Although experienced attorneys can provide guidance based on laws, regulations and taxes, it is not always obvious when a growing business should establish a separate entity, a subsidiary or just a new department. Ask yourself some relevant questions before you consult attorneys.
How different is the nature of the work being done?
We have helped a few dozen technology sector clients address the dramatic differences between their system integrators, staff augmentation unit, trainers, application engineers, tech support services and data base managers. The diversity of schedules, priorities, education, etc involved is enormous. Most companies do not officially establish separate companies, but separate offices for such distinct business units are usually involved. Strong account management makes it work.
Will the “unit” provide products/services only to the existing company?
Our expansion into executive search is illustrative. We know our clients’ strategic plans, cultures, and the composition of their executive teams. Several clients asked us to help them find, screen, and select executives for their teams. We continued to recommend industry-specific search firms and also reached out to people in our data base to look for possible candidates. We didn’t have to make the same kind of promises other search firms make. We weren’t expected to do as much. If our additional outreach resulted in a great candidate, the client would compensate us for time and access. As more and more executives were hired as a result of our network, we would consider hiring a search professional and establishing a department. A separate company probably wouldn’t be indicated if/until the search service would be offered to non-client companies.
Should the “unit” involve a different combination of leadership or ownership?
If only serving existing clients doesn’t move fast enough for an ambitious department head, decisions about that service unit would change. Should it become a separate entity? The regulations, approach to compensation, and culture impacting strategy consulting and executive search firms are dramatically different. Can you imagine having only one commission driven service department head on an executive team? Before you let that happen, you consider a separate entity, equity, pricing, and win/win coordination between the entities.
Do the laws, regulations, and potential conflict of interest cue separation at the onset?
CPA firms must be very careful when it comes to their auditing services. Of course, they shouldn’t audit their own work. Financing is similar. Of course any private investment activity would be separate from strategy consulting.
Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST®. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions. Her midsized BtoB clients get on…and then stay on…the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companies achieving accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search. 2012 is Ambler’s 8th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.