The world of business has worked its way into all of our lives in one way or another. We all decide to get into the world of business for different reasons, but we all work to meet our most basic human needs. Some of us desire certainty and we see business ownership as a way to control our own destiny. Some of us desire significance and we believe we will be recognized for our efforts and accomplishments as a successful business owner. Others start non profit business because they want to contribute beyond themselves. Some people are looking for variety and they believe owning a business will be exciting. And some of us want to grow as a person by overcoming challenges and potentially changing our life. No matter what is driving you, owning a business can meet a lot of needs in your life which is why so many of us start a business, buy a business, or invest in a business.
About The Editor: Jason Trindade is a licensed Business Broker in the State of Nevada, Commercial Real Estate Broker, and a member of the American Society of Cost Segregation Professionals
There are various types of businesses and they serve different purposes for the people that own and operate them.
Most small businesses are started from scratch. If you have a decent amount of capital, you can purchase an existing business. This is a strategy used by larger corporations, but it can work for small businesses. You can also invest in businesses as an active or passive investor.
A business operator creates his business and works in that business as a means to provide income for himself or his family. Common businesses include restaurants, service businesses, and retail shops. The business is created to operate it and most business operators are not concerned with selling that business in the future.
A business investor creates a business or buys an existing business with the primary intent to sell this business in the future. The investor may work in the business for a period of time, but his focus is on the future value of the business to a future buyer. You can make a lot of money selling a successful business.
The Net Operating Income, also known as NOI, is the amount of money you have left over after deducting your operational expenses from your income. This number is used to determine a value.
Gross Income - Expenses = Net Operating Income
The Capitalization Rate is effectively what a potential buyer would want to earn if they paid cash for your business. This rate fluctuates based on the type of business, the location, and interest rates.
Net Operating Income / Capitalization Rate = Business Value
Your property should be held in a passthrough entity to shield you from personal liability. The entity will produce a K-1 for you that will show a combination of your active and passive income from your investment.
You can utilize various types of structure including a single member LLC, Limited Partnership, a Joint Venture.
We offer a free initial consultation where we can discuss the process and discuss the benefits of the Cost Segregation Study for your particular situation.
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