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With planned infrastructure across the nation and the continued transformation across the manufacturing industry, the demand for products, skills and capability is likely to flow directly through to its sectors. With high demand and the creation of new jobs, it may be a good time to review your business structure and ensure it has the capacity to scale and manage growth.
Here are 5 structures you should review:
1. Entity Structure – What’s best?
The challenge with entity structures is that they really need to be customised to the business. They need to fall in line with the objectives of the business owner(s). This may involve choosing either a company or trust structure or combination of both. It may make sense to put company owned assets into a trust for protection and capital gains tax benefits. Sometimes it makes sense for a trust to own a company. There are a number of variables to be taken into account but it is a good idea to get this right from the start.
If you have the wrong structure, it is possible to change into one that will optimise growth potential but it will incur costs. The amount may depend on the stage of the business.
2. Organisational Structure – Defining roles
In the startup phase, many business owners don’t differentiate between being the owner and manager, but rather consider themselves as the business owner that manages the running of the business. When you define yourself with just one role, all management tasks sit underneath that role. That makes it difficult to create structure because you can’t easily divide the duties and create separate roles.
As your company grows, you can continue to be the business owner but employ someone to take over the management aspect of your business. Once you have segregated your responsibilities into two distinct sections, it’s easier to hand one over to someone else. You can handle more customers and projects, and gain higher profits because you have someone assisting you. You can continue to scale the business up by defining the manager role and responsibilities.
Defining roles is often critical in a family business, particularly where responsibilities and tasks can cross over and accountability may become confused. The right organisational structure should provide clarity over who does what and allow teams to flourish with increasing levels of self-reliance. It also has a significant impact on culture for attracting and keeping skilled employees that play a major role in growth.
3. Assets and Funding Structure – Protect yourself and manage cash flow
As the old saying goes, “you have to spend money to make money”. A growing business may need more space, staff and equipment. Often this is required before the business has actually grown so it can be stressful when increased costs and/or a big outlay is seen as a risk.
If you have to buy more land to build a factory, a trust could own the property and lease it to the company. If anything happens to the company, the property is still owned by the trust and can’t be touched to fund company debts. If you have a reasonable super fund, you may be able to purchase new premises through the personal super fund and lease it to the company.
Possibly the biggest challenge is how to manage cash flow when you are trying to grow. A growth plan with milestones can help build the business incrementally, aligning costs with stages of growth to make sure you don’t over capitalise.
If you think applying for grants or making a claim for R&D is in the too hard basket, you could be missing out on much needed funds that could get you through a growth phase. Many startups rely heavily on the R&D rebate to keep going. If you are developing new technology, designs and processes to improve products and services you may qualify and open up a new revenue stream.
4. Reporting Structure – know what’s happening
Visibility on how the business is doing in real time is invaluable for any business, having access to the right reports for your business will help evaluate progress and allow you to respond accordingly.
Financial reports are mandatory for all businesses. Banks, investors and regulators use these reports to approve loans, lines of credits and to make sure you are following GAAP (Generally Accepted Accounting Principles).
With Management Reporting you will be able to dive deeper by focusing on segments of the business to analyse the drivers of your business. An example would be analysing how the marketing department is performing for a certain time period or how much profit one sales employee had in a certain month.
If you don’t receive management reporting each month you could be missing out on information that can help your company grow or prevent you from implementing costly programs that don’t provide an ROI.
5. Exit Structure – What does your next chapter look like
With baby boomers looking at retiring in the next 5-10 years, over 50% of small businesses will be on the market. Finding a buyer can be a challenge particularly where value is the business owner’s knowledge, relationships and/or aging equipment. Buyers will be looking for a business that has growth potential so identifying and transferring value is a process that needs to be implemented before finding a buyer and may take a number of years before it’s ready to sell.
Focusing on factors that may increase the value of a business is the first step. A formal valuation will help determine options which may be different to what you envisaged such as a merger, competitor acquisition or an Initial Public Offering.
Need assistance with your growth plans? Contact one of our specialist manufacturing advisors today.