Fractional foundations: Setting up your business properly

‍Talent Onboarding Guide #1

‍Important disclaimer: This guide provides general information only and is not legal, tax, or financial advice. Business structures, tax obligations, and compliance requirements can vary significantly based on individual circumstances. Always seek professional advice from qualified accountants, lawyers, and financial advisors tailored to your specific situation before making any business or financial decisions.

You've spent years climbing the corporate ladder. You understand strategy, leadership, and driving results. But setting up your own business? That's a different beast entirely.

Most experienced executives transitioning to fractional work have never had to think about ABNs, business insurance, or tax structures. They've had HR departments, finance teams, and legal counsel handling the business side while they focused on what they do best.

Now you're the CEO of your own consulting practice. And while your expertise in marketing, operations, or technology is world-class, the administrative foundations of running a business might be completely foreign territory.

Get these foundations wrong, and you'll face everything from tax penalties to uninsured liability exposure. Get them right, and you'll have a professional, legally compliant business that supports your fractional practice for years to come.

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The mindset shift: From employee to business owner

You're not just freelancing, you're running a business

The difference between a freelancer and a fractional leader isn't just semantic – it's structural. Freelancers sell time and skills. Fractional leaders sell strategic outcomes and business transformation.

This distinction matters for how you set up your business. You're not just getting an ABN to do some contract work. You're establishing a professional services firm that delivers executive-level strategic consulting.

Your reputation is your business

As a fractional leader, your personal brand and professional reputation are your primary business assets. Everything from your business structure to your insurance needs to reflect the seriousness and professionalism of the work you do.

You're playing the long game

Unlike project-based contractors, fractional leaders build ongoing relationships with clients over months or years. Your business structure needs to support long-term client relationships, not just one-off projects.

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Australian business registration essentials

Australian Business Number (ABN)

What it is: Your ABN is your business's unique identifier with the Australian government. It's essential for invoicing, tax purposes, and establishing credibility with clients.

How to get one:

1. Visit the Australian Business Register (ABR) website
2. Complete the online application (usually takes 10-15 minutes)
3. Provide your personal details and business information
4. Describe your business activity (use "Management and Related Consulting Services")
5. Receive your ABN immediately (in most cases)

Cost: Free if you apply online directly through the ABR

Important: Only apply through the official ABR website. Avoid third-party services that charge fees for ABN applications.

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Business name registration (optional but recommended)

When you need it: If you want to operate under a business name different from your personal name.

Examples:

• John Smith Consulting (if your name is John Smith) – no registration needed
• Strategic Growth Partners – registration required

How to register:

1. Search for name availability on the ABR website
2. Complete the business name registration
3. Pay the registration fee ($44 for 1 year, $102 for 3 years)

Pro tip: Even if you use your personal name initially, consider registering a business name for future flexibility.

Goods and Services Tax (GST) registration

When it's required: You must register for GST if your annual turnover is $75,000 or more.

When to register voluntarily: Many fractional leaders register for GST earlier because:

• It adds credibility with corporate clients
• You can claim GST credits on business expenses
• Most corporate clients prefer GST-registered suppliers

How it works:

• You charge 10% GST on your services
• You pay GST on business expenses
• You remit the difference to the ATO quarterly

Important: GST registration comes with additional compliance requirements, including quarterly Business Activity Statements (BAS).

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Business structure options

Sole trader (most common starting point)

Pros:

• Simplest structure to set up and manage
• Lowest compliance costs
• Direct control over all business decisions
• Straightforward tax reporting

Cons:

• Unlimited personal liability
• Limited tax planning opportunities
• Harder to separate personal and business assets

Best for: Fractional leaders just starting out or those who prefer simplicity.

Company structure

Pros:

• Limited liability protection
• More tax planning opportunities
• Professional credibility with large clients
• Easier to bring in partners or sell the business

Cons:

• Higher setup and ongoing compliance costs
• More complex tax and reporting requirements
• ASIC fees and annual obligations

Best for: Established fractional leaders with higher revenue or those wanting liability protection.

Trust structures

Pros:

• Tax flexibility and income distribution options
• Asset protection benefits
• Succession planning advantages

Cons:

• Complex setup and ongoing management
• Higher accounting and legal costs
• Significant compliance requirements

Best for: High-earning fractional leaders with complex tax situations (seek professional advice).

Recommendation: Most fractional leaders start as sole traders and consider incorporating once their practice reaches $200K+ annual revenue.

