Decluttering your business; what stops you and should it?

The UK corporate register grew in 2015 to over 3.64m, a net increase in the year of 245k entities. Despite record levels of unwanted, dormant or insolvent companies being removed, incorporations are running at an increasingly faster pace. Should that trend continue, we’ll break through the 5m barrier by 2021. Compare this with the 780k companies that existed when Mrs Thatcher came to power in 1979.

How many of these 21st century companies really serve any useful, economic purpose?
Statistical analysis shows that definitely less than half, and perhaps as few as a quarter actually trade; meaning that there are millions of companies simply clogging up Companies House, HMRC and most importantly, corporate structure charts.

It’s a year since I took over as leader of our corporate simplification team here at PwC. In that time, I’ve listened to many CFOs and indeed CEOs tell me that they want to slim their corporate structure; the legislative changes, transparency, strength of corporate governance and cost reduction are big triggers for groups to move Corporate Simplification up their agenda. Increasingly, global corporates need a tight agile structure to deal with the implications of macroeconomic shocks such as the Arab Spring and BREXIT. I’m seeing more and more ambitious plans as multinationals can see annual savings of $5-15m if they get this right.  However, I’ve seen lots of ambitious plans for simplification get scaled back as staff find “issues” they think mean specific entities can’t be liquidated or struck off.

So, the question I put to my team was;

‘How many “issues” have we encountered this year which has resulted in companies worthy of elimination being kept alive
I thought I’d get a couple of matters but I was genuinely astonished at the response. At the last count I’d had over a dozen responses!

The most interesting responses have been cases where we’ve helped corporate groups secure eliminations where they thought it was just not possible. Hearing about the cost reductions which have then been made has been incredibly satisfying, along with seeing that organisation go onto challenge other structural preconceptions.

This situation reminded me of the numerous times I ask my teenager to tidy her bedroom. I have to remind her that she doesn’t have to keep things out of perceived guilt or obligation. Incorrect thinking stops decluttering and the understanding that letting go of something that’s surplus might not have the dreaded impact. I don’t know whether it’s ever going to replace me reminding her to tidy her bedroom, but sharing a lesson on corporate structures might help CFOs and CEOs achieve their goals.

Over the next few months the team will be sharing examples of issues and resolution tools we’ve used. Please feel free to respond below with any issues your teams are experiencing when looking to eliminate legal entities. 

Karen Dukes | Business Recovery Partner
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