Most people when they decide to go into business don’t even realize that there is such thing as a Business Structure and they have no idea what it is and why it affects them and why they should even care. But making sure you have the correct structure for your business is highly important, especially at Tax Time.
In today’s blog we are going to look at identifying what industry your business is in, or will be in and what structure it needs to be, or should be. The reason you need to do this is because although bookkeeping and accounting are similar across the board, there are different tax laws that need to be taken into consideration when you do your bookkeeping.
Before establishing what structure you will have you need to work out what industry your business will be in. As with the structure type, the industry type also affects your bookkeeping/accounting tax requirements. Following is a broad list of industry types. The broad categories of industries generally follow the stages in the production process.
Primary Industry – One way to describe primary industries would be to say that they are involved in the growing, harvesting, extracting and sometimes processing of natural resources which form the basis of the products we use in our everyday lives. One example would be dairy farming, another would be forestry.
Manufacturing Industry – One way to describe manufacturing industries would be to say that they are businesses that use components, parts or raw materials to make a finished good. These finished goods can be sold directly to consumers or to other manufacturing businesses that use them for making a different product. One example would be a motor vehicle company like Ford who manufactures cars.
Wholesale Industry – One way to describe manufacturing industries would be to say that they are establishments engaged in the sale and distribution of goods to users other than end consumers. Wholesaling involves selling merchandise to retailers, wholesalers and merchants, or to industrial, commercial and institutional users. The wholesaling process in an intermediate step in the distribution of merchandise. Wholesalers sell merchandise to other businesses and normally operate from a warehouse or office.
Retail Industry – One way to describe the retail industry would be to say that it is the stage where the sale of goods is to end users, not for resale, but for use and consumption by the purchaser. The Retail transaction is at the end of the supply chain. Manufacturers sell large quantities of products to Wholesalers, who then sell to Retailers, and Retailers attempt to sell those products to consumers. One example would be a Clothing store or Department Store.
Service Industry – One way to describe the service industry would be to say that it is the an industry made up of companies that primarily earn income through providing intangible goods and services. Examples can include transportation, banking, entertainment, bookkeeping, accounting.
Non-profit Organisations – One way to describe non-profite organisations is that they are a type of organization that does not earn profits for its owners. All money earned by or donated to a not for profit organistion is used in pursuing the orgnaisations objectives. An example of a non-profit organisations is The Salvation Army, Preschools, Church’s.
Government Enterprises – One way to describe government enterprises is that they are state and territory authorities who provide a range of services, including communications, transport, employment and health services. The Government controls the body; the body is principally engaged in commercial activities; and the body has a legal personality separate to da department of government.
As well as different types of industry types, there are different forms of business structures (ownership) of these organisations. It is important to understand the different forms of business structures, as different forms of accounting procedures and reporting need to be adopted according to these different forms of ownership.
|Form of Ownership||Definition||Accounting procedure required|
|Sole Proprietor(one person only)||
||As well as the profit and financial position for the year, the owner as manager needs more concise and regular information, such as monthly sales analysis, budgets etc.|
||Partnerships have similar requirements to sole traders except in the case of ‘silent’ partners who are probably less interested in managerial information|
|Proprietary Company(2-50 shareholders)||
|Many shareholders do not have managerial roles and hence are usually not interested in managerial information unless their shareholding is significant|
|Public Company(5+ Shareholders||
|As above, but final reports must be made available to the general public|
|Similar reporting requirements for companies.Strict conditions to qualify for taxation concessions
Regulation by the Co-Operatives Act.
So by now you will know your industry and also your structure is going to be. If for some reason you are still unsure make an appointment with you accountant or email me or leave me a voice message and we can go over it.
In the comments below let me know what your business industry and structure is 🙂