Advivo Business Advisors and Accountants share their insights on how to structure your business to ensure it is set up for success.
People start businesses for different reasons, so the type of structure best suited for your business will depend on what your ultimate goals are.
Possible reasons for starting a business include:
- A desire to create wealth;
- A desire to be your own boss;
- A desire to have greater flexibility;
- A desire to change the status quo.
We often quote Stephen Covey’s second habit which is to ‘Begin with the End in Mind.’ This applies to so many situations and is particularly relevant when setting up a business structure.
Each structure option will have different tax consequences depending on your personal circumstances. There is no one size fits all when it comes to setting up a business, so it’s important to understand how you and your business will be affected by your choice of structure.
In most cases, businesses generate wealth which the owners will want to protect. For this reason, an asset protection strategy is a key consideration when setting up a business. This involves understanding the risk associated with your business and what can be done to minimise that risk to protect your business assets as the business grows.
Tax is another important consideration. Long term goals can have a significant impact on the type of structure recommended. Choosing the wrong structure or failing to restructure at an appropriate point in time could result in you paying far more tax than you should be. If your primary goal for starting a business is to increase wealth, then minimising tax by structuring your business in the best way, will help achieve this sooner.
What if I have the wrong business structure?
In short, it can be very costly to have the wrong business structure. Many business owners won’t even know if they’ve got it wrong or not. They will continue as they have done, completely unaware of the hidden costs associated with their current operating structure. Unfortunately, their long-term goals can be significantly hindered, taking years longer to achieve, than would otherwise be possible, if they had sought the right advice in the first place on their business structure.
Unnecessary costs of operating in the wrong structure could include:
- Paying a higher rate of tax than necessary, multiplied year on year, significantly hindering wealth creation, and adding years to your working life.
- Potential capital gains tax or state stamp duty on moving business assets that could otherwise have been deferred or possibly not even needed.
- Creating an expensive problem to achieve a succession of business ownership to the next generation of business owners or to bring a colleague into the business.
- Loss of assets or control of the business due to it not being addressed correctly into your estate plan.
How do I get the right business structure?
Simply ask us!
We love what we do and we like helping others do the same, so if the above resonates with you, please talk to us today or come along to our event ‘Setting up, Scaling up, Checking up’ in August.