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Essential business insurance

Professional indemnity insurance (critical)

• What it covers: Claims arising from professional advice or services that result in financial loss to your client.
• Why you need it: As a fractional leader, you're providing strategic advice that directly impacts business decisions. If your advice leads to financial loss, you could face significant claims.
• Coverage amounts: Typically $1M-$5M depending on your client size and industry
• Cost: $1,000-$5,000 annually depending on coverage and risk factors
• Key providers: Marsh, Aon, CGU, QBE

Public liability insurance (recommended)

• What it covers: Third-party injuries or property damage that occur during your business activities.
• Why you need it: Many clients require contractors to have public liability insurance before they can work on-site.
• Coverage amounts: Usually $10M-$20M
• Cost: $300-$800 annually

Cyber liability insurance (increasingly important)

• What it covers: Data breaches, cyber attacks, and privacy violations.
• Why you need it: As a fractional leader, you'll have access to sensitive client data, financial information, and strategic plans.
• Coverage includes: Data breach response, regulatory fines, business interruption, cyber extortion
• Cost: $1,500-$4,000 annually

Income protection insurance (personal)

• What it covers: Your income if you're unable to work due to illness or injury.
• Why you need it: Unlike employees, you don't have sick leave or workers' compensation.
• Coverage: Usually 75% of your income for up to 2 years (or longer)
• Cost: 1-3% of your annual income

Tax considerations and structure

Understanding your tax obligations

• Income tax: You'll pay personal income tax on your business profits (as a sole trader) or receive dividends/distributions (if using a company/trust structure).
• GST: If registered, you'll need to charge GST on your services and complete quarterly BAS returns.
• Superannuation: As a sole trader, you're not required to pay super to yourself, but you can make voluntary contributions and claim tax deductions.

Quarterly tax planning

• Set aside tax money: Put aside 25-30% of your income for tax obligations.
• Quarterly estimates: Consider paying quarterly tax instalments to avoid large year-end tax bills.
• Deductible expenses: Track all business expenses including:
  
  • Home office expenses
  • Professional development and training
  • Professional memberships and subscriptions
  • Travel and accommodation for client work
  • Technology and equipment
  • Professional insurance premiums
  • Marketing and networking costs

Superannuation strategies

• Voluntary contributions: You can contribute up to $27,500 annually (including any employer super) and claim a tax deduction.
• Self-managed super funds (SMSF): For high earners, an SMSF might provide more investment control and tax planning opportunities.
• Timing: Consider making super contributions before June 30 to reduce your taxable income.

Banking and financial management

Separate business banking

Why it's essential: Keeping business and personal finances separate is crucial for:

• Tax compliance and deductions
• Professional credibility
• Clear financial reporting
• Legal liability protection

What you need:

• Business transaction account
• Business credit card (optional but recommended)
• Business savings account for tax provisions

Bank selection criteria:

• Low monthly fees
• Good online banking platform
• Integration with accounting software
• Relationship manager for business banking

Accounting software setup

Recommended platforms:

• Xero: Most popular for small businesses, great third-party integrations
• MYOB: Strong Australian focus, good for tax compliance
• QuickBooks: User-friendly, good for beginners

Essential features:

• Invoicing and payment processing
• Expense tracking and categorisation
• Bank feed integration
• BAS/tax reporting
• Financial reporting and dashboards

Set up priorities:

1. Connect your business bank accounts
2. Set up your chart of accounts
3. Configure invoice templates with your ABN and business details
4. Enable bank feeds for automatic transaction importing
5. Set up expense categories for tax deductions

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Professional advisory team

Accountant (essential)

What to look for:

• Experience with professional services businesses
• Understanding of contractor vs. employee taxation
• Proactive tax planning advice
• Technology-forward practice (cloud-based systems)

Services they should provide:

• Annual tax returns and BAS preparation
• Tax planning and structuring advice
• Bookkeeping support (if needed)
• Business structure recommendations
• Superannuation advice

Cost: $2,000-$5,000 annually for ongoing services

Business insurance broker (recommended)

Why use a broker:

• Access to multiple insurers and products
• Professional advice on coverage needs
• Claims support and advocacy
• Ongoing policy management

What they should understand:

• Professional services risks
• Contractor and consulting arrangements
• Technology and cyber risks
• Your specific industry and client types

Legal advisor (as needed)

When you need legal advice:

• Drafting service agreements and contracts
• Understanding liability and indemnity clauses
• Intellectual property protection
• Business structure changes
• Dispute resolution

Pro tip: Many fractional leaders use template agreements initially, then invest in custom legal documents once their practice is established.

