Reviewing business structure need not take long and does not have to be expensive. Often all it takes is a few straightforward changes to be put in place. These changes could make an operating structure more efficient, and possibly release cash flow. Small changes can also help to future proof a business, which in these difficult times is a very important consideration. There is no one size fits all and it is never possible to guarantee future success, but a good structure combined with maximizing turnover and profit as much as possible can really help a business move forward in a stronger, more positive way.
Structure always sounds complicated but is, in fact, very simple. It describes the way a business is put together. Who are the owners (partners or shareholders)? Who runs the business on a day to day basis (partners or directors)? Where does the profit go and are the operators maximizing tax to make sure they are getting as much as possible out of the business?
In challenging times, it is natural to push these matters to the back burner to look at on a day when advisers and the business operator will have 'more time'. Unfortunately, it is rarely the case we will suddenly find we have that elusive time!
A few things to consider are:
- Is the business trading the correct way? If it is a sole trader, should it consider a limited company to limit liability? If there is more than one person involved, is it actually a partnership? Should that partnership (where there is unlimited personal liability) become a limited liability partnership (LLP) to limit everyone's liability in the business?
- How is everyone paid? Are the operators maximizing profit and could the business be more efficient about tax and outgoings?
- Are there written agreements in place between those involved in the business (partners or directors; shareholders or members)? If not, what happens if someone dies, or wins the lottery and decides to emigrate to Hawaii? Do the operators have control over what happens to the interests of those departing the business?
- Is it a family/owner operated business? If so, has the operator thought about what happens if spouses separate or divorce? Do spouses hold shares in the business? The business should be protected, insofar as possible, from anything happening outside it. Pre nups and post nups can be very useful and sensible precautions. These agreements can be reached by discussion with all parties involved, and often spouses completely understand the need for such business protection.
- Do the operators (and their immediate family) have wills, Powers of Attorney, trusts and a succession plan for the business? What happens if children do not want to take over from parents? Or those involved want to retire early? An exit plan to maximise the current operators' interest in the business and the business value can be put in place quickly and simply by combining the above. Everyone has worked hard in their businesses and it is important when they leave it, they take as much value as possible in the most tax efficient manner.
The common perception is these things all take too much time and will be very complicated, even contentious. In fact, they do not need to be complicated and make life easier in the long run. They are a great way of organising a business to protect those involved in it from liability at the same time as maximising the cash flow in that business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.