Why Would You Set Up Spin-Off Company?

You might be thinking about expanding your product line, but you’re not quite sure if the new product would fit properly. You may also be expanding your service list but you aren’t quite sure your existing consumer base would enjoy it. You might just have a totally new idea that you think would be great but wouldn’t fit right with your current business. If you are thinking about any of these things, you are a good candidate for setting up another business. Setting up a second company is not easy and it can be seen as an unnecessary risk. In this sense, let’s explore the reasons why you should, the risks to avoid and manage, and how you would practically execute it.

Why set up ANOTHER company?

When you set up your first business, you experienced how tough it is. So you might laugh at the prospect of setting up another business but just hang on. You know what to do now, you can avoid the pitfalls you fell into before and you know how to practically and legally go about it. 

So why not? If you have a brand new idea that seems like it could be very good fun, it could give your primary business some research to improve itself, and it could just be an opportunity for you to make a subsidiary brand. Many companies do this because they would like to expand their reach into new products or perhaps, stop outsourcing and do everything themselves. They just do not want to expand the current business into a field that would take resources away from the primary business. And the bottom line is, if it’s a great idea and you want to limit the risk involved with it, just set up another company.

The beginning

So by now you probably already know how to do this. However, you may not want to do all of the things you did before. And you might want to save a lot more than you did before. Take a look here and See a range of packages to help you form your company. You can get packages that will register you a business bank account, business tax account, PAYE account, GDPR and VAT etc. These packages are done from one place so you will always have one place to contact should you want any further help. You don’t have to go to specialists who will register your VAT account and other related aspects of setting up a business.

Branch off or branch on?

Some businesses want to make it seem as if their new company is completely not associated with them. This is because they may find some of the following to apply:

• They are setting up the business in another country, thus the culture, spending habits and more will be different.
• The regulations might apply differently to this new business.
• The financial risk might just be too much but the experimentation is worth it.
• It might be something totally new and thus, doesn’t make sense to attach it to the brand.

This is often called branching off from the parent company. Even though the parent company does own the new company, it may have a level of autonomy that makes it almost independent. For example, you may want to look at how Google is the parent company of Alphabet Inc. Due to a restructuring of Google, Alphabet Inc was created by Google to take on different roles and projects that Google needed to achieve but without the headache of becoming a too large company.

However, you may also want to branch on, and retain everything from brand name to the business model. Take a look at BMW and its M-sport brand. The M-sport is linked to racing and produces some high-performance engines and cars. They also have drivers who race for the BMW and this allows for the cars to be tested to the limit. The M-sport is the racing division of BMW and hence it’s known around the world. BMW chose to keep a tight grip on M-sport and include it in their customer vehicles, which is why we have the M-series of cars. 

You can now experiment

One of the best things about setting up a spin-off company is, you get to do all the bizarre and brilliant things you couldn’t do or would not dare to do, in your primary company. As mentioned, M-sport makes racing cars, engines and has drivers that race for the team. BMW itself utilizes the technology M-sport makes but if M-sport takes a loss or perhaps makes an engine that has severe faults in it, BMW won’t necessarily take the blame. And yet, when it goes right, BMW will take a lot of the credit; this is mainly because it approves of the division, funds it and continues to support it in a professional racing sense.

So how should you experiment? You may want to take your existing products and alter them in a way that you wouldn’t normally do. For example, if you were a drinks brand and you made a craft beer, you could take your existing beer and make it more to the liking of another culture or country. Take your beer and make it pleasant to the Japanese consumer. 

Maybe you could do this for your clothing brand. You could sell one type of clothing in Europe and allow your subsidiary company to sell different clothes in Korea. The child company will enjoy access to the supply chain that the primary company has set up, along with the bright minds of design. However, it is totally separate and unique as far as the customer is concerned.

If you have always had a great idea just waiting to be released but you didn’t want to jeopardize your primary business, a spin-off company would be great. Start off by having a reason to set up another company, with clear products and services in mind.

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