Capital structure Advisory Services

A business's capital structure is the way it finances its operations. There are three main models: debt, equity, and hybrid. Which model is right for your business?

Decide the Type of Business

There are many different types of businesses, each with its own unique set of challenges and opportunities. To make the best decision for your business, you need to decide what type of business you're in.

1) Proprietary: These businesses are owned by one person or a small group of people who control the company completely. They have a lot of flexibility in how they run their company, but they also have more risk because they're not open to outside competition.

2) Partnership: These businesses are owned by two or more people who work together to share the profits and losses. This type of business is great if you have a team that can work together well and

3) Corporation: A corporation is a business that is owned by a group of people who are responsible for all the profits and losses. This type of business is the most common and safest option, but it can be more difficult to get financing.

Consider the Debt Capacity

When choosing a capital structure for your business, it is important to consider the debt capacity of the company. A company with a high debt capacity can afford to borrow more money, while a company with a low debt capacity may struggle to borrow money in the market. It is also important to consider how much debt the company can afford to pay back over time. A company with a higher debt capacity might be able to pay back its debts more quickly than a company with a lower debt capacity but could also face greater risk if interest rates rise or if the company experiences financial setbacks.

Evaluate the Tax Implications

When contemplating the best capital structure for a business, it is important to consider the tax implications. The three main types of taxes that could be impacted are income, corporate, and capital gains taxes. Each has different implications for a company's financial health and future growth.

Income Taxes: Income taxes are paid on profits earned by businesses. The higher the profits, the higher the tax bill will be. A company with a high level of debt may end up paying more in income taxes than a company with lower levels of debt because interest payments on those debts are considered taxable income.

Corporate Taxes: Corporate taxes are paid by companies as part of their overall tax bill. They represent an indirect cost to doing business and can impact the bottom line of a company. A company with high levels of debt may have to pay more in corporate taxes than a company with lower levels of debt because the interest payments on those debts are considered taxable income. 

Capital Gains Taxes: Capital gains taxes are paid when a company sells an asset, such as stock, for more than it was worth when it was acquired. This can be important money for a business, especially if the asset was purchased using borrowed money. A company with high levels of debt might have to pay more in capital gains taxes than a company with lower levels of debt because the interest payments on those debts

Consider the Liquidity Needs

When choosing a growth capital for your business, it's important to consider the liquidity needs of your company. A company with high liquidity needs can easily raise money by selling shares or issuing debt, while a company with low liquidity needs may struggle to find financing options.

Choosing the right capital structure can be tricky. By following these steps, you can make an informed decision that will best suit your business's needs.