Company or Not?
There is no right or wrong answer about whether or not to trade as a company, but it really comes down to what your intentions are in the future. To answer the question, I need to ask one, “What will you be doing in the next 2 to 5 years?”
Some common answers I have are:
a) This is a one-year contract, then I’m not sure what I’ll do.
b) Once this contract finishes, I’ll get another contract.
c) I’m going to build this into a business, and look at employing people and leasing an office.
I call the category A people as the “undecideds”. There is nothing wrong with being in this category but if you are I’d probably suggest that you operate as a sole trader rather than a company. Having a company is not going to
Category B people are “career contractors”.
The Category C people are launching a full on business and it would be a good idea for them to use a company structure.
The other consideration is how much risk will you face, and is a company going to help minimise this risk.
As an accountant I’m in the unique position of seeing first hand how different sectors are performing, and its not pretty at the moment. Rather than looking at a newspaper article (well online – I can’t remember when I last read the paper), I’m looking first hand at John and Sally the plumber and his wife who are really struggling. I’m dealing with real people who are affected by this. I really feel that we are at Rock Bottom (well I hope it doesn’t go lower!)
- My retailer clients have been screaming with pain with dropping sales levels
- We’ve been spending more and more time working with receivers and tax debt consultants
- We’ve still got more 2014 year work to do than ever before… because clients haven’t brought it in to be done yet – they can’t afford to pay us!
- Electrical contractors are struggling, as are most tradespeople
- Suppliers are getting tougher and tougher with their payments terms – they’ve been burnt too often
- I’ve even got a number of previously high earning IT consultants who’ve been unable to find work
- The IRD are getting more aggressive with their collections
OK is the new Good
I used to tell clients that as self employed people they needed to be making good profits. A good example of this is that if you own your own plumbing business… you should be making more money than if you were working as an employee, after all you’ve got so much more risk and responsibility.
Lately though, when discussing the year end results with client if they’ve hit zero or better then they’ve done well. I’ve seen so many negative figures in people’s reports.
The idea is to stay afloat, live to see another day because eventually things will get better.
I don’t want to come across as all doom and gloom!
Yes there is still money to be made out there, and yes there are things we can do.
To finish on a positive note… I do get a sense that things are slowly starting to turn. Perhaps this is just eternal optimism… but I’ve got my fingers crossed!