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How Your Business Structure May Be Hampering Your Productivity

Vector Illustration - Business Productivity Failure

Any successful business always operates at full efficiency. Entrepreneur’s post on staying ahead during the pandemic mentions that one way to ensure your business’ efficiency is to identify factors in your operations that could be hurting your productivity. For example, a supply chain business might see difficulties in their remote communication lines. Physical retailers might be hurting sales by not having a user-friendly website.

But no matter what business you run, one aspect that could be hurting your productivity is your business structure. Here’s how this could happen.

Control

Were you able to quickly adapt to the new market? Were decisions made and implemented immediately? The answer to both questions depends on how your business is structured. In a ZenBusiness post on LLCs, it’s noted that LLCs and partnerships are more flexible than other business structures. For example, LLC members are free to choose who has more ownership of the business, granting the team more flexibility in the way they choose to run it. SMBs are better off with a flexible structure as it allows them to react much faster to changing market conditions. Meanwhile, S corporations are more suited for businesses that need a more structured framework, like those with many branches.

Complexity

Some business structures are not only a pain to form but also difficult to operate. For instance, US corporations and LLCs have “various reporting requirements” with the state and federal government that could slow down their processes. Meanwhile, a partnership only needs to send one signed agreement to define the owners’ initial roles and the percentage of the profits. After that, the business only needs to file their annual revenue and taxes.

Of course, the more complex a business structure is to run, the better their perks are. Corporations, for example, can continue indefinitely, regardless of what happens to its directors and shareholders. Less complex structures like sole proprietorships and partnerships may face legal challenges once their owners become unavailable to run the business.

Costs

Similar to a business’ complexity, the more expensive a business structure is, the better its benefits are. For example, C corporations are allowed to offer stocks. This is great for large scale funding. However, C corporations are also subject to double taxation. This means that aside from corporate income tax, C corporation owners also need to file individual taxes when shareholders receive dividends. Meanwhile, sole proprietors only have to pay income taxes. However, a sole proprietor’s business and personal finances aren’t separate. If their business faces legal charges, they’re obligated to use their own money to pay for it.

Business structure can affect your company’s productivity in a lot of aspects, such as your operations and funding. Then again, no structure can really be the “best” one. It all depends on how big your business is, where you operate, and other factors. Always choose a structure where the productive benefits outweigh the costs.

For more ways to increase productivity, check out our blog on ‘5 Ways Productivity Tools Can Help You Manage Your Small Business’.

Vector image by Freepik


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