Busy business owners seldom find the time to step back and look at their business with a critical eye. When it comes to your corporate structure, that can be a BIG problem waiting to happen.
Things we see:
Mum and Dad both named as Directors
The issue: In certain situations, Directors’ personal assets are at risk. Unless Mum and Dad are truly engaged in directing the company, that means 100% of your combined assets are on the line.
The solution: Remove one of Mum or Dad from the Board. It’s a simple, low-cost process that can immediately take 50% of your combined assets out of the firing line.
Operating assets in the trading company
The issue: The assets you use to make your product are mixed in with the relatively risky activity of hiring employees and trading with your suppliers and customers. If something were to go wrong, those assets could be forcibly sold to help pay your debts and that could be ‘game over’ for your business.
The solution: Move the assets to a ‘sibling company’ where they are protected from trading risk. Then rent them back to the trading company. This can be achieved relatively easily and without triggering tax consequences.
Retained earnings in the trading company
The issue: All of those retained earnings are an ‘at risk’ asset. Once again, if something were to go wrong, those earnings make you a juicy target for creditors. You’ve earned that money, so shouldn’t you protect it?
The solution: Pay out the retained earnings as a dividend. Then loan the money back to the trading company – if it is needed – under a secured loan facility. Now, you are at the front of the queue if creditors come knocking.
(Pro tip: this works best if you have a holding company standing between you and the trading company – there is usually no tax impact arising from the payment and receipt of a dividend company to company).
Why This Matters for You
In manufacturing, the focus can tend be on the product, the process, sales and people. However, things can and occasionally do go wrong. Making time to think about your corporate structure now may be the thing that helps you to ‘bank’ all those hard-fought wins.
Northern Strength Can Help
Northern Strength exists to support manufacturers to protect themselves as they grow. Through our founding partnerships, and by pooling expertise across finance, advisory, manufacturing, and risk management we’re here to help members consider whether their corporate structure fits their circumstances and put practical measures in place to protect their operating and personal assets.
If you’d like support with corporate structuring, reach out. That conversation could be the difference between survival and losing it all.
Contact Northern Strength today to explore corporate structuring options for your business and make sure your assets stay your assets.