Choose the right structure for your business for future success
When choosing the right structure for your business, there’s numerous factors to consider. Start by asking yourself some important questions about how you see your business and what your plans are further down the track. What is the future vision of your business? What are your growth plans? How many partners have stake in the business? Starting out with the wrong structure and then having to make changes generally comes at a cost, so it’s important to work with an accountant to ensure your business is set up correctly from the word go. Don’t forget, it’s equally important to review your structure on a regular basis. Changes within the business may mean that there is a more suitable structure than was originally set up when your business first started trading.
There are a variety of options when it comes to business structure and understanding what they offer your business is essential. It’s important to work with an accountant to discuss your options. An accountant will be able to make recommendations based on the future plans for your business and explain why one structure may be more favourable that another for your circumstance. It may even be the case that a combination of multiple structures would work best for your business.
Some common business structures include:
This is a low-cost option for starting your business. It’s controlled by you as an individual, and you as an individual are responsible for the income, expenses and debts of the business. It’s not the ideal structure for sustained growth in your business, as new owners will lead to a change in the business.
A partnership model is a low-cost option for a start-up business, however, every year a separate tax return will need to be completed. A partnership is controlled by two or more people, who share profits based on set percentages. Changing ownership percentages can lead to further taxation. This is not the ideal structure for growth since adding or removing partners will mean setting up a new business structure.
This is a structure that offers set ownership entitlements. Its control is dictated by rules set by the owners and ownership percentages. A company structure is a good option for growth since ownership can be changed without changing the business registrations. This structure allows owners to separate their personal assets – great for protecting both personal and business interests. Tax is paid on profits, based on company tax rates.
A discretionary trust is a structure that offers a lot of flexibility in family owned business’. Family members can enter and leave the business without changing the trust itself. Profit allocations can be adjusted year-to-year, as entitlements are not set, increasing cash flow in your business. A trust can be used for 80 years, allowing the business to be passed down generations without substantial tax implications.
Self-managed superannuation funds (SMSF)
SMSFs are designed to give owners of these funds control over the investments that will fund retirement. Superannuation is a low taxation option for investments, if managed appropriately. Once in retirement, tax can be minimised to zero, increasing funds for your retirement.
Here are some questions you should ask yourself when considering which structure is right for your business:
- Can you pay wages?
- Is asset protection important?
- Is taking dividends from the business an option?
- Can you utilise losses?
- Would you be able to distribute to your kids and spouse?
- Will your wage be included in payroll tax?
- Or will you have a liability in your own name at year’s end?
- Can key employees buy into the business?
- Will you achieve better tax benefits when your business is sold with capital gains discounts?
There’s certainly plenty to think about! At Carbon, we’ll do the hard thinking, analysis and strategy development to make sure your business is structured the right way, from the beginning. Call us today to get started.