What you should know about a business restructure

Businesses are constantly evolving and the environments in which they operate are changing as well. It’s almost inevitable that businesses, both small and large, will be faced with the decision of whether to restructure at some point. There are some common reasons why businesses choose to restructure as well as things to consider when making the change.

Reasons for a business restructure

There are many different reasons why a business may choose or be forced to restructure. Some possible reasons include:

• change in legal structure
• change in ownership
• change in operating or organisational structure required.

Change in legal structure

Some common legal structures of a business include sole trader, partnership and company. The legal entity of a business may change as a business evolves.

Sole trader to company

When you’re operating as a sole trader, there’s no distinction between your personal and business assets. A company is a separate legal entity so you can’t be forced to use your personal assets to pay off business debts.

Sole trader to partnership

A partner can bring new knowledge and expertise into your business. But remember that a clear partnership agreement is important as it will help you avoid potential disagreements.

Partnership to company

If you’re in a partnership and would like to change to a company structure you first need to dissolve the partnership. This will leave you free to set up a company in the usual way.

Change in business ownership

When ownership of a business changes, the organisational and operational structure often goes under a major overhaul to align with the vision or goals of the new owner.

Changes to operating or organisation structure of a business

Sometimes a business may need to change its organisational or operational structures to be able to grow and evolve, adapt to changes in the business landscape or even just to survive. Operating structures relate to the way processes are done in an organisation, and organisational structures relate to how people are organised in the company including line reporting, roles and accountabilities.

Things to consider before you start the restructuring process

• Make sure the type of restructure aligns with business goals.
• Understand the change management process and have a good change management plan in place.
• Understand the tax implications and obligations.

Align restructure with business goals

The first step towards any restructure is to set out exactly what you want to achieve. If there’s more than one thing you’d like to change, prioritise your goals and approach them one at a time. There’s no point restructuring if the change doesn’t align with important and priority goals.

Implement a change management plan

A change management plan helps manage the change process, and also ensures control in budget, schedule, scope, communication, and resources. A change management plan helps to minimise the impact a change can have on the business, employees, customers, and other important stakeholders.

Make sure you understand your tax obligations

Changing the structure of your business could affect how much tax you have to pay or how you report your tax. The Australian Taxation Office (ATO) provides guidance about tax implications for changing, selling or closing your business, opens in new window.

You should also check whether you qualify for the Small Business Restructure Rollover, which allows small businesses to change their legal structure more easily and cheaply. This could give you more freedom to choose the best structure for your stage of growth.

Seek professional help

A business restructure can help your business to become more profitable, operate more efficiently and adapt to your evolving needs, but only if it’s done well. That’s why it’s vital to discuss every stage with an experienced professional.