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Starting an online business in Australia is an effective way to reach a broad customer base. Understanding your customer base, your competitors and your business model will be crucial to your success. This article will set out the: 

  • main components of getting your online business started in Australia; and 
  • main steps you will need to consider as you grow.

Getting Started

Who Are Your Customers?

Before you start building your website or manufacturing your products, you should research your customers and develop three to five personas that capture your core target market for your product or service. The market research you do here to answer these questions will determine:

  • what sort of products and services you sell; and 
  • how you brand your business. 

For example, imagine you want to help create better sales software solutions for small businesses. You should consider what:

  • your customers’ goals and aspirations are;
  • challenges your customers face; and
  • the typical age of your customers is (if the employees are likely to be young, they may be more open to technological solutions to their sales pipeline problems).

Who Are Your Competitors?

It is also important to conduct a competitor analysis. You will need to consider:

  • who else sells your products or services (there are usually other businesses trying to solve the same problem you want to solve); 
  • what market segments you and your competitors target (for example, you could differentiate your business by focusing on providing a software service solution specifically to travel agencies); and
  • what sets you apart from the competition (for example, your software solution might be the only one with functionality in several different languages).

What Is Your Business Model?

There are many ways you can run your business. Which business model will work best for you depends on how you think you should engage and serve customers.

There are four common business models for online businesses, as set out below. 

Business model 

How it works 

Examples

Legal documents

Subscription model 

Customers sign up and make regular payments to access your product or service. Customers choose a subscription level depending on the number of features or support they will receive.

  • Netflix 
  • The Wine Gallery 
  • Business terms and conditions, including subscription payment terms
  • Privacy policy
  • Website terms of use

Direct sales of single products  

Business sells  products or services directly to the end consumer for a fixed price.

  • The Iconic
  • StyleRunner
  • Sales terms and conditions
  • Privacy policy
  • Website terms of use

Marketplace

Marketplace operator provides a platform for party A and party B to buy and sell goods and services to one another.

  • Uber
  • Airbnb 
  • Marketplace terms and conditions (these may include a template agreement between the service provider and the customer)
  • Privacy policy
  • Website terms of use

Software as a service (SaaS)

Services are delivered over the internet, rather than provided locally or on-site. 

  • Atlassian
  • SalesForce 
  • Software as a service agreement
  • Privacy policy
  • Website terms of use

What Is the Right Business Structure for Your Business?

Choosing a business structure will significantly affect your business’ legal and operational risks, asset protection, tax obligations, legal costs, growth options and clients. It is possible to change your business structure to accommodate growth or changes in your value proposition. However, it can be a costly process.

There are four common business structures in Australia: 

Of these options, you are most likely to consider setting up your online business as a sole trader or as a company. Most small businesses in Australia are set up as sole traders. A sole trader structure can make sense for simple businesses without significant growth plans. However, since setting up an online business can be risky, we typically recommend that you use a company structure to limit your personal liability. It is also beneficial to use a company structure because it positions you well for growth. Consider the trade-offs below.

 

Cost to establish 

Risk of liability 

Tax

Company

High: you must register a tax file number (TFN), Australian business number (ABN) and GST/PAYG if applicable, establish a new company with ASIC and draft a shareholders agreement.

Limited liability: if the company goes out of business, the company’s shareholders are not personally responsible for the business’ debts. 

Company directors have directors’ duties, and may be personal liability for a breach of duties.

A company can retain profits while paying the company tax rate, which is 30% for larger companies and 27.5% for smaller companies.

Sole Trader 

Low: you must set up an ABN and register for GST/PAYG if applicable.

You are personally liable for any debts the business incurs. 

Profits will be taxed at the sole trader’s marginal tax rate. 

Financing Your Business

There are three ways you can finance the growth of your online business: 

Bootstrapping is the most common method of financing a business, whereby the business operates without raising external funding. If you can operate your business to your satisfaction using your own capital, or if you can make a profit early on in your business journey, it may be best for you to keep complete control of your business and focus on selling your product or service.

