5 Warning Signs Your Business Structure Needs Attention
Business structures are not set-and-forget decisions. As your business evolves, your optimal structure should evolve too.
At Inspired Accounting, we regularly see businesses operating under structures that no longer serve their needs, often resulting in unnecessary tax burdens, increased risk exposure, and limitations on growth opportunities.
Here are five warning signs that your business structure may need attention – and why addressing these issues proactively can save you significant money and headaches.
1. Your Business Has Outgrown Its Current Structure
Many businesses start as sole traders or simple partnerships for convenience and cost-effectiveness.
However, as revenue and profits increase, these structures can become tax inefficient and expose personal assets to business risks.
Warning signs include:
Your business income pushing you into higher personal tax brackets
Increasing concern about personal liability for business activities
Growing assets within the business that you want to protect
Multiple business partners with different involvement levels
Tip: Don't wait until your tax bill arrives to consider restructuring. The best time to evaluate your business structure is when you're consistently generating profit above personal living expenses, or when your business assets represent a significant portion of your net worth.
Restructuring typically requires planning several months in advance of implementation.
2. Multiple Revenue Streams Within One Entity
As businesses diversify and expand, operating multiple distinct activities under one entity can create unnecessary complexity and risk.
Warning signs include:
One business activity performing significantly better than others
Different risk profiles across various parts of your business
Considering selling one aspect of your business but retaining others
Planning to bring in investors or partners for only part of your operation
Tip: When considering separation of business activities, prioritise based on risk profile rather than just profitability. Activities with higher litigation risk, regulatory scrutiny, or customer contracts with significant liabilities should typically be isolated first.
3. Difficulty Accessing Business Profits
If extracting profits from your business triggers significant tax consequences, your structure may not be optimised for your current needs.
Warning signs include:
Accumulating substantial retained earnings in a company
Paying high personal income tax when drawing funds from the business
Inability to access business profits for personal investments
Family members helping in the business but unable to share in profits tax-effectively
Tip: Consider implementing a regular 'structure review' calendar reminder every six months, particularly when your business retains profits above $100,000 or your personal income exceeds the second-highest tax bracket.
4. Succession Planning Challenges
Your business structure should facilitate your long-term vision, including eventual leadership transition or sale.
Warning signs include:
Difficulty bringing family members into the business ownership
Concerns about estate planning and business continuity
Considering partial sale to key employees or external investors
Approaching retirement without a clear exit strategy
Tip: Begin succession planning conversations at least 3-5 years before any anticipated ownership transition.
The most effective structures for succession often need time to mature from both a tax and legal perspective.
This timeline also allows for testing different roles and responsibilities before formal transitions occur, significantly improving the success rate of business transfers to the next generation or new owners.
5. Complex or Costly Compliance Requirements
If your current structure creates unnecessary administrative burden or compliance costs, it may be time for a review.
Warning signs include:
Spending excessive time on compliance activities
High accounting and administrative costs relative to business size
Maintaining multiple entities that no longer serve a clear purpose
Struggling to explain your structure to banks, investors, or other stakeholders
Tip: Create a simple matrix that maps each entity in your structure against its specific purpose, protection provided, and annual compliance cost. This visual tool often reveals redundancies or entities that have outlived their original purpose. A properly streamlined structure should have clear separation of risk, logical ownership flows, and each entity should serve a distinct purpose that justifies its compliance cost.
The Importance of Proactive Structure Planning
While some structural issues can't be fixed overnight, identifying problems early gives you time to plan for change in the most tax-effective and commercially sound manner.
The best approach is to:
Assess your current structure against your business's present needs
Identify gaps or inefficiencies that may be costing you money
Develop a roadmap for transitioning to an optimal structure
Implement changes at the most advantageous time
At Inspired Accounting, we specialise in helping businesses identify and address structural inefficiencies before they become costly problems.
Our structured approach helps you navigate complex restructuring decisions with confidence, ensuring your business structure supports rather than hinders your growth.
Next Steps
If you've recognised any of these warning signs in your business, now is the ideal time to schedule a comprehensive structure review. The benefits of optimising your structure typically far outweigh the costs, often resulting in:
Reduced tax liabilities (both immediate and long-term)
Enhanced asset protection
Improved flexibility for profit distribution
Better positioning for eventual business sale or succession
Simplified compliance and administration
Contact Inspired Accounting today to arrange a confidential discussion about your business structure needs.
Our proactive approach will give you the clarity and confidence to make informed decisions about your business's future.
Grow and protect your business - the Inspired way
Inspired Accounting helps ambitious businesses achieve their growth goals through proactive accounting strategies and clear, actionable advice.
Phone us: 0409 383 855