Choosing the right structure when you start a new business is crucial, but it's equally important to switch to a different set up if and when your circumstances change.
But how do you know your Australian business needs a revamp? Does your business show signs that its structure needs updating? These are questions that accounting firms like WMC Accounting can answer, so please get in touch if you need further help.
For now, let's examine the common reasons why some SME owners choose to switch business structures.
1/ The business is growing rapidly
Business growth is a great 'problem' to have, but you may need to consider whether your current structure is best suited to your future requirements. For example, sole traders and companies have different liability rules and administration obligations.
The more streamlined approach of a sole trader may work for you at first, but as your organisation grows, you may find that some businesses are reluctant to enlist your services unless you are an established company.
Almost half SME businesses are focusing on growth and expansion, according to NAB's SME Moments that Matter report https://t.co/CW7oCNU3oR
— NAB (@NAB) July 17, 2017
2/ The economy took a downturn
An economic downturn is the flip side of the coin to growth. Unfortunately, it may be time to downsize your Australian business if your revenues take a significant hit.
SMEs will no doubt be heartened to see National Australia Bank's latest quarterly survey, which showed business confidence and conditions were up in the third quarter. Nevertheless, firms should consider contacting a small business consultant if they see cash flow problems on the horizon.
3/ A change of management is afoot
You may need to update your business structure if the management team or ownership is changing. Perhaps you're a sole trader and you want to enter into a partnership? Maybe you already have a partner, but your colleague wishes to leave the business?
There are often clues to whether or not your current management structure is fit for purpose. You may be struggling to cope on your own, or regular arguments with a partner are holding up decision-making.
4/ Your tax efficiency has declined
All four business structures in Australia (sole trader, partnership, trust and company) have different tax laws. As a business changes in size or scope, it may not have optimal tax efficiency.
Working out which structure is the best for tax purposes is a complex task that often requires professional accounting services, but the savings can be considerable, enabling you to invest the money back into the business.
Would you like to discuss whether your business structure needs updating? Please contact WMC Accounting today to see how we can help.