This exercise will help you to better understand your business and match your needs to a business structure. Think of this as a business health check.

This exercise will help you to better understand your business and match your needs to a business structure. Think of this as a business health check.

In my article we explored the importance of business structure in achieving business growth and outlined some signs or triggers that may help you ascertain whether a business structure review is in order. These include:

a)    major increases in your business activity, profit and assets; or

b)    desire to attract investment, raise financing or take out a business loan for your business; or

c)    plans for your business to evolve from a small-business or small-to-medium-enterprise to something more; or

d)    have better protection of your assets.

You may also want to grow your creative business to the next level so that you can either sell it and move on to your next big thing or scale back your day-to-day involvement in the business (but still benefit from passive income). A well thought out business plan should always have a profitable (and elegant) exit or succession strategy.

Plan and act, don’t just react

While these triggers will be self-evident as it occurs or develops, it is best to be able to predict such trends or events, to enable you to plan and strategise for your business restructure in advance instead of having to restructure reactively to your business needs.

One way to do this is to do a self-assessment of your business from time to time – perhaps annually. Formalised businesses tend to do this through a strategic review and planning session, usually conducted by the board of directors or trustees with management participating, but sole traders rarely take or have the time to do the same, and by the time they realise that they need to change how their business is structured and run, it may already be critical, particularly when personal assets are involved!

Your business, like you, needs health checks every now and then

The exercise below will help you better understand your business and match your growing business needs with the appropriate business structure. Such an audit may even help uncover aspects or issues within your business that you may not have detected before or have time to identify. Think of this as a periodic business health check, if you will.

Two key questions – “How now?” and “What’s next?”

This exercise is designed to make you think about your business by asking the same two questions as you consider the various factors outlined below.

To be effective, you must answer the first question honestly to the best of your knowledge. The assessments you make should be based on facts (and figures where available) and be neither conservative or exaggerated – just say it as it is, or as you understand it to be.

Conversely, in answering the second question, you should adopt a “green fields, blue skies” approach, but one that can still be grounded in reality. Think and dream big, but not so big that it is unrealistic – goals and ambitions need to be achievable or you risk setting yourself and your business up to fail!

1. What does it look like today? How would you explain, describe or rate your business as it stands right now when considering the factors below?
2. What would you want it to look like tomorrow? How, where or what do you see your business in future (pick a horizon, whether it is a year, three years or five years from now, or even beyond) in terms of the factors below.

The following are suggested factors (in no particular order) with brief descriptions to guide you:

•  Activities/programmes/services – what is your business, what do you do?

• Commitment level – is your business one-off or ongoing?

• Size/Scale/Scope – is there a limit to how far your business can grow?

• Culture/values – what is your desired business ethos?

• Objectives – what are your business objectives; is it to make a profit or to advance a not-for-profit cause, for example?

• Responsibilities – are you clear as to who should be responsible for what and how your preferred business structure may impact on that?

• Management – how and who will run your business operations?

• Governance – should there be a separate body to watch over how your business functions?

• Decision-making – who should have the power to make decisions in your business?

• Control – who controls the fate of the business; what level of control do you want to have?

• Funding – how will your business and its activities be funded?

• Flexibility – does your business require the ability to respond quickly to changing requirements?

• Legislative/Administrative requirements – do you fully understand the legislative and administrative requirements of your business structure; can you meet them?

• Reporting requirements – are you resourced/able to meet the reporting requirements of your business structure?

• Liability – do you understand the liabilities you (and possibly others) will have with your business structure?

• Accountability – are you able to ensure effective governance and high levels of accountability and transparency in your business; does your business structure help or hinder this?

* * * Next Steps * * *

After you have completed the exercise, compare your responses against the characteristics, advantages, limitations, requirements and liabilities of the business structures as described in my article, or this Sustainable Business/New Zealand business structure page.

You may also want to check out Chapter 3 of the Department of Internal Affairs’ publication, which also considers some of the other forms of business structures available in New Zealand.

Don’t forget, however, to consult with a trusted advisor before making any decisions on your business (re)structure!