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Importing to Wholesale & selling to myself !

Discussion in 'Business & Startup Investing' started by Gato15, 19th Nov, 2009.

  1. Gato15

    Gato15 Member

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    I am looking at setting up an business where I would setup a import/wholesale on one side and also setup a retail arm to sell some of the stuff I import.

    At first, the items I am planning to import will be mainly electrical & electronic products.

    I am just wondering what is the best way to structure and manage the logistics and also the books.

    1. My plan is to import using my company, eg. ABC Pty Ltd ATF XYZ Family Trust. The trust will have an ABN. ABC Pty Ltd will be the trustee in this setup.

    2. I intend to setup a retail arm where I would sell some of this items online via eg. www.mystuff123.com.au

    Some of the stuff I sell online will be supplied to the online arm by my wholesale group and also by other suppliers.

    So, the idea is I get the stuff imported, pass on some of the stock to my online business and sell online(www.mystuff123.com.au) operating under the Family trust entity. I think I will need to register a business name for this.

    I want to keep my online business anonymous and not make it public that I am supplying to my self and that I also own the wholesale arm. One reason for doing this is because I don't want my overseas suppliers to know what price I am selling their stuff at..I am sure they'd know anyway.

    I would also sell wholesale via ABC Pty. Ltd wholesale to my clients also, mainly retail shops, etc.

    Ok, so the questions are:
    1. Is it best to keep 2 books for the business as they will operate under the 1 entity. I would like to use something like MYOB or Quickbook.

    2. How do I word my internet business to keep it under the one entity when I register the trading name 'mystuff123'. And, how will I word this on my internet , or don't I need to say who owns this business etc.

    3. Will I need 2 bank accounts?, However, with my online business I would have paypal and may need to setup merchant account later if business does well. Not sure what is the most effective and what is involved here?

    4. On the bookeeping & account side - How do I keep my records. Should I sell to my online business at cost or should I sell with profit and does this make any difference .

    5. How will the GST bits work if I am selling to myself ?

    6. If I am driving a car selling my wholesale stuff does, this type of asset & equipment get shown in my ABC books or the online business books as I am using for both the business, including internet & computer/laptops, etc?

    I am wondering if there are businesses out there that already do this sort of stuff and have companies & structure setup to do both wholesale & retail?

    I would be happy to hear from anyone with other creative ideas or suggestions.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    First question - why are you looking at using a trust to run your business? Why not just a Pty Ltd company?

    The answer to this impacts on most of the other questions - so we'll focus on that first.
     
  3. Gato15

    Gato15 Member

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    Hi Sim,

    The reason why the setup is as suggested is that I had Pty Ltd setup 6 yrs a go to do this and it never happened due to work commitments and travel. Also I had the family trust setup to invest in properties and shares which never happened also and was told by previous account was the way to go.

    Since then I have a new accountant and now I've decided to make the import business happen and my current account suggested I should make the Pty Ltd the corporate trustee of the trust and for asset protection and would be better for distribution of profit using this method.

    I guess the idea was to use what was there from 6yrs ago.

    Hope this helps to answer my questions further.

    I admit a lot of this over the top for me and all I want to do is run a business & make money..!
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Next question - are you married with children? (sorry - a bit personal I know).

    The reason I ask this is that a trust is great for asset protection and great for tax management because you can distribute income to the lowest income earner to minimise your tax. This doesn't really work that well if you are single and will be for the foreseeable future!

    A trust must distribute all net income at the end of each financial year, otherwise it will pay penalty tax rates on any income not distributed.

    If there is likely to be retained earnings (ie not everything is paid out), then a company is better because the company tax rate is only 30%. Based on current income tax rates, you can pay yourself from the company up to $80,000 each year and only be paying 30% on that income, and then anything beyond this you don't pay out and the company then pays only 30% tax on the remainder.

    With a trust, if there was more than $80,000 in profit to pay out and you don't have anyone else to distribute to - you would end up paying more tax.

    Another important question is - are you intending to use the trust for other investments at any point in the future? If so, I wouldn't be running a business out of the same entity - it potentially puts your investment assets at risk.

    I think the best structure is to have a corporate trustee for your trust (which does not trade or own any assets - it simply acts as the trustee), and then have a second company which runs your business - the shares in this second company would be held by your trust, and your trust would hold any other investments as well. This is yet another level of complexity and expense - and is probably only worthwhile if you think your business will be big enough to justify it, and if you also intend to accumulate lots of assets within the trust.

    The advantage of this structure is that if you are sued for your actions in your business, none of your assets (including ownership of the business itself) should be at risk, since you don't personally own any of them (your trust does). Also, you get even more flexibility with tax - you can pay yourself an income out of the company, up to $80K and only pay 30% tax based on current income tax rates. Anything left over you can have the company pay 30% company tax rate on, and then you can pay dividends to the trust, which then distributes that income to whomever - complete with franking credits for company tax already paid. This is essentially structure I personally use for my businesses and assets as recommended to me by my accountant.

    Another structure option is to have a company as a beneficiary of the trust and distribute surplus income to that to pay a maximum of 30%, but there are some disadvantages of this from a trust point of view - good advice required there.

