Your business structure. It’s one of the more important things you must think about when either starting, or expanding your business...but how do you know when it’s time to talk structure with your accountant? It’s all about understanding the shift, as well as nailing the transition, so let’s get stuck in!
Sole Trader to Company or Trust
Liability Protection
As a sole trader or partnership, you bear unlimited liability for business debts...so when things get serious, transitioning to a company or a trust can limit your personal liability, meaning you safeguard personal assets from business-related risks.
Tax Moves
Companies and trusts often provide more tax planning opportunities compared to sole traders or partnerships. Distribution flexibility, timing of tax liabilities and other tax benefits come into play when you move into a company or trust structure, potentially leading to a more efficient tax structure.
Business Growth
Seeing some more money come through the accounts? Well, this means you might be outgrowing the simplicity of a sole trader structure. Companies and trusts offer scalability, allowing others to come on board as owners and the ability for you to legally segregate your business or businesses from you, and each other. These characteristics make them suitable for a business with expansion plans or those looking to bring others into the ownership structure...like your own maybe?
The Transition Timing
While the above sound’s ripper, how do you ensure it’s right for you? The transition timing is super key to get right and that’s where working with your accountant is super key.
Performance
This is a telling point. Regularly assessing your business' performance, especially during the end of the financial year gives you the best guidance. If business is thriving and you’re anticipating it will continue, this might be an opportune time to work with your accountant and chat through a more sophisticated structure.
Investment or Expansion
Planning to significantly invest, or expand quickly? The wisest thing to do is speak with your accountant first (rinse and repeat here!). They can guide you to the most suitable structure to accommodate these changes and set you up correctly so you can achieve your goals.
Tax Planning Periods
This is the biggy. Everyone wants to save on tax right? Well, you need to plan for it! Understanding how a shift to a different structure may impact your tax position is uber important. While you might be saving on taxes, you may have to plan for this and that can sometimes be complex!
All things considered, if you find yourself with a business that’s growing, you’re looking to bring others into ownership, you want to look at more effective tax efficiencies or you want to increase your liability protection, then it’s probably time to talk structure with your accountant.
Of course, if you're keen to chat, reach out so we can help you set yourself up for structure success in your business!
