Corporate structures have been and continue to be used for a range of legal, business, tax and governance reasons which can possibly assist in achieving financial growth and mitigating risk.
The right structure allows to accumulate riches, build wealth and protect your legacy.
For example, the creation of a subsidiary enables a corporate group to reduce commercial risk by transferring the risk to the subsidiary, which will act as a separate legal entity and can provide as a means for a holding company to enter into acquisitions or joint ventures.
It is important that your corporate structure includes for a smooth and successful transition. This can occur when an owner wants to retire, upon the death of a proprietor or if the owner wishes to sell. Business owners today are reluctant and skeptical of investing their time and money to ensure maximum longevity in their businesses. However, instead of adopting this close-minded approach, there are benefits that a business owner can receive during their lifetime in both the long and short term.
Timeous Reports for Informed Decision Making
To provide a better and more complete understanding of where your business stands financially it is vital to have on record a set of updated financial reports such as a balance sheet, income statement, cash flow statement, debtors report and actual spend vs budget reports.
The right financial reports reveal the:
A reliable and refined investment strategy
A refined investment strategy of a company should entail the growth of its portfolio of equity, debt and hybrid securities that can generate above average returns on capital for the Company’s shareholders.
The effects of compounding
While holding funds in cash may seem prudent due to a perceived lower risk, in actuality the effect of inflation will diminish the purchasing power of a company’s cash savings over a longer term. Investing allows the opportunity to target higher returns over a period thus retaining value in real terms versus inflation. By constructing a well- diversified portfolio which is invested appropriately in line with an agreed level of risk, higher returns can be targeted than would otherwise be achieved through retaining funds in cash-based holdings.
Understanding and targeting revenue and capital growth
Most companies allocate the same resources to the same businesses units every year making it difficult to realise strategic goals and undermining performance. For example, company A allocates capital and research funds consistently every year, making small changes but always following the same broad investment pattern whereas company B continually evaluates the performance of business units, acquires and divests assets and adjusts resource allocations.
Over time, company B will be worth more. Unfortunately, the vast majority of companies resemble company A.
A good corporate structure can also save on costs
Take an inter vivos trust as an example. This can be used as an effective means to house assets such as fixed property or business interests so that the growth on those assets take place within the trust structure, which in turn will have the effect of reducing your estate liability. An inter vivos trust is ideal for preserving assets that are likely to pass from generation to generation.