Building and Protecting Your Brand

For an online business, your brand can be your most valuable asset. This is because your brand is key to attracting and maintaining customer engagement with your online business. There are two major components to your brand. These are your: 

  • business name; and 
  • logo. 

The best way to protect your brand legally is with a trade mark, which is a sign that distinguishes your goods and services from those of your competitors. A trade mark exists whether it is registered or not, but registration provides you with stronger enforcement rights. 

For example, it will be easier to take action against someone who infringes on your trade mark if your trade mark is registered. 

In short, registering a trade mark for your business name gives you the exclusive right to: 

  • use that name; and 
  • stop others from trading under the same name.

Business Name vs Logo

Registering a trade mark for your business name and logo requires two separate applications to IP Australia. For your business name, you would register a word trade mark, which protects your commercial use of a word or phrase. For your business logo, you would register a logo trade mark, which protects the image and overall impression of your business logo, taking into account its shape, orientation and configuration. 

However, you cannot register a trade mark for generic words that are commonly used to describe a type of business. 

For example, “Online Grocery Store” is essentially purely descriptive. Therefore, you would not be able to register a trade mark for it. 

There are also prohibitions on registering trade marks for: 

  • geographical names; 
  • the names of international organisations; and 
  • offensive marks. 

Once you have picked a name and logo that you like, and ensured that it is not in use by someone else, you should apply for the trade mark.

Important Considerations for Selling Online

Your online business may have its own website. To protect the time and effort that you put into your website, it is important to understand what to include in your: 

Your business terms and conditions are also of critical importance. Business terms and conditions ensure that your customers understand what product or service you are providing. There are three kinds of business terms and conditions, and the types you will need depends on the nature of your business. These are your: 

  • sale terms and conditions;
  • client agreement/service terms and conditions; and 
  • marketplace terms and conditions. 

Getting Paid

You will need to consider how your online business will process payments. The most common ways that online businesses process credit card payments are through third-party payment processors, such as Stripe, PayPal and Braintree.

Growing and Scaling Your Business

As your online business grows, you may consider growing the size of your team, too. To bring on team members, it is wise to have employment agreements or contractor agreements in place to address issues such as:

  • the confidentiality of certain aspects of your business;
  • non-compete provisions;
  • ownership of intellectual property; and 
  • performance expectations.

How you scale your business depends on what you sell, among other considerations. A software as a service (SaaS) business often requires digital marketing to reach broader audiences. Scaling an E-commerce business can be more difficult because you are dealing with a physical product. E-commerce businesses typically start in a particular country or city. Growing to other markets may require setting up overseas operations. Before expanding overseas, it is important to ensure that your suppliers and delivery mechanisms can cope with increases in demand. This sort of growth can be cost-intensive, and it is necessary to be prepared.

Key Takeaways

It is important that you choose the right business structure for your online business. A company is often the most suitable structure for an online business in Australia, as it: 

  • limits liability; and 
  • is amenable to growth. 

Financing your business with your own funding first, and through debt financing second, is the most common way to grow your online business in Australia. Take stock of your circumstances and choose what suits your appetite for growth and risk. Growing and scaling your business will depend on your unique situation. Make sure that you have correct and effective contracts in place when you add to your team and expand your operations. If you have any questions about scaling your online business in Australia, please contact LegalVision’s online business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What business structure should I choose for my online business?

There are multiple business structures you can choose to start your online business. However, the two most common structures in Australia are sole trader and company structures.

What should I trade mark to protect my online business in Australia?

To protect your online business, you should trade mark your business name and logo (at a minimum).

What is the main benefit of a company structure?

A main benefit of using a company structure is that if the company goes out of business, the company’s shareholders are not personally responsible for the business’ debts. 

What legal documents will I need to start my online business?

Which legal documents you need to start your online business will depend on your business model. However, you will likely nee terms of use, a privacy policy and business terms and conditions.

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