Running your own trade business is an exciting venture, but there are a lot of decisions involved in making it successful — including the exact type of trade business you plan on being. Tradies can make their money in a variety of ways, with two of the most popular being sole trading and contracting. Let’s look at what makes them different so you can know which would be better for you.
What is a sole trader?
A sole trader is essentially a one-person business: you work on your own, completing both the practical trade tasks and the admin required to support a business. As a form of self-employment, being a sole trader is about as straightforward as it gets as a business structure. Sole traders are their own bosses, personally responsible for finding clients, completing jobs, managing payments, and making every decision.
Benefits
Being a sole trader lets tradies get to work without worrying about working under someone else. It gives them the flexibility to choose their hours, clients, and work locations. Additionally, choosing a sole trader business structure can be beneficial financially. Sole traders typically have much lower start-up costs than owners trying to establish a larger business or company. Every dollar that is earned for work is also yours (aside from tax requirements), and you’re in control of where those funds get directed.
Starting out as a sole trader also takes fewer steps than many other businesses. All you need to do is organise an Australian Business Number (ABN) and you’re essentially ready to go! You do need to be prepared for all of the admin requirements that come with running your own business though, like tracking quotes and invoices, scheduling jobs, and communicating with clients.
Thankfully, that’s what Mira is here for.
Check out our suite of features.
Considerations
Having no separation between you and your business has its advantages, but it's important to consider everything that entails. For one, being a sole trader means you’re liable for all that happens, meaning your personal assets are on the line if anything goes wrong.
A sole trade business can also be difficult to grow at times. If you’re successful and build a healthy network of clients, there’s a good chance you’ll land some referral jobs and experience increased demand for your services. Because if you’re on your own, you might not always be able to pick them up. You have to consider how interested in growth and expansion you are, and whether you would be capable of exploring a different business type. Now, if this doesn't quite fit your needs, you might want to explore a contractor position, which could be a better match.
What is a contractor?
A contractor is a trade professional who works independently, and in many ways is a form of self-employment, not altogether unlike being a sole trader. The main difference between the two is that, where a sole trader is technically the only employee of their business, a contractor works on behalf of other companies as a non-employee. This means that clients will contact a larger company for required work, and that company will sign a contract with you to complete the work on their behalf.
Imagine there’s an electrical job that needs to be done. Sole traders will be contacted and hired directly by a client, and then they will invoice that client. Contractors will be hired by a larger company, and then they will bill the company for their hours worked, not the client.
Benefits
It might sound like working as a contractor just adds unnecessary steps between you and client work, but it can actually provide a lot of useful flexibility and opportunity. Contractors can be hired by various companies because their skills are often in high demand, which in turn offers good earning potential. Similar to sole traders, contractors can also choose their hours and days of work.
Considerations
Flexibility in choosing work is great, but contracting can also mean your income fluctuates throughout the year, as you only get paid for jobs you’ve completed. Additionally, a self-employed contractor doesn’t have the same rights as employees of a company, meaning no sick leave, and in many cases, no superannuation contributions from the people hiring you.
Can a sole trader hire contractors?
Actually yes! A sole trader can still use contractors to help with specific jobs and tasks, and it's actually quite common. This is typically seen when sole traders are tasked with large jobs or highly specialised work that they don’t have the capacity to complete on their own. Importantly, this doesn’t change the business structure — the sole trader is still personally responsible for everything going on.
Can a sole trader have employees?
Even though a sole trader is, by definition, a lone operation, they can still have employees working for them. By becoming an employer, they also become responsible for paying wages, providing super, withholding tax, and taking out workers’ compensation insurance. Having employees doesn’t change the business structure, but it does involve a lot more responsibilities. You need to be ready to manage a lot more admin, but it can help you scale your business.
Which type of work is right for you?
The difference between being a contractor and being a sole trader can feel minimal at times, and both forms are capable of creating a lot of success and earning you a good living. If you’re just starting out and looking for simplicity, being a sole trader might be the way to go. If you’re keen on scaling up a bit more and confident in managing multiple different projects, a contractor could offer you a lot of flexibility and improved earning potential.
It’s all about what you’re after, and you can also change it up as you go, and even consider turning your growing business into a full-fledged company. Both paths allow you to be your own boss and take control of your future.
Ensure your success with Mira
Mira is all about helping tradies and service business owners find success and take the pressure off. With a suite of helpful features, Mira helps you manage every aspect of your business, from quoting and scheduling jobs through to invoicing and client communication.
Start a free trial to experience the difference for yourself!