Sole Trader; does it feel like you can't separate yourself from your job? When it comes to the law you and your job are entirely inseparable. Which might not be in your best interest.
When it comes to the law there is no distinction between you and your sole trade business.
Being a sole trader offers tens of thousands of Australians the opportunity to build, own and grow their own business without the costs and administrative requirements involved in setting up a Company.
If you're operating a sole trade business just like it says on the box; you, alone, trading time for money. The ABN business structure holds limited risk (unless you never do your tax returns and regularly forget to invoice your clients - but that's a story for another day).
Being a sole trader definitely comes with its perks, but it also comes with its disadvantages, none more so than when you die...
What happens to my sole trade business if I die?
All those days you feel like the line between you and your business is verrrrrrry thin..... on the day you die that line becomes non-existent.
What many business owners don't realise is when a sole trader dies their business dies with them. Immediately.
Because when it comes to the law there is absolutely no distinction between you and your sole trade business.
Now that's not such a big deal if you're operating a sole trade business the way they sell it on the box; you, on your own, all alone, trading your time or skills or opinions or whatever it is you do for money. Sole. Trader.
Other than the odd outstanding invoice and some client goodwill no matter how you shake it your business dying isn't going to stop the world or impact greatly on anyone else (unless like I said before you don't do your tax or send invoices).
If however you run your business under an ABN and have staff, premises, trade suppliers, significant stock on hand, contractual obligations, or anything else that makes your business more complicated than being just you, on your own trading time for money. Then your death and the immediate closure of your business will undoubtedly have significant flow-on effects, none of them of the good variety.
But surely someone can just keep running my business.?
Many sole traders believe (incorrectly) that if they were to die family members or staff would be able to step in and fill their shoes, continuing to run their business as usual.
I've had many a business owner turn up to their will making appointment armed with a detailed user manual outlining how to keep their business ship afloat in the event of their death - completely unaware that the minute they die their business ship is laying at the bottom of the ocean.
Of course, it's legally possible to nominate a personal representative in your will to continue running or close out your business activities. And I highly recommend every business person have a plan that includes a personal representative.
However, when it comes to continuing a sole trade business there is a significant difference between gently guiding a ship to the bottom of the ocean and attempting to dredge it from the deep.
Could you run your business without access to...
Your bank accounts
At death, your bank accounts will be frozen, including your business bank accounts. This means your personal representatives will be unable to access them until after probate is granted and any costs associated with running your business will become their personal responsibility until the estate is finalised.
Your employees
At death, all employment contracts cease. Your representative will be required to renegotiate contracts with your staff, who may or may not feel as generous towards them as they do towards you. And if their employment is not renewed, employees may be entitled to redundancy claims which could be significant and will need to be paid from your estate.
Your premises and stock
At death, your rental agreements and trade contracts cease. Any assets owned by your business will form part of your estate, which means any stock you have on hand is no longer available to be sold and any items you lease or rent are no longer available to your representative unless they renegotiate those contracts.
Because that's what you'll be asking your personal representative to do...
Protecting the people you love
Being a sole trader may seem like an inexpensive and low-risk way of running a business until you consider the precarious position it puts your employees, colleagues, clients and most importantly your family if you were to die.
On your death, it will become the responsibility of your estate to finalise any of your debts or outstanding financial obligations (including any business debts or obligations such as rent, leases or employment contracts).
As a sole trader these debts are yours alone, even if they've been generated by your business and may mean your assets are used to pay out business expenses and contracts instead of looking after the needs of your family or loved ones.
To protect all your hard work and the value you have created in your business, if you are a sole trader, I can't recommend enough that you make a time to talk to your accountant (and me) about the best way to ensure your business can run smoothly after your death.
Don't leave it until it's too late.
Brave is kind.