How, when and why to restructure your business
Expansion & Improvement
Restructuring can seem like an intimidating prospect, but it’s an essential part of building a successful business. It's important to have the right foundation in place at every stage of your company life cycle, especially in challenging economic times, where the appropriate structure can be an essential tool for adapting to change.
Hassan Behcet looks at the benefits of restructuring, when you should consider it, and how to optimise the process of changing and evolving your business.
Why does structure matter?
Business structure refers to the legal and organisational framework that determines how a company operates and how it’s managed. It can affect everything from who controls decision making in the organisation, to how profits and shares are tracked and distributed. For this reason, it’s one of the most powerful tools at a business owner's disposal.
In today’s dynamic business market, buffeted by Brexit, a global pandemic and fluctuating prices, your structure determines your ability to react to change, guard against risk and plan for the future. However, many business owners miss the opportunity to adapt their structure over time. Just as you’d update your hiring, reporting and production whilst your business grows and matures, your business structure should also reflect the reality of your current position, as well as the plans you have going forward.
What are the benefits of restructuring your business?
Business restructuring can be a proactive measure for business owners seeking to target their long-term goals. By carefully analysing and realigning the structure of a business, owners can increase its efficiency, competitiveness, and overall success.
Being able to track, measure and act-on what’s going on in your business is key in making informed decisions. While accounting software can provide departmental reporting to show how different products or departments are performing, having each one ring fenced in its own entity gives you a higher level of detail and a clearer picture of their performance. This allows you to plan investment, review separate statements, and make more targeted decisions based on performance data to capture opportunities more effectively and mitigate risk.
Having the right structure in place can also provide greater flexibility in your business when it comes to growth and investment. For example, if you launch a new service offering, separating it into a new entity will allow you to focus on the new growth area and make decisions that are more specific. If, in the future, you decide to pass on your business, you will have the option to carve out just the part of the organisation that you want to sell, rather than the whole company.
Risk management is an important consideration for any business, and having everything segmented into separate legal entities can help you manage and limit risk more effectively. This can be especially useful for businesses holding high-value assets such as property. If these assets are also used for trading, and you’re in a high-risk sector, having them held in a separate legal entity can protect them from claims from other parts of the business. This can also be a means to managing risk in new ventures – launching new products or taking on large contracts via a new entity guards your organisation against risk should they not succeed.
Strategic tax management
Restructuring your business can also provide tax benefits, especially in the event of a sale. For example, you could sell the trading business as part of the parent company, allowing the parent company to not pay corporation tax on that gain and invest in a new venture. For multi-part businesses with different P&L generating companies under a single umbrella, owners also have the option to offset profits and losses within the group to minimise corporation tax.
When should you consider a restructure?
Done correctly, restructuring should be integrated into the core workflows that underpin your business. As a rule of thumb, it can be worth considering your business structure each time there is a major change in your market, business plan or performance, either current or planned.
Mergers and acquisitions
When the business is looking to acquire or merge with another business, restructuring the combined business can help integrate the operations and streamline processes. This can help you align parts of the new organisation that have natural cultural or operational crossover, while separating divisions that require particular oversight or special consideration.
As a business grows, it becomes increasingly important to understand its strengths and weaknesses and allocate resources effectively. Restructuring your business can help with this by putting different lines of business into their own entities, providing greater visibility into their performance and potential for growth. This can also allow for strategic decision making, such as taking on new contracts or territories under separate entities to isolate risk.
Exit planning doesn't always mean completely leaving the business. By restructuring, you can provide more flexibility in your exit plan. For example, you could sell the trading company and retain the revenues in a holding company to reinvest, or sell part of the business while continuing to develop other divisions.
For passing on the business, whether via buyout, sale or management change, it is important to have the right business structure in place to ensure a smooth transition and ensure the continued success of the business. Splitting out divisions by owner can provide the new management team with a stake in the company, giving them motivation and incentives to drive the business forward. Additionally, having a clear and distinct structure can prevent difficulties arising from imbalanced performance across different departments.
What is the process of restructuring your business?
At Haines Watts, we focus on understanding the unique needs of each individual, business, or family and devise a structure that will work for them. There are many possible combinations for restructuring, so we focus on ensuring that each step is tailored to your unique goals.
The process starts with a thorough analysis of the current structure and goals of the business, followed by a review of the various options for restructuring. Our experts will then work with you to determine the best course of action and implement the changes necessary to achieve your desired outcome. Whether you're looking to exit, plan for succession, or simply manage growth, our team is here to help you every step of the way.
To find out more about how the right structure can help you succeed, get in touch with one of our team.
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