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Top 3 Reasons to Consider Changing Your Small Business Structure

Blog Post
October 20, 2020


Due to the slowing of the economy and limited avenues to make a profit, it’s no secret that some businesses, especially smaller ones, are facing a tough time. CNBC reports that seven months into quarantine, companies are still struggling to survive. “I’m worried every single day,” expressed Patrice Graham, a small business owner in North Carolina. And while many have taken to cutting operational costs or opening up a digital store to increase traffic, fundamental changes to your business structure may be in order. Here are a couple of reasons why.

It’s the best way to secure more capital.

If you find that your business is running low on funds, don’t be afraid to seek outside help. A simple change in business structure can help you accomplish this. Business News Daily notes that one significant advantage of owning a corporation is its ability to raise capital through stocks. You can go about this in two ways: private or public company stocks. The former is when you only open ownership for your employees and handpicked investors. The latter is when you open ownership to anyone willing to buy shares. Private stocks are a good option if you know people ready to help you get back on your feet.

Businesses that open stocks to the public must share company data, so third-party investors may be more willing to invest if you can show good numbers. If you are underfunded, getting additional funds from investors, who will also become shareholders, could be what you need to move forward and survive. However, it’s essential to recognize that being vested in this way will take away some of your control over the business.

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It can help you become more agile.

The pandemic has changed everything about how we do business, from customer priorities to the digital nature of transactions. As such, if you want your business to survive, you can make a change that allows the company to be more agile. ZenBusiness lists the benefits of forming an LLC, which includes a more flexible management structure compared to a corporation. Unlike a corporation, an LLC means your business doesn’t need a board of directors, granting you more freedom in the way you run it. This will allow you to make swift decisions without the need to answer those not involved in the company’s day-to-day running. And while you can form an LLC with multiple owners, each member’s financial contribution (or other group-determined criteria) will calculate their ownership percentage.

It lets your business recover.

Of course, in such a turbulent market, there’s no telling what can happen. If you’re still on a sole proprietorship or partnership business structure, you might suffer the brunt of the consequences when the worst does happen. Restructuring to a corporation or LLC will allow you to separate your business assets from your personal ones, removing the liability from your name in case the business goes awry. For example, your personal finances won’t be affected when filing for bankruptcy. Business columnist Liz Weston emphasizes that, while not ideal, declaring bankruptcy is a good way to avoid massive amounts of debt. Plus, if the situation becomes more stable, you can open your business again and recover.

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Business structures play a significant role in managing your business, from internal operations to asset allocation. If you want to keep your business going, changing your company’s structure could be the best way to ensure it survives.

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