With predictions indicating that the Queensland economy will continue to strengthen in the coming new year, small and medium sized businesses (SMEs) should investigate their business’s structuring to reap the full potential benefits of the upturn.
Asset protection and tax and commercial issues – such as the expected life of the business and differing financial needs – will all bear influence on the kind of business structure that will best suit different SMEs.
A lot of SMEs are unaware that their structure might actually be inhibiting their operation’s profitability.
Many businesses, despite success, don’t employ any real structuring during the startup phase, which means they don’t perform as well as they could financially.
Now is the time to regroup and look to the future.
Some business owners are unaware of the implications of different business structures, and should seek advice in order to make sure their operation is running at it’s full potential.
Whether you are operating as a sole trader, a proprietary limited company, a trust or any other kind of structure, knowing or getting advice on the pros and cons of each structure will help you to make an informed decision on the future of your business.
All SME owners should be asking themselves questions regarding how long they perceive they will be holding onto the business for, whether they will employ staff, what markets they will be selling to, whether or not they will restructure in the future, and what investment of additional funds will be needed.
For many businesses, a structure that’s worked in the past may be insufficient for their future plans, so knowing the subtleties between the different structures is vital to getting the most out this period of expected growth.
Liability with regard to personal wealth should be a key area of investigation for some business owners.
Creditors and financial institutions generally require that directors personally guarantee their business’s liabilities – where liabilities can mean any time a director or employee is found have performed their duties negligently under the Corporations Act.
To this end, each of the different structures offer varying levels of protection, and each will also place different kinds of liability on the owner.
In a company, for example, personal assets are separated from the business, whereas a sole trader has unlimited liability, and is more exposed.
One of the most important factors that business owners should take into account is the possible future risks and needs of the business.
For example, a business operating in the construction sector will have a higher likelihood of injury for its employees, and will therefore need insurances and indemnities that are more easily obtained by companies than some other structures.
Where operating risks do exist some businesses should investigate separating the business assets from the business operations.
However, one of the most important factors a lot of businesses should investigate is the different tax benefits of different business structures – as this can save you considerable amounts of money.
Businesses with high profit turnovers may want to look at company structuring, as companies pay a 30 percent rate on net profit.
On the other hand, discretionary trusts don’t have to pay tax – rather, the beneficiaries of the trust pay tax on their share of the trust’s net income, with the trustee deciding how to distribute income between beneficiaries.
Additionally, businesses will also want to look at the cost of setting up different structures, with trusts generally being quite complicated and expensive to establish, where it costs nothing to set up as a sole trader.
Obviously, not every business will be able to pick and choose their structuring, however, where there is room to move for some businesses in this area it can certainly be worth their while to do so.
If you’d like to discuss structuring your business to ensure it’s as profitable as possible, speak to your MWM Advisory accountant.
Simply call 07 5596 9070 or email firstname.lastname@example.org to book an appointment.
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