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Is Your Business Offering You Added Benefits?

Posted by Stephan Orlob on 20 November 2019
Is Your Business Offering You Added Benefits?

Is Your Business Offering You Added Benefits?

Are you taking advantage of all the benefits of small business entrepreneurship? The typical expected financial benefits realized from small business ownership are: Earned Income and Unearned (investments, distribution of profits from the operation and/or sale of the business) Income.

More importantly there are other advantages (hidden benefits as I call them) in addition to the above. One major hidden benefit, which also has the most wealth creation potential, is for the business owner to personally own the real estate the business operates out of.

Here's the scenario: Many businesses are tenants, likely under the terms of a commercial lease. There are many financial and strategic reasons for a small business to lease property, with the requisite tax deductions of the lease payment and associated disbursements. But there is no benefit for the owner of the business.

Now let's consider this from the hidden benefit side. As long as the business you own is structured correctly, you may be able to accrue benefits by personally owning the real estate your business operates in and leases from you. For example: Probable Inc. (PI), a small distributor, has a single shareholder, Ralph Probable. PI enters into a long-term, formal lease of the property it operates out of with the landlord, in this case the same Ralph Probable. Several benefits might be available to these two entities in an appropriate legal arrangement, including:

  • Rent increases are more predictable and manageable. Lease renewal concerns also eliminated.
  • As with any lease, lease payments and associated disbursements are still operating expenses.
  • As owner and landlord, expenses necessary to deliver on the lease agreement, including mortgage interest, depreciation, maintenance, etc. may be deductible to Probable.
  • Owner Probable could receive distributions from the property, even if the investment showed a loss.
  • Inflation impacts rents vs fixed mortgage payments, supporting increase in distributions
  • Once mortgage is discharged, the property becomes a cash-producing annuity for Owner Probable.
  • A sale of the property, might be eligible for capital gains tax rate or other lower tax treatment favourable to Owner Probable.

 

Many family businesses have operated for decades. But at the end of the founders careers, it turns out that the business itself had little or no value to a prospective buyer without the real estate attached leaving retirement and future generation funding on the table. Talk to an advisor about how this advantage of owning business real estate might be appropriate for you and your situation.

Please feel free to reach out and let us know how we can help improve or transform your business. For results you can count on, contact us at 1 844 577 7654 or at solutions@bizmetrics.ca  and as always please keep your feedback and suggestions for our blogs and newsletters coming.
Stephan OrlobAuthor: Stephan Orlob
About: Stephan is a dynamic marketing leader, speaker and author. He brings a deep understanding of the challenges facing Small Business today. Prior to founding BizMetrics, he has held senior marketing and business development roles with Sony, Wolters Kluwer, FujiFilm as well as Professional Firms in both B2B and B2C spaces, leading teams in high pressure and challenging environments. Stephan is a highly motivated, detailed professional who excels at developing business from the ground floor up. Consistent in driving innovative, cost effective business growth & marketing strategies, he is known for establishing a solid rapport with customers by creating an atmosphere of trust and respect in all relationships. Stephan holds a specialist BA in Economics, Commerce and Political Science from University of Toronto.
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