You’ve got a great business idea, you’ve done your market research, you’ve got a business plan and cashflow forecast and you’re ready to go. But, have you considered the best business structure to make sure you’re fit for the planned growth and success?
James runs a gym and as we worked on his 5-year business plan we discussed how he could grow his business and expand. He is currently running a very busy gym in Bournemouth and would like to open five more gyms over the next five years. He leases the existing premises and plans to use the same arrangement for the new sites as they happen. James runs his business via a limited company, which has its own identity, separate from James as an individual. This protects James with limited liability and also allows for further flexibility when it comes to tax planning.
James could bring new locations under the existing business, keeping the administration simple and in one place. He could manage the locations within the one company, perhaps using different reporting codes for each on his bookkeeping software so that he can keep track of their performance. In this structure there is no separate legal identity for each gym. James continues to own one company, so one set of accounts for Companies House and HMRC.
However, as James is looking further into the future he wants to retain as much flexibility in his structure as possible. He may wish to sell individual locations as ready-made gyms, perhaps to ambitious employees or to a third party, and by keeping each location in a separate company the process for selling could be more straightforward and also more tax efficient. This structure brings more administration in terms of reporting and filing with Companies House and HMRC but the separation can be an opportunity for better analysis on a site by site basis.
We also explored the franchise route, a good fit for developing a consistent brand. A franchisee is likely to wish to set up the business under a separate legal entity, another tick in the box for James using this structure himself.
Investment from third parties may also be on the horizon and the multiple entity structure could make this process more complicated. We discussed using a holding company model, so that a parent company, owned by James, holds the investments in each ‘gym company’. Any potential investor could look at the business as a group and investment would be made into the holding company. Alternatively, if James wishes to open another location in Ringwood or Ferndown for example a potential investor could introduce their capital in the individual sites instead allowing them to benefit from the local trading activity instead of the whole group.
It is important to note that multiple companies attract a potentially higher rate of corporation tax as the lower and upper thresholds (£50,000 and £250,000) are split over the number of entities that are controlled by James.
If you are thinking of growing your business and not sure which structure to use – please get in touch!