    Are you intending this to be just a small side-line business, or do you expect to be making a lot of money out of it ?
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    If you are running one company (or trust) with two business entities, then I think it would be better to run separate accounts for each entity with separate bank accounts - run them as separate businesses. Your accountant would then consolidate the accounts for the two businesses when filing the tax return for the parent company.

    Use either MYOB or Quickbooks (I prefer Quickbooks, but your accountant will probably tell you to use MYOB - they all seem to recommend it because it is what they know - they should be able to deal with either though), and run two separate company files. Let your accountant worry about how the information is consolidated at tax time. Naturally you'll want to ask your accountant this question and do what they suggest - I'm not an accountant, and I've not run two separate businesses under one parent company before (although I did plan to an one stage - so I did look into this a little).

    Technically, you do need to declare who the owner of the website is (not just the business name), along with your ABN or ACN etc.

    Eg. at the bottom of the page:

    ABC Pty Ltd as trustee for XYZ Family Trust trading as MyStuff123

    (not 100% sure you need the ATF bits, but you should have the parent owner and business name). This stuff can be easily found anyway by doing a name search.

    Similarly, your bank accounts and cheques will be named the same!

    If you really want to keep the identity of the retail arm private, then I suggest you use a Pty Ltd business. A name search will turn up who the directors are - and they can probably put 2 and 2 together to work out what the ownership arrangement is ... but it is much less obvious at first glance.

    If privacy is important, here's how I would do it:

    ABC Pty Ltd ATF XYZ Family Trust ... only used to hold assets, doesn't trade ... you are director of ABC Pty Ltd.

    DEF Wholesale Pty Ltd ... shares owned by ABC Pty Ltd ATF XYZ Family Trust ... you are director of this company ... I wouldn't bother registering a business name for this - just trade under the company name.

    GHI Retail Pty Ltd trading as MyStuff123 ... shares owned by ABC Pty Ltd ATF XYZ Family Trust ... you are director of this company. Alternatively register the company as MyStuff123 Pty Ltd so you don't need to register a trading name.

    Of course, that's now 3 companies and a trust - tax time will be expensive and the bookkeeping fairly complex ... probably way too much overkill.

    Note once again that I am not an accountant, so my proposed structure above is not necessarily the most effective, there may be implications in running two businesses side-by-side that I haven't considered.

    Note that the structure I have proposed is similar to what I use - I am director of several companies, and my trust owns any shares that I hold in them. Yes, tax time is time consuming and expensive, but it gives me the most flexibility in how things are run (some of the companies I am not the only shareholder in anyway - so separate entities are kind of required).

    Sorry, I don't have any recommendations or experience here.

    Note entirely sure about this.

    Remember that anything you import will not have GST charged on it by your supplier OS (although you will probably have import duties to pay).

    Also remember that you are only required to register for GST if your annual turnover (not profit) exceeds $75k.

    Not sure.

    Sorry I'm not able to make any suggestions on the wholesale/retail side of things - no experience there.

    Hopefully I've been able to give you a few things to think about in regards to structure, but at the end of the day, I would still be relying on what my accountant advised me to do.
     
  6. Gato15

    Gato15 Member

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    Hi Sim,

    Thanks for quick response. This forum is great and excellent source of information and knowledge base.

    Yep, married with kids and therefore the reason for trust setup for income distribution.

    I am not planning to have any other investments or funds under the trust.

    I am very comfortable now with your suggestions on structure side of things.

    Initially I am looking at small startup and move on a large scale once I've built my product /supplier confidence and ironed out any logistical and system issues including online.

    I look forward to now hear from someone with accounting and tax related issues/question I've raised. Thank you.
     
  7. Gato15

    Gato15 Member

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    Ok, so only register if turnover is over $75k.

    What are the disadvantages of not registering even though turnover might be under 75k?
     
  8. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    If you don't register, you don't get to claim input credits on GST for expenses you have incurred.

    For example: stationery, domain names / hosting (assuming purchased from an Australian company), travel expenses, accounting fees, etc.

    It depends on your circumstances as to whether it is worthwhile registering early - if most of your expenses are from OS (no GST to claim back), then it's probably not worth the effort.
     
  9. merlinnn

    merlinnn Active Member

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    Hi Gato 15,

    I used to import from China and had a retail outlet. My accountant basically recommended a pty ltd set up based on liability issues. You have to remember whoever imports the product into the country is 100% liable for it's quality, faults etc.

    Eg if your company imports a TV, then sells it to a seperate entity another business etc, who sells it to the public. The consumer buys the TV and it catches on fire burns their house to the ground and they sue, the retailer, the retailer will play dumb, and your company will be defending itself!

    I would also recommend you find a good customs broker they will make your life a whole lot easier as far as shipping costs, import duties, fumigation (if needed etc) There is no GST on the goods you purchase overseas, but customs places a value on the goods and then adds GST to that. See here for more info, GST and imported goods

    Importing has it's pitfalls, but the upsides are definately a much higher profit margin if you import and retail at the same time by passing the wholesaler


    Good luck with it all