agent) conducting commerce at your risk. Some professions historically (and currently) require persons to practice on their own account or in an unlimited company and I don't think it is correct to regard the bar as filled with idiots - an advocates practice is on their own account and by definition are sole proprietors.

Setting up a company has administrative and tax costs - and you can't setup any new CCs - which are generally offset by the benefits of incorporation but that isn't the case if your business transactions are small and you are the source of all capital and stand surety for all liability. If you are entirely bound to a business entity by way of personal surety and investment of your own funds and you are the sole decision maker (you don't have managers making decisions) you probably shouldn't set it up as a company because the "corporate veil" will easily be pierced and you are incurring the administration costs for nothing. Moreover if you are taking personal debt to invest in your business you are not only knocked up for the liability but you are also paying the administrative costs and servicing the interest for those costs - which makes absolutely no sense to do.

Asset shielding is not the point of incorporation law and creditors are foolish to not require surety or security for finance they are providing - meaning that for a bank to loose money because of asset segregation the bank either was stupid or a fraud was committed (actually probably both - it is safe to assume a bank is stupid). If you have invested 10 million into a business limited liability means you loose that 10 million, if you invested 5 million in a business and stood surety for another 5 million and the business folds limited liability means you loose the 5 million and if the creditor with the surety is out 5 million you will be personally held for it. Of course if you have stood surety for 5 million and invested 5 million and the business goes to the belly you may find that the creditor for 5 million had say half of their liability settled by the business and you are only down 7.5 million as opposed to 10 million but that fact remains that limited liability still see you loosing a lot of money.

I think part of the reason for the CC legislation back in 84 was to encourage people to incur the administrative and tax costs in setting up businesses in exchange for a shift in risk but ultimately entrepreneurs take risks - its what they do - and encouraging taking further risks through bad bookkeeping and trying to ride the tax system just seems daft to me; almost as daft as not recognizing that sole proprietor commerce is axiomatically the default position.
I suspect that in the medium term the disaster of the 2008 Companies Act will haunt SA but that is another discussion - 135 or so mistakes in the Act requiring a monsterous amendment act does not bode well.
 
^ This man speaks the truth.

I am a sole proprietor and it works perfectly for me.

As said, people in the legal profession do not have the protection of the corporate veil. If you practise on your own then their is no need to register a seperate company and if you do then we are not afforded the same legal protection as our companies have unlimited liability.

So yes, not all sole proprietors are fools.

Sidenote: The person asking about deducting a part of your home for tax purposes must remember that when you sell the property that part of the property will be liable for Capital Gains Tax.
 
But what about me? My planned turnover would be no more than say 200k annually. I am just doing it on the side to get used to running a business. I have capital, so I don't need finance, I don't need additional staff. There is very little legal risk to what I am doing, so would it still be worth it to go through the extra admin of setting up a pty ltd, subjecting myself to sars audits etc?
 
undesign said:
No my friend. Unless you are corporate, the jockeys will invariably stand surety. The risk of it being called on may diminish (or not as exposure also inevitably grows with growth). Even with larger businesses, sometimes more so with them,a fire sale will destroy asset values and make surety very relevant. Because if the owner/operator typically being the same these companies don't normally build up huge equity, so safety margins are slim. Take it from who it comes, a banker CA. :)
Click to expand...

You're being extremely specific on a certain occurance. In your statement as already stated it deminishes depending on the exposure. I said in my post that we would no longer be exposed after the repayment and transfer of said asset not so? Even though it will takle a long time in doing so.

Dont know how all of a sudden I have entered into some form of debate here

I liked the post about the sole prop and the things being said.Some interesting points of view been stipulated but none the less it is of this persons opinion and generally amongst others that a company is preferable to a sole prop.

However the decision is in your hands.

Good luck
 
bromster said:
But what about me? My planned turnover would be no more than say 200k annually. I am just doing it on the side to get used to running a business. I have capital, so I don't need finance, I don't need additional staff. There is very little legal risk to what I am doing, so would it still be worth it to go through the extra admin of setting up a pty ltd, subjecting myself to sars audits etc?
Click to expand...

Sole Proprietor is perfect for you.

You don't need the administrative burden of a company.
 
Paul Hjul said:
...the "corporate veil" will easily be pierced
Click to expand...

Just felt a correction here is needed. In no instance is the "corporate veil" easily pierced. It is the most egregious act that a court can do, and so isn't taken lightly. Short of material fraud, the corporate veil stands.

You must not confuse a Bank's attempt to conflate liability of the owner and the (Pty) Ltd by requiring a personal surety/guarantee from the owner, as piercing the corporate veil.
 
bokka1 said:
Sole Proprietor is perfect for you.

You don't need the administrative burden of a company.
Click to expand...

I agree. A company would be an admin nightmare, and probably also subject you to a higher tax rate. If you don't have the risk of large liabilities and your turn over isn't very high, keep it simple.
 
Thanks for the replies. What kind of expenses can you legally claim as an individual ?

The percentage of the fuel bill which is used in generating business income? Entertainment? 20% of your rent if you use 20% of your place for business? Interest on a bond which derives rental income? Stationery etc etc.

Any other ideas for expenses to soften the tax man's blow?
 
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