Changing your business structure the right way can drive business growth while protecting your assets. Find out how you can do this safely.
Have you ever found yourself at this particular crossroads?
You want to expand your operations. And at the same time, you want to ensure the safety of your personal assets.
The reality is that small business owners often find themselves in such a predicament. It’s a dilemma that many face in the pursuit of business growth. But thankfully, there is a simple solution to this problem. And this is none other than changing your business structure.
In this comprehensive guide, we’ll provide you with five practical tips to help you navigate the intricacies of transforming your business structure to achieve growth. Hopefully, this guide can help you on your journey toward business evolution… while minimising risks.
The 5 Tips
Tip #1. Understand the Risks
Before diving into changing your business structure, it’s crucial to understand the risks associated with your current setup. If you’re operating as a sole trader, for example, all your personal assets are on the line in case of business mishaps. This can be particularly unnerving, especially if you’re in a higher-risk industry.
What do we mean?
Imagine running a small construction company as a sole trader. A single accident on one of your job sites could potentially wipe out your savings, your home, and more. So, it might be prudent to consider transitioning to a different business structure, such as a company.
A company is a separate legal entity, distinct from its owners. This separation means that it can sue and be sued independently. So, it provides the most robust protection for small business owners in case of legal troubles or financial setbacks.
Tip #2. Seek Expert Advice
Navigating the maze of business structure changes can be overwhelming. This is why it’s crucial to seek expert advice.
In particular, consult with a business adviser who can provide insights into when and how to change your structure effectively. They can help you assess your specific situation, risks, and goals. And more importantly, they can offer tailored guidance that aligns with your needs.
Additionally, it’s valuable to connect with other business owners who have undergone similar transformations. They can share their experiences and lessons learned, shedding light on the practical aspects of shifting from a one-person start-up to a global company. As you embark on a similar path, learning from their triumphs and challenges can be immensely beneficial.
Tip #3. Consider the Benefits
Changing your business structure isn’t just about minimising risks. It also comes with a host of other benefits that can fuel your business growth. These benefits can include:
- Limited Liability – Opting for a company structure offers limited liability protection to its owners. This means that your personal assets are not at risk if your business encounters financial difficulties or faces legal action.
It’s a crucial safeguard that provides peace of mind, allowing you to focus on expanding your business.
- Tax Benefits – Depending on your business structure, you may unlock significant tax advantages. Some structures offer lower tax rates, while others allow for various deductions.
Carefully analysing the tax implications of your chosen structure can lead to substantial savings, further fueling your business growth initiatives.
- Access to Capital – Changing your business structure can open doors to more accessible capital. Investors and lenders, for example, typically prefer to engage with companies due to their well-defined legal and financial structures.
This shows that transitioning to a company format can make it easier for you to secure funding and investments. And you can use those to fund your expansion plans.
Tip #4. Choose the Right Structure
Selecting the most suitable business structure for your needs is a pivotal decision. And there are three primary structures for you to consider:
Sole Trader
If you’re a solo entrepreneur or a freelancer, you might find the sole trader business structure appealing. It’s known for its simplicity, which makes it a popular choice. Also, setting up as a sole trader is straightforward, involving minimal paperwork and formalities.
However, it’s crucial to understand that this structure doesn’t establish a legal separation between your business and yourself. This lack of separation can be advantageous if you prefer direct control and want to minimise bureaucratic procedures.
Simply put, you get to make decisions quickly and keep all the profits. But here’s the catch: Your personal assets, such as your savings and property, aren’t protected if your business encounters risks or liabilities.
So, the primary draw of the sole trader structure is its simplicity and the autonomy it offers.
Partnership
Now, suppose you’re looking to collaborate with others on a business venture. In this case, a partnership might be the way to go. It’s a favoured choice for business owners who want to share responsibilities, resources, and profits.
The key strength of partnerships lies in effectively distributing work and risk among partners. This structure can work well for leveraging complementary skills, experiences, and financial resources. Collaboration and decision-making happen through consensus.
However, it’s crucial to be aware that as a partner in this set-up, you share personal liability for the business’s debts and obligations.
Despite this, partnerships are often chosen when the synergies between partners outweigh the risk of shared liability. And this makes them an excellent choice for businesses built on trust and cooperation.
Company
If safeguarding your personal assets is a top priority for you, a company (or corporation) might be the right fit. This structure establishes a clear legal separation between your business and yourself, the shareholder.
The most significant advantage here is the limited liability it offers shareholders like you.
In simple terms, your personal assets remain shielded from your company’s debts and legal issues. This protection can be pivotal, especially when dealing with substantial financial investments and complex business operations.
Companies also provide the potential to access a broader range of capital sources by issuing shares. And this makes them an attractive option if you aim to scale and attract investors.
The decision to choose a company structure often revolves around the need for personal asset protection and the potential for capital expansion. And it’s worth noting that companies come with more administrative requirements and regulatory compliance.
Tip #5. Take Action
Once you’ve weighed the options and determined the best business structure for your growth ambitions, it’s time to take action. This involves the following three steps:
- Register your new business structure with the relevant authorities, ensuring you comply with all legal requirements.
- Update your business name, branding, and any documentation to reflect the change. Consistency is key to maintaining your brand identity during this transition.
- Notify your customers, suppliers, and other key stakeholders of the change in your business structure. Clear communication is essential to maintain trust and transparency.
Get the Funding You Need to Switch Business Structures
Changing your business structure can be a game-changer in achieving business growth while safeguarding your personal assets. But remember to seek expert advice and carefully consider the benefits. Once you’ve decided on making the change, choose the right structure and take decisive action.
By following these tips, you’ll be better equipped to navigate the exciting path of business expansion.
Now, if you need to secure funding to make the transition to a new business structure… you can apply for an unsecured loan.
If you need further assistance in this area, Unsecured Finance Australia is here to help. Apply online and you can receive your approval within 24 hours.
Find out more by taking a look at our unsecured business loans.
