Your trusted business advisor is key to ensuring that your business is structured correctly, based on your specific, current needs and future objectives. Optimal structuring means that your business is structured to set you up for success, while managing and mitigating risks where possible. Asset protection is the number one consideration that an experienced business advisor will build into optimal structuring. There is no point building wealth, focusing on growing your business, and minimizing taxes along the way, if one dire event could destroy your entire wealth. Tax efficiency is a common discussion and important area in optimal structuring for business owners, as is an understanding of the commercial nature of current and planned activities. The final part of the “end goal” established by your experienced business advisor is ensuring that optimal structuring advice sets you up properly for the planned exit or wealth transfer when the time is right.
Optimal structuring should consider asset protection in a worst case scenario, so you are as protected as much as possible so as not to lose everything you have created. Using the analogy of a human body, if we lose an arm (a business venture fails), it’s going to hurt, but the remainder of the body (other business interests, investments and assets accumulated) are still largely intact. This can only be optimized with optimal structuring in place. Applying this concept, your business advisor should understand likely sources of risk and identify all current and future drivers of value when recommending optimal structuring for your affairs. An experienced business advisor will recognize the importance of assessing not just the needs and issues at the business level, but also ensuring that optimal structuring principles are applied to all facets of a business owner’s life.
Optimal structuring recommendations must address asset protection needs such as separating or quarantining certain business assets and risks. For example, valuable Intellectual Property or Plant & Equipment may be held in a separate legal entity from the trading activities of a business. At the personal level, an experienced business advisor considers risks associated with company directorships, high-risk personal pursuits and other relevant factors when assessing whether an individual should hold an asset, such as a principal place of residence.
Any experienced business advisor is well versed in tax law and understands how its application to optimal structuring and any recommendations made. Tax efficiency means that good optimal structuring advice ensures that appropriate taxes are paid, but where, within the bounds of tax law, they can be minimized, they will be. Additionally, your business advisor should consider the interactions between multiple entities (if applicable) to ensure the chosen structure is efficient across all interests. Finally, your business’ immediate and future plans should be reviewed at length to ensure you are not unnecessarily paying additional tax now, or in the future (e.g. upon exit, raising capital, as the business expands)
Commercial business needs
When recommending optimal structuring, all experienced business advisors understand that every business is different, and there is no such thing as a one size fits all approach. For an experienced business advisor, it is always critical to comprehend the plans of the business owner now and in the future, including what the business model looks like and what key events are planned. In short, ultimately what is the end goal. In advising on optimal structuring, these aspects are mandatorily considered, and a commercially appropriate structure will be recommended by the business advisor. The last thing an experienced business advisor would do is to recommend a Ferrari when a Datsun would be perfectly sufficient for a specific set of needs.
The end goal may be far off, but it should be within the sight of your business advisor when assessing your optimal structuring. When a business structure is not appropriate, it could result in transactional/opportunity costs, such as additional taxes, higher professional fees, and the reduced appetite of acquirers. In some situations, a business structure may be so problematic that it is not even feasible to exit as planned without a business advisor thoroughly reviewing and restructuring your affairs pre-exit. In short, your business advisor should incorporate exit planning (e.g., a business sale) into your optimal structuring. In fact, succession planning needs and desires must be considered thoroughly. Planning for particular assets to transfer to future generations is a big part of strategic planning by our business advisors. The effective and efficient intergenerational transfer of wealth is a critical piece of the optimal structuring of many families and business groups.