A business can go through many phases during its life. From start up to succession planning, it’s important to have a trusted advisor to assist when the time is right.
Despite this, many businesses will look to save money by not seeking support from advisors to help them through the various stages. When money is tight, particularly in the early stages, not engaging advisors can seem like an easy way to keep costs down, however, doing this can come at a great cost when things go wrong.
There are a number of professionals who can offer value to your business throughout different stages of the business lifecycle. Some of these business advisors to keep in touch with include, accountants, solicitors, brokers and financial advisors.
Outlined below are some of the business lifecycle phases and opportunities where it might pay to seek assistance:
At the start-up phase, excitement levels are high, everything is happening fast, and it can be easy to just jump in and overlook the fundamentals.
During this time, businesses need to lay the foundations for success. Advisors are critical at this point but the cost of seeking advice can be a deterrent.
At this phase, business structure needs to be considered. In doing this, an advisor can help a business owner decide on the most appropriate structure. There are a number of considerations, including:
- Cost to establish
- Tax minimisation
- Reduction or mitigation of exposure to business risk
- Compliance or other legal requirements to operate (e.g. some customers will only work with a company structure in place, some professional association will only allow a sole trader structure)
- Flexibility to bring in new business owners or partners
- Flexibility to restructure in the future if needed
- Ease of exit or succession planning.
Along with business structures, areas such as personal insurance, employee agreements, registrations and legal requirements all need to be considered.
While all businesses seek to grow, business owners are often time poor and experience growing pains as it develops. Through their experience, advisors can help business owners walk through this tough time and assist with a number of matters often encountered at this stage.
Business owners might look to employ staff to help manage the demands of their growing business. An advisor can help to identify the key areas where they need support to ensure the owner can do what they do best.
An advisor can also assist with employment compliance matters such as payroll tax, Australian Taxation Office (ATO) reporting, superannuation and WorkSafe insurance. Advisors such as solicitors can offer value with matters around Workplace and Industrial Relations, employee termination and wrongful dismissal claims.
As the business develops, the need for capital often follows and therefore business loans are often sought after. To help grow, businesses need extra money for things like plant and equipment, business premises and taking out overdrafts. Advisors can analyse whether it’s suitable to borrow in the first place or use available cash. They can also help suggest the most appropriate types of funding to maximise faster claims for goods and service tax (GST) refund.
At this stage, the business may look to buy other companies to expand, or buy new premises to operate from. An advisor helping to provide due diligence or valuation services can identify whether another business is a good or a bad buy, whether the asking price is too high, or whether it is an opportunity too good to miss out on. Often business owners will jump without seeking advice. This can result in paying the price down the track if the value they thought was there never was. Unnecessary risks can be avoided with good advice from the start.
Many research and development tax incentives exist along with export market opportunities that are often overlooked by business owners. Advisors are great for identifying significant cash concessions and grants available for business. This can provide not only a boost to cash flow but new products or revenue streams to grow a business significantly.
Another item in the growth phase that can be critical and missed by the business owner is agreements such as a partnership or ownership agreement. These spell out how business owners want to work together and can help deal with unexpected conflict down the track should it occur.
Also known as the plateau stage, the maturity is a phase of less intensive growth, but no reason to take the foot off the pedal. It’s often a consolidation phase where maximum value out of a business can be generated.
By this time in the business lifecycle, matters that typically occur and where advisors are needed include:
- Admitting new business owners, whether that be key employees or merging with another business
- Other changes in management, including making decisions like should we establish a Board of Directors or committee of management
- Trying to grow to a scale that so the business might be an attractive acquisition for a larger company
- Considering whether to float on the Australian Securities Exchange (ASX)
- Considering whether to become a target for a private equity buy-out
- Using other business structures, such as superannuation funds, that might not have been considered or required in the heady growth stages
- Analysis to maximise profitability of the business and therefore value of the business.
Succession planning phase
At this stage, a business owner is looking to either slow down or cease running their business completely. This may be as simple as just shutting the doors one day, or selling up and maximising the years of hard work and sacrifices made along the way.
Advisors will help with succession planning including valuing a business for sale, setting a price, structuring a sale to maximise value or minimise tax and preparing or reviewing contracts of sale.
Once a business owner has exited their business, superannuation, wealth management and retirement planning is a major factor for the future. Advisors can steer business owners through the maze of legislation to help achieve a desired retirement outcome or ideal tax benefits by conducting well thought out planning at this phase.
While engaging professional advisors can be a costly exercise, it is money well spent, and can avoid costly pitfalls down the track or identify opportunities that business owner might not have thought of.
The business lifecycle is a journey that can be shared by both the business owner and their trusted business adviser. Don’t attempt it alone and seek advice no matter how far into the business lifecycle you may be.
First published in Spark Magazine Autumn 2018 edition.