SMART STRUCTURING: Lay the foundations to empower business ambitions

Business owners often overlook the importance of adapting their business structure as it evolves. However, this should be a regular board-level consideration. Smart structuring aligns structure with strategy, allowing business leaders to seize opportunities as they arise while ensuring cash flow and profitability are protected. No matter how ambitious the goals of a business, regularly assessing the structure and risk profile of the business can help set the foundation for future success.

Building a platform for growth

Smart structuring can create opportunities for focused growth, such as forming subsidiaries for new ventures or markets. This approach attracts investment, enables claims for R&D tax relief, and protects the wider business if the new venture doesn’t succeed. Similarly, acquisitions can be integrated with existing ones to help streamline operations and unlock hidden value through economies of scale.

Expanding globally with confidence

Smart structuring helps businesses navigate the complex cross-border tax regulations that can arise when establishing an international presence overseas. A branch structure may lend itself to short-term market testing, especially if initial losses are expected. However, forming a subsidiary often offers greater tax certainty and improved commercial and risk management. In some cases, a licensing, joint venture, or acquisition strategy may be the preferable approach.

International expansion is not a one-size-fits-all process. Smart structuring enables businesses to identify the best strategy for expansion overseas, taking into consideration the various tax implications.

Minimising risks

Regularly reviewing your business structure is key to managing tax compliance and mitigating risks. Establishing a holding company can separate assets from subsidiaries, providing tax benefits and reducing risks if a subsidiary is facing liabilities or bankruptcy.

As businesses grow, it’s important to reassess property ownership and intellectual property (IP). Smart structuring can help preserve tax reliefs on capital gains and inheritance tax, whilst ring-fencing these assets into a separate entity safeguards income streams and facilitates future sales.

Employee incentives and share option schemes

Another benefit of smart structuring is that it helps to incentivise and reward employees. Separating divisions into distinct companies provides greater rewards for management due to their associated division’s performances. This can be an enticing incentive when attracting new C-suite executives with tailored renumeration packages.

Planning for an exit or investment

A clear business structure boosts investor confidence, while a complex one increases risk and reduces transparency. It’s recommended to plan two to three years ahead of a sale or significant investment to optimise the business structure, attract interest, and achieve the best valuation.

Potential buyers and backers will undertake due diligence on the group’s financial performance and ownership structure in order for them to understand the value of assets and profitability of each division. Disposing underperforming assets or activities can help improve the group’s tax position and the overall appeal of the business and ensure continuity post-sale.

Menzies is a leading UK business advisory and accountancy firm with international reach. We help accelerate your ambition, with a proven track record supporting both businesses and individuals to successfully reach their goals. Reach out to our local Stevenage office on the details below: stevenage@menzies.co.uk