The best time to put in place the right business structure is at the start. Your business plan should include a vision for the future and your structure should reflect the business you want to become rather than the one-man garage operation you may be at the beginning. (See What is the right structure for my business?)
Having said that it is not uncommon for businesses in the early stages to focus on keeping their structure simple and costs low. Usually this means trading as a sole trader, partnership or perhaps through a simple company structure.
Successful, fast-growing businesses typically operate with a mix of company and trust structures. These more complicated business structures are not just for show. The create separation of personal and business wealth, realise tax efficiency and help to manage risk and allow orderly transfer of assets.
So how do you know when it’s time to consider a change in structure? There are three key signs that should have you knocking on your accountant’s door for a chat about structure.
1. The Value of Your Business is Growing
Your business may well grow to become the biggest asset you will ever own. That means you need to think about risk protection and ways to protect against the unexpected.
A significant increase in activity, profit and assets is one sign of growing value. But don’t forget about hidden factors such as intellectual property and goodwill.
2. A Material Increase in Tax Exposure
No one wants to pay more tax than they have to. Add to this the fact that as your business grows, cash reserves will often lag behind profit generation. So you may find yourself paying tax on profits that are not readily available to you.
The right structure can help to manage tax impacts and timing differences between profit and cash.
3. Plans to Sell and/or Introduce Stakeholders
If you are planning to sell your business or introduce partners or other stakeholders to your business at any point in the future then your structure makes an enormous difference. To maximise access to tax concessions, especially CGT small business concessions, you need to have the structure right in advance.
Changing your structure may expose you to CGT and/or stamp duty so the costs can be high. It’s important that you act to change your structure as early as possible.
If you recognise any of these 3 signs in your business and want to explore the options available for your structure please contact us to set up an appointment.
We are here to help you grow!