What We Think
November 16, 2020
The importance of being lean
We often hear about the importance of having lean management structures within the organisation. This comes with a number of benefits both to the customers and more importantly to employees. Having a lean management structure allows decisions to be taken quicker and enables employees to lead and contribute to their fullest potential. Not to mention the positive impact this has on the overall strategy and purpose of the company.
Leanness is important not just for the management structure, but also for the corporate structure of the group. The benefits are totally different, however, having a complex structure with corporate vehicles which are not required can result in a compliance and administrative burden for the group, not to mention an unnecessary cost.
We have seen a number of corporate structures where anywhere between 20% - 40% of the companies which made up the group were not required. This usually comes about as a result of the business starting off small, typically a family business, and growing into a large group of companies. A few years ago, new corporate vehicles were set up for any new type of business which the group was entering into, and for each and every asset which the group owned. This was also the case because the cost to maintain a company, both from a compliance perspective and also for the annual filing requirements, was negligible, compared to what it costs today.
In reality, having a large number of unrequired corporate vehicles can have quite a negative impact on the whole group. Firstly, the internal administrative cost, both financial but also in terms of the time employees need to dedicate to simply ensure that all companies are in good standing, is something which the group could easily do without. That same time can be easily channelled to other, more productive, time, which will directly benefit the group. The financial cost of the annual fees, both in terms of annual fees payable to the Business Registry, but also to professionals, such as accountants and auditors, is another unnecessary cost.
Secondly, more often than not, we have seen that most of these companies are not in good standing. This is also due to the additional costs and time, mentioned above, which are required to ensure everything is kept up to date – due to the fact the pace of business today is relentless, when time is limited, management choose to have their teams dedicate their time to productive work, rather than simply administrative functions to keep companies in good standing. This, too comes at a cost. Costs in terms of penalties and fines which are due when forms such as Annual Returns, BO Forms, Audited Financial Statements and Tax Returns are filed late, could easily run into the thousands of euros. The problem is exacerbated when these documents, particularly the audited financial statements, wouldn’t have been filed, or even prepared, for a number of years – the cost to bring all documents and everything up to date, again, in terms of time, keeps on piling up.
Companies know that today they need to be much more efficient, because the pace of doing business in constantly increasing. A lean management structure, but also a lean corporate structure help in ensuring this efficiency. There are many ways to reduce the number of unnecessary corporate vehicles, whether through mergers, liquidations or transfers – the cost of restructuring will have huge long-term benefits for the group and will start to infuse a culture of efficiency within the organisation.
Should your organisation require any advice on the above, please do not hesitate to reach out to see how we can help in ensuring that the corporate structure is kept as simple and as lean as possible.
Article by Nicky Gouder. Contact us should you require more information regarding the above topic.