When Should a Business Restructure be Considered?

As your business grows or changes, you may decide to make it more efficient with a restructure. The key to success is recognising the fundamental problem or opportunity your businesses faces in time to do something about it. What problems or opportunities do you need to look out for? And what must you do?

To ensure your business restructure is a success, we will look at when you should consider a restructure and what you could go about it.

7 reasons to restructure your business

1. Change in management or ownership of the business

If you are a sole trader and you decide to take on a business partner, you will need to restructure as a partnership. On the other hand, if you buy an existing business and you become the new owner, you may have to restructure the business to meet your business goals and regulatory requirements.

2. Profit growth is stagnating

If this is the case, you will need to audit your salary-to-revenue ratio, cost of goods sold, and overall expenses. If any of these are causing your net operating income to dwindle, a restructure may be necessary to improve the profitability of your business.

3. Poor efficiency

If you do not change as your business grows, this could lead to inefficiencies in the workplace. Hiring more people may increase efficiency and allow you to service more customers, but you will also have a higher payroll cost and reduced profit. Instead, restructuring could be the answer. It could help you streamline your operations and continue to grow without having to hire new staff.

4. Poor employee management

Are your employees overworked, underutilised, ignored, or unsatisfied? If so, they could make costly mistakes or leave the company, and this will affect morale and profit. If your business is experiencing these problems, you may need to audit your existing teams and structure. There are plenty of resources available to help out here. You may find that restructuring is the key to reducing turnover, minimising mistakes, increasing morale, and leading your business back to profitability.

5. Poor competitiveness

As time passes, industries change and technology improves. If you’re doing business the same way you were a decade ago, you could fall behind your competitors. They could crush your prices and surpass you in everything from product quality to customer service. You’ll need to rethink your business model and structure so that you can start beating your competitors again.

6. Shifting customer base

If your customer base is diminishing or buying less, it may be time for a restructure. It could help you roll out a new product, generate revenue for the same product through licensing or subscriptions, or deliver the same for less through reduced costs that allow you to lower prices. This can keep your customers happy and coming back for more.

7. Business growth or economic downturn

Your business, goals and the economy can change over time, which could lead to an expansion or downsizing in regard to your office space requirements. For example, if you are expanding your business overseas or introducing new product or service lines, you’ll need to change the structure of your business to accommodate this growth. On the other hand, if there’s an economic downturn, you might want to downsize your business structure from a company to a sole trader to better manage your business and keep it alive.

Things to do when changing your business structure

• Choose a business structure that best suits your business and situation. There are four main structures: sole trader, company, partnership, and a trust. Each structure has different legal and compliance obligations, so consider these before choosing one.
• Create a business plan for your new structure. It should include operational and strategic plans, as well as the goals and objectives of your business. The plan must be approved by all business owners and any important stakeholders.
• Assess the feasibility of your new business plan and then implement it. One key to success is your ability to adapt to changes during the implementation phase.
• Apply for a new Australian Business Number. You can find out more at the Australian Business Register.
• Contact IP Australia if you’re changing a registered trademark or logo.
• Transfer your business name with the Australian Securities & Investments Commission (ASIC).
• Contact ASIC if you want to form a company.
• Review or create a corporate governance structure or partnership agreement if you’re adding stakeholders to your business (eg from a sole trader to a company or partnership). It should list the terms and conditions, such as responsibilities, liabilities, decision making, and percentage of ownership.
• Find out how a change in business structure can affect your tax obligations, eg how much tax you have to pay or how you report your tax.
• Find out what you need to transfer. For example, when you’re part of a partnership, the partnership isn’t a legal entity in itself. So if you want to change structures and continue running the business as a sole trader, you should transfer the business name to yourself and apply for a new ABN.
• Notify the relevant agencies in your state or territory about the changes to your business structure and registration details, as certain changes could affect your tax and other regulatory obligations.
• Seek professional advice before changing your business structure.

Need help with your business restructure?

At Australian Debt Solvers, we specialise in helping businesses restructure. We can help establish where you’re at and what needs to change, then we will form a plan of action to ensure your company can successfully trade in the future.

For many businesses, restructuring advice can make all the difference between success and failure. So give us a call on 1300 789 499 or visit one of our offices and let us show you how a restructure could work in your situation.