How to Manage Business Assets

Bountiful Baby only sells supplies. Many (most?) of our customers operate their own business, using those supplies. This post is for them.

An asset is anything that puts money in your pocket on a regular basis.
A liability is anything that takes money out of your pocket on a regular basis.
Most people’s homes are liabilities— not assets. As Apple used to say, “Think Different”. Otherwise you’ll get the same mediocre results as everyone else.

Business real estate is the only asset that you can buy where you can simultaneously collect revenue on it’s business use, PLUS write the entire cost of the real estate off as a business expense, PLUS have that asset appreciate in value over time. This creates unparalleled wealth building opportunities.

Real estate is an example of a long term asset. Business supplies and website inventory are examples of short term assets. Businesses with high financial risk should only own short term assets, and should *lease* their long term assets that they use. Businesses with low financial risk should own long term assets, and not ever put their money into short term assets.

Any business that deals regularly with the general public is a “high financial risk” company. This is because of the litigious nature of the general public. Those businesses should not own long term assets. Instead, a separate company should be set up to hold the long term assets, and then that company should lease the assets to the first company. This is how to minimize overall risk.

My preferred state of incorporation for a company that leases long term assets is Nevada. Some time ago I researched the difficulty of a litigant successfully piercing the corporate veil, and discovered only one case where this happened in Nevada. It seems Nevada is quite protective of their businesses, probably because of the gambling (and other fringe activities) that commonly occur in Nevada. You can use that to your advantage. Create your leasing company in Nevada, and then register it within the state you reside in as a “foreign entity” doing business in your state. That is what we have done.

It has been said that “rich people own nothing and control everything, and this makes them litigation proof”. This is an extreme statement that is not true, but has a *kernel* of truth to it. The way this is done is by arranging legal ownership of major assets to 3rd party people. Your own children are usually the best choice for this. But whoever you use, you simply need to tie the owner up in private contractual obligations at the time you transfer ownership to them, and this will leave you in the position of owning nothing and controlling everything.

Whether you choose to do any of the above or not, I want to strongly emphasize the need to be ethical in all of your business dealings. The *only* purpose to use any of the above is to protect yourself against unscrupulous people who will otherwise try to harm you. Every business *must* create value for society, or it deserves to die and be replaced by something else. And if it is not creating value for society, use of any of the above tools is unethical.

Nevin

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