Business Structuring - 5 Steps to Help You Protect Profit and Performance
Business structures and agreements have a huge influence on taxation, ownership control, transfer on gifts and estates, and shareholder access to cash flow. A business owner's capacity to understand these areas directly affects their ability to consider contingency issues, comprehend compatible business structures, and develop appropriate documentation to support succession goals. Not to mention that business structuring also has a huge impact on family harmony in the business.
A critical component of the interdependent areas of the Succession Matrix®, business structures also protect owners by helping to achieve desired outcomes with any partners, involved family, and key managers. The reason for having proper business structures in place is because they help:
- Drive business success and longevity (it is your business, not theirs)
- Avoid disagreements or differences of opinion (because everyone has an opinion on how you should run your business)
- Provide great protecting of YOUR goals (not those of everyone around you)
- Creates formal compensation and incentives (so you are not seen as the bad guy for not giving in)
Another valuable (we like to say invaluable) tool as part of ensuring you have your plans in place is that they work to motivate and retain your key managers. Specifically, when looking at employment and/or golden hand-cuff agreements, they can provide you confidence your key managers fully understand their role and responsibilities, and the incentive compensation intended to promote their career commitment. And in highly competitive markets like the multi-unit franchise segment, they can also provide a layer of protection with non-compete covenants.
We often hear from multi-unit franchise owners who've not engaged in this process after there has been a situation creating conflict. Their reasoning for not doing so was either because it seemed to be non-relevant or complex. The reality is that it is one of the more critical areas to ensuring the future of your business. To get started, consider these 5 areas of the business structure checklist:
- Assess your current business structure and business document circumstances relative to your confirmed goals. Evaluate the business taxes you are subject to and identify if there might be any adjustments to minimize them.
- Confirm your advisor team to assist with business structuring:
- Contracted expert subject matter facilitator such as a Succession Planner
- Business attorney and accountant
- Family members
- Key managers
- Discuss business structuring goals and issues with your advisor team.
- Add a business structuring section to your succession planning action agenda. This provides a prioritized foundation for action and direction of categorized activities including updates on:
- Corporate structure
- Corporate minutes
- Corporate documents, including franchisor documentation
- Stockholder documents
- Lease review and refinements
- Key manager/family member documents
- Operating covenants (non-competes and privacy)
- Schedule regular meetings with advisor team to establish accountability.
Business structuring deals with the mechanical aspect of how you operate your business. They are put in place to provide structure and confidence in anticipated business value and ownership rights. It's important to include stockholder, operating and partnership agreements, and making sure they are appropriately communicated and coordinated throughout your key stakeholder, family member, and manager team. See how your business compares to best practices with this complimentary business structuring guide.
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