When building a business, one of the most important decisions you’ll need to make is how to structure it.
Whether you’re just starting or you’ve been running a business for years, your business structure serves as the backbone that supports every aspect of your operations — from how you pay taxes to how you protect your assets.
It’s easy to think that this is a one-off decision, but the reality? It’s something you should review regularly as your business grows and evolves.
In this article, we’ll walk you through how to evaluate your current structure, how to future-proof it for growth and why this process is essential for achieving your business goals, now and in the future.
Why a strategic business structure is essential for your success
A solid plan — we all know this is the foundation of any successful business. But just as important as your business plan is your business structure. Why? Because the structure you choose affects every part of your business such as:
- Taxation
- Ownership
- Liability
- Opportunity to scale
Nothing is more crucial than aligning your business structure with your current goals and projected plan because this ensures that the decisions you make today will support where you want to go tomorrow.
Which one describes your business best?
Sole Trader
This is the simplest form of business ownership, where one person runs the show. You have complete control over your business, which is great! However, this also means that your personal assets are at risk if things don’t go as planned.
Partnership
In a partnership, two or more people share ownership and responsibilities. This can be a great way to pool resources and expertise, but it also means that all partners are jointly responsible for debts. If one partner makes a mistake, everyone feels the impact.
Corporation
A corporation is a more complex structure that offers limited liability protection. This means your personal assets are generally safe from business debts. Corporations can raise capital by selling shares, but they also face more regulations and tax complexities. It’s like stepping into a whole new league —there are more rules to follow, but there’s also greater growth potential.
Your business will get more complex as it grows, and so will your business structure.
What worked when you were starting might not be the best option as you expand. It’s essential to think carefully about this decision because it can have long-lasting effects.
Evaluate your current business strategies
The first thing to rethink when considering your business structure is whether it’s adequately protecting your assets and minimising your tax burden.
If your business is currently structured as a sole proprietorship or a partnership, you might be putting your personal assets at risk.
On the other hand, incorporating your business or establishing a trust can provide a layer of protection between your personal and business assets. This safeguards your wealth but also improves tax efficiency.
Remember: Different tax structures offer different degrees of tax relief, whether by deductions, streaming tax credits or optimising tax rates.
Evaluating your structure is about more than just tax implications. It’s about understanding what you want from your business and making sure your structure matches that vision.
Future-proof your business structure
- Align your corporate and personal goals
When we talk about business structure, it’s easy to focus solely on the financial side of things: taxes, expenses and profits. But it’s just as important to consider how your business structure aligns with your personal goals.
Ask yourself:
- Do I plan on transitioning out of your business in the next 10 years?
- Am I saving for retirement?
- Do I want to invest in property or other assets?
By aligning your business structure with both your personal and corporate goals, you can set yourself up for financial security and peace of mind in the future..
- Plan your exit strategies
Another critical piece of future-proofing your business structure is making sure it accommodates your exit strategy or significant growth targets:
- If you’re planning on exiting the business in the next 5 to 10 years, having the right structure in place is key to minimising tax liabilities and maximising the sale price. A company structure, for instance, may make it easier to transfer ownership or sell shares.
- For those aiming to scale the business, your structure should allow for flexibility. If you plan to raise capital, bring in investors or partner with other businesses, a more complex structure like a corporation or trust might be necessary to manage ownership and share profits.
To effectively navigate these complexities, it’s essential to align your business structure with your growth ambitions and financial strategies.
Understanding the important tax and legal considerations is crucial for your business
Explore the benefits of trusts, multiple companies or self-managed super funds (SMSFs)
Choosing the right structure can also open doors to significant tax benefits:
Avoid misconceptions about restructuring costs and taxes
- Trusts, for example, are a popular choice for high-income business owners because they provide tax advantages and allow for asset protection. With a trust, you can distribute income to beneficiaries in a way that minimises tax liabilities.
- If your business is growing and diversifying, you may want to consider setting up multiple companies. This can help separate risk, ensure that one part of your business doesn’t jeopardise the rest and provide a more efficient tax structure.
- Another option worth considering is a Self-Managed Super Fund (SMSF). This can help you manage your retirement savings, invest directly in your business or other assets and reduce tax exposure.
A common misconception about restructuring is that it’s a complicated and costly process. While it’s true that restructuring might require professional advice and some initial investment, it often results in long-term savings and benefits.
Restructuring can help you optimise your tax position, improve cash flow and increase your business’ value.
Consult with tax advisors
Engaging with tax advisors is crucial in this process. They can help you navigate the nuances of different structures and provide insights on how to restructure for better tax efficiency and compliance.
Think of them as your financial GPS, they help you avoid pitfalls while guiding you toward your destination.
Actively considering these strategies and seeking expert guidance will help you create a robust framework that supports your business’ growth and sustainability.
A solid structure is the backbone of business success
Your business structure is not something that should be overlooked or set in stone. As your business grows, evolves and faces new challenges, your structure should adapt to ensure that you remain on track to meet your goals.
By regularly evaluating your structure, planning for the future and making sure that it aligns with your personal and business objectives, you’re laying the groundwork for long-term success.
At LMS Advisory, we’re here to guide you through every step, helping you build a solid foundation that will support your growth and protect your assets for years to come.
Let’s make sure your structure is ready for the future. Reach out today!
LMS Advisory.
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We help you harness that to make powerful business decisions aimed at your growth goals.
Please note, that this article and the information in it is general and not to be considered as financial advice. However, you can book a meeting with us for personalised financial advice tailored specifically to you.
