At some stage, executives, especially those with specialist skill sets, weigh up the pros and cons of remaining employed versus becoming a mining and resources consultant. Sometimes the decision is thrust upon you as projects finish and roles are made redundant and sometimes it simply makes sense to capitalise on specialist, in-demand skills and set up your own business consultancy to enjoy the wealth your endeavours can bring.
Over the years I’ve been a sounding board for many mining and resources executives contemplating such a change. I admit to sharing in equal measure, genuine excitement for new ventures and cold realities of self-employment.
These discussions usually focus of the importance of the correct business structure and three key set up issues affecting it: cost, purpose and commercial reasoning.
Executives transitioning to their own consultancy are usually very aware of what could be a considerable lull in their income that occurs between resigning from their highly paid executive position and securing and getting paid for consulting services. Naturally this drives a sensitivity to costs.
Being cost savvy is important, and this will mean deciding upon the necessity of the various costs related to establishing your consultancy.
For example, a key first step is to set up your business structure. As you’d expect, the simpler the structure the cheaper it is.
At the most basic end, your consultancy could operate in your own name as a sole trader. You can do this yourself. It will involve setting up an ABN using a government online portal that costs you nothing. However, by nature of its simplicity, it also offers nothing in terms of asset protection or tax management benefits.
Should you decide to operate as a company, or a trust with an individual or corporate trustee, the set up cost could be as much as a couple of thousand dollars. Additionally, you’ll be up for ongoing accounting fees for attending to the preparation of financial statements and tax returns as well as annual ASIC fees.
However, with these structures comes the potential for considerable benefits with respect to tax minimisation and asset protection.
Deciding which business structure is right for you will be determined by what type of consultancy you are planning to run.
For example, if you have decided to semi-retire and your consulting approach is to work on a couple of assignments for one or two clients over the course of a year, an ABN sole trader set up may be all that’s required. This will allow you to invoice your clients and bank the money. Then at tax time you would submit your personal tax return to the ATO, claim any work-related deductions and either enjoy a tax refund or pay any tax obligation you may have.
You would also need to consider any GST obligations you might have, bearing in mind the requirement to register for GST and lodge BASs when your annual turnover exceeds $75,000.
However, it’s important to understand even casual consulting roles can go horribly wrong and this very simple set up will provide no protection for your personal assets should any legal action or financial compensation claims be made against your advice or services.
If your purpose is to actively build your consultancy to service multiple clients that requires employing others to assist in the delivery of assignments, then a company or trust structure will provide a layer of protection between your personal and business activities. There may also be some tax benefits associated with operating as a company or trust in certain circumstances.
I would also strongly recommend maintaining adequate levels of insurance to provide additional asset protection.
3: Commercial reasoning
It’s important to consider how your consultancy is likely to develop in future. Whether your intention is to keep a lid on growth or expand to service clients around the globe, it will be prudent to consider business scenarios that a properly conceived and implemented structure will accommodate. For example, government departments and large corporates may have internal policy requirements to only work with consultants that have formal business structures in place rather than working with individuals.
Other commercial matters may include taking on business partners and employees to meet that demand and business growth. Your structure needs to be able to adequately cater for these requirements if you foresee them as necessary in your business.
Depending on your circumstances, personal and business, you may need several or combined structures which may include companies, trusts and super funds.
As part of your new consultancy business planning, consider each of the points raised here then commit to getting professional advice and talking through your options. Even for the most cost-adverse, good advice is a sound investment.
Next, understand your personal and business affairs will overlap. This will create legal and financial planning considerations. Consider a collaborative approach to advice and engage aligned advisers, at the very least accountant, lawyer and financial planner, who will work together in your best interests to implement properly integrated solutions for making the most of the personal prosperity a successful consulting business can bring.
For more information about business structures for establishing a consultancy, and advice for setting up the business structure that’s right for you, please contact Craig Barry, Resources Unearthed on +61 (0) 7 3007 2000 or email firstname.lastname@example.org.
Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting and business advisory services for executives, professionals and business owners in the mining and resources sectors.