In Short
- Conduct thorough research to identify your target customers and analyse competitors to determine your unique selling proposition.
- Select a suitable business structure, such as sole trader, partnership, company, or trust, that aligns with your goals and risk tolerance.
- Register your business name and trade marks, establish clear terms and conditions, and comply with Australian Consumer Law and privacy regulations.
Tips for Businesses
Starting an online business in Australia involves careful planning and adherence to legal obligations. Understand your market, choose a business structure that offers the right balance of flexibility and protection, and secure your brand through trade mark registration. Ensure your website includes comprehensive terms and conditions, as well as a privacy policy, to comply with legal standards.
Table of Contents
- Getting Started
- What is the Right Business Structure for Your Business?
- Financing Your Business
- Building and Protecting Your Brand
- Important Considerations for Selling Online
- Getting Paid
- Growing and Scaling Your Business
- Case Study: Starting an Online Tech Accessory Business
- Key Takeaways
- Frequently Asked Questions
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 will help you to 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. The business model that will work best for you depends on the specific services or products that you are offering, and how you are looking to engage and service your customers..
There are four common business models for online businesses, as set out below.
| Business model | How it works | Examples | Key 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 Class Pass | 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 | E-Commerce/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:
- sole trader;
- partnership;
- company; and
- trust.
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, a company structure may be preferable 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 several ways you can finance the growth of your online business, including:
- bootstrapping;
- debt financing; and
- equity financing.
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.
Debt financing involves borrowing money to fund your online business, typically through loans from banks, credit unions, or online lenders. This method allows you to maintain full ownership of your business while accessing the capital needed for growth. However, you will need to repay the borrowed amount with interest, which can impact your cash flow. Debt financing can be a good option if your online business has a steady revenue stream and you are confident in your ability to make regular repayments. You will often need to provide a personal guarantee to guarantee the repayment of the debt.
Equity financing involves selling shares in your business to investors in exchange for capital (cash). Equity financing can be provided by angel investors, venture capitalists, or even friends and family. While you will give up some ownership and decision-making power, equity financing provides access to larger sums of money without the burden of debt repayment. It is particularly suited for high-growth online businesses with significant scaling potential but may not be ideal if you wish to maintain full control of your company.
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. 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.
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 mark, which protects your commercial use of a word or phrase. For your business logo, you would register a device 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.
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:
- terms of use; and
- privacy policy.
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 many kinds of business terms and conditions, and the types you will need depends on the nature of your business. These include:
- sale terms and conditions;
- software as a service 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 and PayPal.
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.
Case Study: Starting an Online Tech Accessory Business
Kim, a tech enthusiast from Sydney, launched her online business, aiming to provide high-quality, affordable tech accessories to Australian consumers.
She began by researching her target market, identifying young professionals aged 25-40 as her primary customers. She conducted a thorough competitor analysis, discovering that most existing online tech accessory stores lacked personalised customer service.
To differentiate her business, Kim implemented a subscription model offering curated monthly tech accessory boxes. She chose to structure her business as a company to limit her personal liability and position it for future growth.
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Kim bootstrapped her business initially, using her savings to build a user-friendly website and source initial inventory. As her business gained traction, she secured a small business loan to expand her product range and improve her logistics capabilities.
To protect her brand, she registered trade marks for both her business name and logo. She also developed comprehensive terms of use and business terms and conditions for her website. As the business grew, she hired two part-time employees, using carefully crafted employment agreements to protect her business interests.
Within its first year, Kim’s online business attracted over 5,000 subscribers. She noticed that a lot of customers liked the business’ subscription model, but also wanted the option to purchase one-off products, so the business expanded its offering to include a direct sales model for individual products. Her careful planning and strategic decisions positioned her online business for continued success in the Australian market.
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:
- can protect your personal assets;
- gives your business credibility; and
- is a good structure if you are looking to grow your business in the future.
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, our experienced online business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
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.
To protect your online business, you should trade mark your business name and logo (at a minimum).
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.
The legal documents you need to start your online business will differ depending on your business model. However, you will likely need terms of use, a privacy policy and business terms and conditions as a starting point. If you are looking to use team members, you should also have employment agreements or contractor agreements in place.
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