No matter the size of your business, there comes a time when a change is needed. Let’s take a look at what business restructuring is, when you should consider it, and why it can benefit your business in the long run.
Why Does Your Business Entity Matter?
When you start a business, there are endless decisions to be made. But one of the most important decisions is how to structure your business. The business entity structure refers to the legal and organizational framework that determines how a company operates and how it’s managed. It has direct implications on who makes the decisions in your business, taxes, liabilities, and more.
The common entity types are sole proprietorship, partnership, limited liability company (LLC), C corporation, and S corporation. If you want to learn more in-depth about business entity types, read our blog post regarding the topic.
So, Why Would You Restructure Your Business?
Contrary to popular belief, your business entity is not set in stone. Many business owners miss the opportunity to adapt their structure over time. Just as you update reporting and production while your business grows and evolves, your business structure should also reflect the reality of your current position as well as plans you have going forward.
When to Consider a Business Restructuring
If you’re not sure you’re ready for your business to be restructured, here are a few examples of times when it can be beneficial.
Mergers and Acquisitions
When your business is looking to merge with or acquire another business, business restructuring can help integrate the operations and streamline the process. This can help make sure all the parts align, and you can hit the ground running right.
Business growth is great, but it’s important to understand as you grow, your current business entity may not be the best fit anymore. For example, many business owners start their businesses as a sole proprietorship. This type of business entity is the simplest to set up and run, but it also comes with a lot of risk. The owner of a sole proprietorship is personally liable for debts and obligations of the business. As your business grows, the risks associated with running the business do, too. At some point, a business owner may not want to be personally responsible for the obligations of the company. That’s where restructuring comes in to help lower liability and ensure your business can grow more easily.
For passing on the business, it’s important to have the right business structure in place to ensure a smooth transition and ensure the continued success of the business. Having a clear and distinct structure can help prevent difficulties arising after you leave.
This doesn’t always mean completely leaving the business. By restructuring, you can give yourself more flexibility with your exit plan. For example, you could sell part of the business while continuing to develop other divisions.
Benefits of Business Restructuring
By working with a professional, they can carefully analyze and realign the structure of your business to increase efficiency, competitiveness, and overall success. Here are the benefits you can gain with a business restructuring.
Having the right structure can help provide greater flexibility in your business when it comes to growth and investment. For example, if you launch a new service offering, separating it into a new entity will allow you to focus on the new growth area and make decisions that are more specific.
As mentioned previously, restructuring your business can also help limit liability. This can be especially useful for businesses holding high-value assets or managing risks in new ventures.
Strategic Tax Management
Restructuring your business can also provide tax benefits by improving your tax burden. But remember, you will pay taxes no matter which entity type you choose. No one business entity will allow you to avoid your debt to the IRS. However, choosing the right structure for your personal situation can help alleviate some of the burden.
No matter what your tax service needs are, we are here to help you every step of the way.
Ready to Restructure Your Business?
When it comes to restructuring your business, it’s important to consult an expert to help guide you to the right choice. At Gaylor Tax Service, we are happy to help you restructure your business to alleviate tax stress and set your business up for more success. When you work with us, we will focus on understanding the unique needs of your business and decide on a structure that will work best for you.
We can also assist you with tax compliance, tax filing, tax planning, and even support you in case of an audit. No matter what your tax service needs are, we are here to help you every step of the way. We are located in Phoenix, Arizona, but can assist you anywhere in the state.