Is Your Business Structure Just Another Brick In Your Business Wall?
You probably already know the statistics regarding the survival rate of start-up businesses. Nearly eighty percent of small businesses don’t survive the first three years and only five percent of online businesses survive that same period.
In the words of Professor Julius Sumner Miller, Why Is It So?
Maybe it’s just too easy to set up a business in this country. In fact, the World Bank Study researched 189 different economic regions and ranked Australia as the seventh easiest place to start a business and the fourth easiest place to get credit. We have very few start-up barriers and on average it takes just 2 days to get up and running. Also, we now have a generation of people looking to ‘get rich quick’ using the pulling power of the internet and social media. Their impatience means they pull the trigger on their business idea before they get professional advice. You don’t need to be Confucius to know that businesses built on rocky foundations often collapse.
Laying the foundation ‘bricks’ of your business is critical and they include the right business structure, appropriate insurances, the most suitable accounting software and a business plan that incorporates a marketing plan and cash flow budget. Entrepreneurs in a hurry often bypass getting sound professional and instead rely on ‘Professor Google’. The consequences of the wrong legal advice, the wrong tax structure and inadequate insurances can be catastrophic. In this blog we are going to specifically examine the importance of having the right business structure.
Another Brick In the Wall
When it comes to business structure, a lot of business owners think like Pink Floyd, “All in all it's just another brick in the wall”. However, your choice of business structure is a key part of your business foundations. When it comes to selecting the most appropriate structure for your business we always recommend you ‘start with the end in mind’. Australian taxation laws are complex and changing your business structure at some point in the future can trigger a capital gains tax event that could prove costly.
Whenever we provide advice on business structures we always consider issues including:
- Minimisation of Income Tax
- Maximize Asset Protection
- Allow for the admission of New Business Partners or Investors
- Comply with all Legal Requirements in your Industry
- Future entitlement to Discount Capital Gains Tax Concessions
As such, when assessing the right business structure you need to consider the likely profitability of the business, the current tax position of all stakeholders and the risk profile of the industry. In some cases you might also need to consider if it will be easier to do business in your industry as a sole trader or company. As a consequence, we often find the business structure is a compromise based on the relative importance of these issues.
When it comes to business structures, in Australia there are a number of alternatives and each of them have different taxation and legal consequences. The most common structures include sole trader, partnership, company and family (discretionary) trust.
In summary, starting a business is a bit like a game of chess, to succeed you need to make the right opening moves. That includes the right tax structure and we urge you to consult with us to ensure your business is built on rock solid foundations.