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Compliance calendar and systems

Monthly obligations

• Reconcile bank accounts
• Review and categorise expenses
• Send invoices and follow up on payments
• Review financial performance

Quarterly obligations

• Prepare and lodge BAS (if GST registered)
• Review business insurance needs
• Assess quarterly tax instalments
• Update financial forecasts

Annual obligations

• Prepare and lodge tax returns
• Review business structure and tax planning
• Renew business insurance policies
• Update business registration details
• Review and update service agreements

Systems and tools

Document management:

• Cloud-based storage (Google Drive, Dropbox, OneDrive)
• Version control for contracts and agreements
• Client file organisation systems

Time and project management:

• Time tracking (if needed for client reporting)
• Project management tools (Asana, Monday.com, Notion)
• Calendar management and scheduling

Communication:

• Professional email setup with your domain
• Video conferencing tools (Zoom, Teams)
• Client communication platforms

Common setup mistakes to avoid

Mixing personal and business finances

• The mistake: Using personal accounts for business transactions or vice versa.
• Why it's problematic: Makes tax compliance difficult, reduces available deductions, looks unprofessional to clients.
• Solution: Set up separate business banking from day one, even if transactions are small initially.

Inadequate insurance coverage

• The mistake: Skipping professional indemnity insurance or choosing inadequate coverage amounts.
• Why it's problematic: One client's claim could financially devastate your business.
• Solution: Invest in proper insurance coverage appropriate to your client size and risk exposure.

Poor record-keeping

• The mistake: Casual approach to invoicing, expense tracking, and document management.
• Why it's problematic: Creates problems during tax time, makes it hard to track business performance, looks unprofessional.
• Solution: Set up proper accounting systems and maintain consistent record-keeping habits.

Delaying tax planning

• The mistake: Thinking about tax only at year-end.
• Why it's problematic: Misses opportunities for tax planning and creates cash flow problems.
• Solution: Quarterly tax planning and regular consultation with your accountant.

Underestimating compliance requirements

• The mistake: Assuming business registration is all you need.
• Why it's problematic: Misses ongoing obligations like BAS returns, insurance renewals, and regulatory changes.
• Solution: Create a compliance calendar and consider outsourcing complex obligations.

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Your business setup checklist

Legal structure and registration:

• [ ] Obtain ABN
• [ ] Register business name (if applicable)
• [ ] Choose business structure (sole trader vs. company)
• [ ] Register for GST (if required/desired)
• [ ] Set up business banking

Insurance and protection:

• [ ] Professional indemnity insurance
• [ ] Public liability insurance
• [ ] Cyber liability insurance (if applicable)
• [ ] Income protection insurance
• [ ] Review and update annually

Financial systems:

• [ ] Separate business bank accounts
• [ ] Business credit card
• [ ] Accounting software setup
• [ ] Chart of accounts configuration
• [ ] Invoice templates with ABN

Professional support:

• [ ] Engage a qualified accountant
• [ ] Identify an insurance broker
• [ ] Legal advisor (as needed)
• [ ] Regular review meetings scheduled

Compliance and systems:

• [ ] Tax payment provisions (25-30% of income)
• [ ] Quarterly BAS preparation (if GST registered)
• [ ] Document management system
• [ ] Client agreement templates
• [ ] Professional development planning

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The investment in proper foundations

Setting up your fractional business properly isn't cheap. You're looking at:

Initial setup costs: $3,000-$8,000

• Professional advice and setup
• Insurance premiums
• Accounting software and systems
• Legal document templates

Ongoing annual costs: $5,000-$15,000

• Accounting and bookkeeping
• Insurance renewals
• Software subscriptions
• Professional development

But consider the cost of getting it wrong:

• Professional indemnity claims: $50,000-$500,000+
• Tax penalties and interest: 25-75% of unpaid amounts
• Lost credibility with clients: Immeasurable
• Personal liability exposure: Unlimited (for sole traders)

The bottom line

Your expertise as a fractional leader is valuable, potentially worth hundreds of thousands of dollars annually. But that expertise needs to be supported by proper business foundations.

Think of business setup not as overhead, but as an infrastructure investment. Just as you wouldn't advise a client to skip essential business systems, don't shortcut your own business foundations.

The most successful fractional leaders treat their practice as a serious business from day one. They invest in proper structure, systems, and support because they understand that professionalism and compliance aren't just nice-to-haves – they're essential for long-term success.

Start with the basics, but do them properly. Your future self (and your accountant) will thank you.

Next up: Crafting a fractional profile that wins work. Learn how to position your expertise and experience to attract premium clients on the Shepherd platform.

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