Published on 26/09/2018 by Any Business.Com.Au

Restructuring: when is the right time?

Changing the structure of your business can be a big step. It also sets in place a number of changes to the control of your business, its liability and taxes.

The main thing to know is that if your existing business structure isn't working or your business has outgrown it, you can choose a different one.

Before changing your structure

Before you decide to restructure your business, consider the reasons why you are changing and what you are aiming to achieve with your new business structure.

Different structures have different legal, tax and compliance obligations, so it's important to understand the differences between each before you decide if changing business structures is the right move for your business.

Steps to consider before changing your structure

1. Review your structure

Choosing the right business structure is an important decision, so you need to investigate each option carefully to decide which best suits your needs.

Changing your business structure can be either a planned decision, or due to factors out of your control. It may be that your business partner is retiring and you can't find a person to take their place, or you may be growing your business by bringing in more investors. Whatever the case, it's important to know your legal, tax and reporting obligations before you change your business structure.

2. Understand the differences between each structure

Each business structure has different obligations when starting and running your business. Read Things to consider when restructuring for key questions to ask yourself before deciding to change your business structure.

3. Seek advice before changing

Speak to a professional business adviser, solicitor or accountant to seek advice regarding your business and personal circumstances.

4. Make plans

Review and update your business plan, marketing plan, and succession plan to ensure you consider your business goals and objectives before deciding to change your business structure. Planning out your business restructure is more likely to ensure its success.

If you are planning to make significant changes to your business, remember to also update your marketing plan to reflect changes to your advertising materials, such as business cards, signage and logos.

Common reasons for changing structures

There are a number of reasons you may choose to restructure your business. It could be due to business growth, taking on a partner, moving into new product lines or expanding your business overseas. You may decide to change the business structure, or to internally restructure the sections of your business, to improve the overall running of your business and meet your business and financial goals.

Common reasons for a business restructure

• Change in management - You may be taking on a business partner, so you decide to change from a sole trader to a partnership structure.
• Change in ownership - If you buy an existing business, you may decide to change the business structure to meet your goals for the business.
• Financial reasons - You may be restructuring to meet financial goals and objectives, such as improving cash flow or profitability of the business.
• Operational reasons - You may be reorganising your internal functions, such as sales and marketing, to improve the way your business operates.
• Business growth - Your business may have expanded overseas or you're expanding the product functions of the business and you need to change your structure to accommodate this growth.
• Economic downturn or downsizing - You may want to downsize or simplify your business structure, e.g. moving from a company to sole trader.

Each business structure has different legal and compliance obligations, so make sure you understand the differences before changing your business structure.

Things to consider when restructuring

Here are some key questions to ask yourself before changing your business structure:

Why are you changing your business structure?

Having a good understanding of why you are restructuring is important to ensure the new structure meets your business needs.

What kind of structure are you changing to?

Consider the pros and cons of each structure, and decide on a business structure that best suits your business and situation.

Do you have a business plan for your new structure?

For example, you may have purchased an existing business or are expanding your current one. You need to ensure your business plan reflects the new or proposed structure, and outlines the goals and objectives of your business.

Do you need to apply for a new ABN?

Most changes to your business structure will require a new Australian Business Number (ABN).

Do you need a new business name or trademark?

You will need to contact IP Australia if you are changing any registered trademarks or logos. You will also need to transfer your business name with ASIC.

Have you looked over your partnership agreement or corporate governance structure, or do you need to create one?

If you are adding stakeholders to your business, for example going from a sole trader to a partnership or company, it needs to be clear to everyone what the terms and conditions are, such as percentage of ownership, decision making, liability, responsibilities etc.

What other agreements do you need to have in place?

There may be other agreements you will need to look over in preparation for your business structure change. This is particularly important in the case of companies and trusts.

Are there any changes to your tax obligations?

A change of business structure may affect the tax you have to pay or how you report your tax. Visit the Australian Taxation Office (ATO)'s choosing your business structure page to learn more about how business structure affects your tax.

Do you know what you need to transfer?

For example, it's important to note that when you are part of a partnership, the partnership is not a legal entity in itself. If you wish to change structures and keep running the business as a sole trader, you will need to transfer the business name to yourself and apply for a new ABN for your business.

AnyBusiness.com.au

Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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