Posted on January 10, 2011 by Torrey Brothers

A business is one of the most powerful assets to own.  An asset is something that produces cash flow (passive income).  The richest people in the world build businesses.  Examples are Steve Jobs, founder of Apple; Thomas Edison, founder of General Electric; and Sergey Brin, founder of Google.

Being successful as a business owner requires a different mind-set and different technical skills.  If one is flexible enough to make a mind-set change, they will find the process of achieving greater financial security or freedom easier.  There are several reasons as to why owning a business is one of the best ways to become financially independent.

Advantages to being a Business Owner:

• Asset Protection:  Business owners always think about how tight their protection is for their investments.  It is also considered that investors worry a lot about lawsuits and creditors.  Proper operation and managing of business ensures a less risk of getting sued and protecting assets.  Business owners tend to own nothing in their own name.  Their assets are held in trusts and corporations to protect them.  Asset protection is a part of their livelihood.
• Cash Flow:  A business can be an asset if it is providing cash flow.  If a business isn’t providing cash flow then it is likely a liability.  Initially a business is usually a liability until it begins to produce cash flow.
• More Time:  As a an employee, you are working for dollars, time is money.  But as a business owner, time does not equal money.  In the initial stages of a business, you may find yourself devoting tons of time to get your business systems running properly while only earning minimal cash flow.  This is normal for every business.  As time goes on  you will begin to get an increase in cash flow while spending less time in your business.  Ultimately, you will be spending very little time in your business and your cash flow will be through the roof.  In a business, time doesn’t equal money.
• Minimal Taxes or Income Protection:  As a business owner, you get the most tax advantages.  When you are an employee, the sequence goes like this, EARN-TAXED-SPEND.  Your earnings are taxed and taken through withholding even before you get your paycheck.  So if an employee is paid $30K per year, by the time Uncle Sam gets through with it, it’s down to $15K.  You are left merely with the scraps to pay your bills and survive.  If you pass your income through a business or corporate entity first, this is what the pattern would look like, EARN-SPEND-TAXED.  By passing the income that was created by the entity through the corporation, you can expense or “write-off” much of the earnings before uncle Sam gets it.  Also passive income is taxed at passive income rates, the lowest tax rates.  Being an employee you pay the highest percentage of income taxes.

Having a business creates more ways of escaping and hiding wealth.  Governments would like to take more money from corporate bodies but they realize that if they pass abusive tax laws, the corporate bodies will take both their money and their jobs to some other country.  Corporations were formed for legal protection and to limit the risk of loss to the amount of money ventured, and not beyond that.  Also keep in mind that there is a difference between corporations and self-employed.  It is possible for a self-employed person to have no taxable income yet still owe self-employment tax.  Corporations, on the other hand, do not pay self-employment tax.

We welcome your thoughts and insights – post your thoughts in the comment section.