Which business model should you choose?
How should you structure your franchise business?
There are four types of business structures available:
1.Sole trader: an individual legally responsible for the business. Although sole traders operate the business on their own, they are able to employ staff.
2.Company: a structure which operates as a legal body separate from its shareholders.
3.Partnership: a model where two people or entities operate a business together, but not as a company.
4.Trust: an entity that retains assets or income for the benefit of others.
Read more on business structures and types
Jane Garber-Rosenzweig, partner at Gable Lawyers, says that when structuring, “both asset protection and tax consequences should be looked at”.
“It is advisable in many circumstances to operate as a sole trader, especially when the business will need to employ staff,” Garber-Rosenzweig says.
She also advises that a corporate structure, or a corporate structure with a trust attached to it, are best for the franchisee.
“However, advice should be sought based on their specific set of personal and business circumstances,” she adds.
Garber-Rosenzweig also highlights the importance of seeking advice [from whom?] for structuring their business, as many who don’t will have committed to a contract legally [is the franchise or business itself?] and may be left with financial burdens [if the wrong structure is set up].
It is possible to restructure your business if the format doesn’t suit and the federal government has introduced new legislation to make this process simpler.
The Tax Laws Amendment (Small Business Restructure Rollover) Bill is yet to be passed, but will allow small businesses established in the wrong business structure to transfer into a more fitting structure without disrupting any income gains or losses. According to a report by Smart Company, once the law is passed, businesses will have to abide by integrity rules to ensure the business and its linked assets are part of a “genuine restructure” and the provisions are not used for other purposes.
Of course it’s easier and more efficient to get it right first time. Andrew Graham, national head of business advisory at RSM Australia, advises franchisees to first choose a business that aligns with personal interests, skills, and compatibility before undergoing thorough research.
“Understanding what to do if the business is failing, or whether you plan to get the business up and running to sell it, or what to do if the market changes dramatically, can be the difference between profiting from the franchise or losing money,” says Graham.
“A professional business advisor can help develop a plan that will help franchisees achieve their goals in all kinds of circumstances.”
By considering expert advice and choosing a structure more suitable to individuals is more beneficial and increases the franchisee’s likelihood of success.
If you’re looking for expert advice, check out our services and advisors page.