At OBT Accounting & Tax we see many business owners being totally consumed with the day to day aspects of running their businesses. As a result, they fail to realise that the choice of entity under which they choose to operate their business can have a significant bearing on their financial assets as well as the stress and emotional distress it causes if something untoward happens.
The importance of having the right business structure can be highlighted by two examples with which we’ve recently dealt and which OBT has assisted the business owners.
OBT’s Founder and Director, Peter O’Brien, said most cases were avoidable had the business owners sought professional advice during business start-up phase, or as part of a regular review process for established businesses.
Example 1: Owners incorporate a company to run their business, assets protected
“Due to mismanagement or other factors (such as the global financial crisis) the business suffered a downturn in trade and, as the owners didn’t want to terminate or lay off their staff, they fell behind on their obligations.
Their debt increased – a situation they couldn’t trade out of – so we suggested that they liquidate. As no personal guarantees were given by the directors, their personal assets were protected and, depending on the circumstances, they were able to start again and resume business activity,” Peter said.
Fortunately in this case the business owners had options and were able to take a downturn in their business and make good.
OBT's Peter O'Brien works with a business owner on planning and putting in place the best business structure
Example 2: Owners trade as a partnership with all personal assets at risk
“Similar situation as the first case, but the only difference was the owners were trading as a partnership. Again, the business suffered a downturn, debts increased but here we could not easily liquidate as all personal assets would be brought to account, meaning their personal house, cars, etc could be used to satisfy creditors.
In this situation business owners need to ensure that their business operations and personal assets are separated so, in the unlikely event of something happening, their personal assets are not exposed,” Peter said.
It’s important to get the structure right otherwise you could find yourself negotiating with the tax office or third party creditors to plead your case.
Any time is a good time to review your business circumstances including your structure, so phone us at OBT Accounting & Tax on 07 3408 3444 to review yours or to obtain a second opinion.