Is it time to restructure from a sole trader?

Are you a sole trader and often wonder whether a restructure is right for your business? If you do, you’re not alone.

The most common structure for a new business to commence with is as a sole trader. Doing so is cost effective, simple to manage and almost everyone can understand and explain how their business operates.

Over time as the business grows or has new requirements it is common to consider whether a restructure is right for you.

When is it time to restructure?

Restructuring will look different for every business. Some common events that trigger a need or desire to restructure include:

  • Employing staff (even other family members)
  • Entering into contracts with large organisations
  • Purchasing major equipment or vehicles
  • Leasing premises
  • Expansion planning
  • Providing asset protection for your personal assets
  • Tax planning
  • Succession planning
  • Admitting new business partners
  • Changes in family circumstances or relationship breakdown
  • Delegating duties may require a separation from your personal finances and affairs
  • Tax law or other legislative changes
  • Registration requirements of other bodies

What do I restructure to?

There are two common entities that a sole trader will restructure to, either a Company or Trust.

Each has their own pros and cons and in more complex structures a combination of both may be required.

Other options include: Partnerships, Joint Ventures, and Not for Profit organisations. These entities are recommended in specific circumstances and it is more common that your recommended restructure will be from a sole trader to a Company or Trust.

What will be involved?

Unfortunately there’s no way around it – restructuring can be messy and time consuming. The restructure will require new:

  • Australian Business Number (ABN)
  • Tax File Number (TFN)
  • Business name registrations
  • Bank Accounts
  • Legal contracts
  • Employee agreements
  • Marketing materials and documents

These factors are important to keep in mind before some of the trigger events happen. For example it is easier to restructure before leasing business premises rather than having to have a new lease prepared after.

What next?

The first thing you should do is discuss your current business circumstances with an accountant. It is also important to include future plans or dreams, even if they are only in the “what if” stage.

In being able to evaluate your business in it’s entirety your accountant will be able to advise on the pros and cons of each structure with the future in mind. For example: if you are planning to grow and employ a larger workforce, or move into a commercial premises, it is typically beneficial to restructure earlier rather than later.

There are various factors involved in which structure is right for you and whether a restructure will benefit you and your business. Accordingly there is no one size fits all and the structure that you operate with may look different to the business next door.

If you’d like to discuss your business structure book a time now and we would love to help you understand your options.