How restructuring your business can help you protect your assets

When you start a business, your first priorities probably include finding customers, driving revenue and building your team. However, as you grow, the structure of the business itself can play a key role in protecting you and your assets from unexpected events, competition and can help manage risk.

Ben Loveday explains how owners can optimise the structure of their organisations to protect assets, reduce liabilities and plan for the future.

What does restructuring your business mean?

‘Restructuring’ refers to the process of reorganising the legal, ownership, operational, or other structures of a company to help make it more profitable, or better suited for its present or future needs.

While this can sound complicated, it should be a common consideration in your business. Companies naturally change and evolve as they grow, add team members or products and move into new markets. Restructuring is the process of making sure that the processes within the business - who owns what, who is responsible, which products are sold where, where capital sits - are still fit for purpose.

Why should I consider restructuring my business?

The structures required for a new business consisting of a single owner-manager offering a limited range of products or services are very different from those suited for a multi-product, growing business. That’s why I make sure I sit down with clients who have been trading for a while to discuss how they’re set up and how they can better protect themselves.

This has been of particular importance in times of increased risk or uncertainty - as we have been experiencing. Common assets to safeguard include:

• Human assets: People and expertise, key team members, advisors.

• Intellectual property: Proprietary information, product ideas, customer data.

• Physical assets: Trading premises, major equipment and inventory.

• Cash: Savings, liabilities, loans and investments.

The goal of restructuring is to ring fence those assets to protect them.
Restructuring in practice
It can be easier to understand the value of restructuring with a practical example.

Let’s say Company X, which sells bathroom tiles, has had a very successful year – so successful that they have outgrown their original premises. After moving to a new warehouse, they rent their original one to another business - Company Y. That means there are now two companies registered to this original premises.

This leaves Company X liable for anything that happens from the way Company Y uses the warehouse, or even just plain bad luck, such as if a tile falls off the roof. We would therefore advise Company X to move ownership of the property to a separate holding company to limit their liabilities and protect their assets.

When should you consider a restructure?

Restructuring should be considered every time the business goes through a significant change - this could be growth, raising new capital or taking on any risky endeavours such as a major purchase or product launch.

With regular examination, it shouldn’t be a matter of rebuilding the structure from the ground up every time there’s a change. Rather, it’s regular, incremental evolution in line with your business’s goals. Common scenarios where you might consider changing your business structure include:

1. Managing investments or cash

Once your business is up and running, you might suddenly find yourself with a trading company generating a good amount of cash.

The natural next step is to make this cash work for the business, for example by investing it in property or funds. However, taking it out of the business can incur tax liabilities. In this scenario, creating a new business entity to borrow the money from the trading company can give you more flexibility in how you deploy your capital.

2. If you wish to leave the business

If you want to move on from the business, whether for retirement or to start something new, restructuring can help with succession planning. By creating new structures that give roles to existing people or that tie key assets to parts of the organisation you can effectively separate yourself from the business while ensuring stability in terms of talent and IP.

3. Selling the business

If you want to make your business more attractive for sale, restructuring can help. For example, if you have buyers who are primarily interested in the name and IP of the business, but not in the premises, you can create a new company to retain the physical assets while selling the rest of the business.

4. Preempting risk

Restructuring can be a good ‘just in case’ tactic in the event of the business taking on risk. This could be launching a new product, taking on a new partnership, raising debt or taking on a major contract. If there is a chance of something going wrong in the business, restructuring can insulate the rest of the company.

5. Managing people and responsibilities

Business structures can be used to clarify responsibilities within a business and motivate your team to take ownership of their particular area. Likewise, it can also help with business reporting and accounting to separate products, services and management teams into separate entities rather than collating all the information in one place.

Restructuring can help manage mergers or new partners in your leadership by creating a limited liability partnership; instead of having to manage shares.

How to protect your assets through restructuring

In a broad sense, the goal of restructuring is to separate assets into distinct entities to create simple, separate structures that improve transparency and limit risk.

While there are endless configurations available, I focus on simplicity with my clients to create compliant, efficient structures. These will normally include a combination of the following:

• Trading company: this is the entity that conducts the business, generating capital, employing the staff and carrying the name of the organisation.

• Holding company: this entity holds the cash or profit and manages savings, keeping earned revenue separate from the entity generating the revenue.

• Sister company: there can be any number of affiliated sister companies, but the goal of these businesses will be to hold particular assets, start a new trade or enable the movement of capital. These sister companies protect the trading company from any adverse circumstances arising from new endeavours.

How can Haines Watts help with restructuring?

Just as every business is unique, there is no one structure that works for everyone. My goal with my clients is to understand their challenges, their goals for the future and the assets that matter in order to create a bespoke approach for their business.

Restructuring doesn’t have to be complicated. We’ve helped thousands of businesses rethink their structures to make the most of the available opportunities and streamline their processes.

Find out more about how restructuring can support you and your business.