So as business advisors we need to tread a careful line between ‘scaremongering’ like all the news channels that cherry pick the statistics that tell the most attention grabbing story, and guiding clients to take pre-emptive action to be ready for whatever might come their way.
There are many areas where we advise clients to be ‘storm ready’, such as making sure they finances are in order and any lines of credit agreed and in place. We challenge on the fallacy of discounting prices to win business and encourage them to take the counterintuitive step of raising prices, which is always a better option. In fact if there are any aspects of your business that could do with a health check to see if you are in good shape, give us a call. We have seen thousands of businesses and several recessions (certainly the older ones of us have!), so we have considerable experience to know how to get businesses in good shape.
We must also be mindful of risk. We have covered it many times over the years, but still find businesses that are not set up in the right way.
So let’s talk about business structures.
So what are the options ?
There are five main types of Business Structures
There are five main types of business structures that we are going to focus on. Each structure has it’s own tax and also other requirements that must be followed, we want to share these with you.
Top of the structure we have A CORPORATE GROUP
This is two or more companies joined together. Shareholders own shares in the top ‘Holding’ company, which in turn owns others. Value can be protected in the Holding company away from the risks within each trading subsidiary.
- Business must be registered on Companies House
- Business needs to pay corporation tax
- Required to submit reports to Companies House and HMRC
- Submit an annual company tax return
To find out about the other types of structures and there responsibilities, check out our infographic Types of Business Structures and decide if you are following the correct structure for your business.
Choosing the right business structure
Our strategy is ‘Get Better, Not Bigger’
This is obviously a simplified summary of the issues, but it will be suitable for perhaps 95% of situations.
There are two key drivers to the decision, the way in which profits and incomes are taxed, and the level of risk protection provided. There may be a cost saving on accounting fees for micro business that could do their own tax returns but would not be able to produce proper company accounts and tax computations, but for any reasonable sized business the costs would be much the same.
Open and View our infographic Choosing the right Business Structure to read in more detail what each layer of the structure incorporates.
- Corporate Goup
- Limited Company
- Sole Trader
What would we advise?
It is a terrible event when a business fails. We have seen many over the years for a variety of reasons, and the impact can be hard and wide ranging. Employees lose their jobs, owners can lose their homes. Some creditors don’t get paid and this has often meant other businesses fail in a domino effect.
So our overriding advice is to avoid failure! This may sound obvious and perhaps even a little patronising, but we have worked with many clients that could have avoided failure but didn’t see it coming or refused to take the necessary action.
Let’s start with the first point.
- How can you see failure coming?
Any good business should have up to date financial information on at least a quarterly basis, preferably monthly. This should help provide up to date information on how the business is doing. If the first time you get any financial information is 6 months after the end of the financial year, it may be too late to take any remedial actions.
Similarly, a good business should have a rough cash flow forecast for the next 12 months and a detailed one for the next 3 months.
unless your business has a very clear focus on what drives profit in your business, and what specific actions you can take to improve it, then you are almost certainly leaving profit on the table every day. The vast majority of business we see that are trying to increase profits, are focussed solely on scale.
Get bigger. More sales = more profit.
In reality this strategy often has exactly the opposite effect!
To continue reading the rest of what we would advise to you please check out our infographic on What any good Business needs.
- The Business structure you choose is not set in stone, as your business grows, changes or even circumstances change it means you have to alter it, you can change your legal structure to meet the needs.
- Therefore, you may start as a Partnership but could develop into a Limited Company. You are never stuck under one structure so it’s good practice to find out what structure would best fit your business.
So what are we saying?
The right actions in any economy are to run a profitable and efficient business, and have good financial information to adapt as things change. This simply becomes more important when we enter a stormy period.
But when times are tough, you need to have one eye on risk and ensure you are protected as far as you can be, should factors outside of your control mean the business is at risk of failure. That means looking at the business structure and considering whether you should switch to being an LLP, Company or Corporate Group.
If you want to know more about how this is done and whether it is the right thing for you, please get in touch and give us a call.