Why Entrepreneurs Swear by WELD as the Secret to Maximizing Wealth

[Khan Ehsanul Hoque]

Why Entrepreneurs Swear by WELD as the Secret to Maximizing Wealth

The world of entrepreneurship offers more than just innovation and freedom—it's a powerful conduit for wealth-building. With the right strategies, this journey can unlock financial potential like no other.

While entrepreneurship extends far beyond just profits, its advantages in creating wealth are unmatched. I like to say entrepreneurship is an "unfair wealth creator." The wealth benefits of owning a business boil down to a handy acronym I call WELD. Just like welding two pieces of metal together makes them stronger, combining these four entrepreneurship advantages will strengthen your finances.

WELD stands for Write-offs, Exit value, Lower taxes, and Depreciation. These pillars, when combined, illustrate why I'm a massive advocate for entrepreneurship, especially from a wealth perspective.

Write-Offs
As entrepreneurs, we have the unique advantage of writing off certain expenses against our income. I love this part of being an entrepreneur. Business travel, cars, office expenses, education, and computer equipment can all be write-offs. I have some of the coolest tech and I get to write it off!

As an entrepreneur, you can write off portions of your travel, give your kids a $15,000 tax-free gift, rent your home from yourself, and more.

Don't forget, essentials like health care and retirement contributions can also be harnessed for write-off potential. The trick is to navigate and maximize these benefits while staying within the bounds of regulations, so I definitely recommend working with a seasoned tax advisor.

Exit Value
While a consistent income stream from a business is undeniably valuable, there's a hidden gem many entrepreneurs overlook: the potential profit from selling their enterprise.

Compare this to a traditional 9-to-5 job. Yes, you might enjoy a predictable paycheck every month, but the moment you decide to step away, that revenue stream stops. In contrast, when you're leading a business, not only do you often enjoy greater flexibility (imagine more quality time with your family), but there's also a tangible asset you're building.


Let's talk franchises for a moment. If you invest, say $300,000, into a franchise, you might get a consistent annual cash flow of about $100,000. But when you're ready to exit, that franchise might sell for a multiple of its yearly revenue (sometimes upwards of 5x or $500,000). Plus, being part of a franchise network gives you a ready pool of potential buyers.


Lower Taxes
One of the standout perks of entrepreneurship, beyond the freedom and creativity it allows, is the potential for reduced tax liabilities. Contrast this with traditional salaried roles where individuals might face tax rates ranging from 10% to 37%. Entrepreneurs, with a keen understanding of the tax code and strategic financial planning, often navigate to much friendlier tax rates.

Take the example of selling a business asset. Typically, such transactions incur tax rates of just 15% to 20%. This is considerably lower than the rates most salaried individuals encounter. Over the course of an entrepreneurial journey, these tax benefits can compound, leading to substantial wealth.


Depreciation
For franchise investors, understanding depreciation is like having a superpower. Depreciation isn't just a dry accounting term; it's a vital financial strategy that can play a significant role in the economics of your business. We've all heard the stories of the real-estate investor who brought their tax rates down to $0 or how big businesses pay a lower tax rate than the average Joe. So, how does it work?

Assets, whether they're heavy machinery, franchise-related vehicles, or even personal cars used for business, can undergo depreciation. This means their value diminishes systematically over time. Typically, businesses list these assets on a depreciation schedule, spreading this decrease in value across several years. However, thanks to provisions like Section 179, some assets can be depreciated immediately, allowing for significant tax breaks and write-offs.

Here's a simple illustration: let's say you've invested in a franchise and installed equipment worth $50,000. Over the year, you've earned a gain of $100,000. If you get that equipment running by year-end, it's possible to use its depreciation to offset your gain, reducing the taxable amount.

In real estate, you can combine both depreciation and property exchanges to bring your tax rates down considerably.

But a word of caution: while the concept of depreciation offers intriguing financial benefits, it's essential to navigate it carefully. Misconceptions, especially from oversimplified sources or platforms like Instagram and TikTok, can lead to costly mistakes. For instance, a luxury vehicle, unless justified as a genuine business expense, might not be fully write-off eligible.

As you explore the complexities of depreciation, always lean on the expertise of your CPA. They can guide you in optimizing these benefits while ensuring compliance.

Greater risk, greater reward
Entrepreneurship isn't just about the advantages. It's about taking risks. You've probably heard the saying: the greater the risk, the greater the potential reward. If it were easy, everyone would be doing it, right?

That's where we, at Franchise Sidekick, step in. We're passionate about helping people harness the massive potential of entrepreneurship. For many, franchising is a safer route to business ownership. Our mission? To help you navigate this path with minimized risks. We'll walk you through our proven process, provide you with insider information, and help you pick a winning franchise brand.


Source: https://www.entrepreneur.com/money-finance/why-entrepreneurs-swear-by-weld-the-secret-to-maximizing/457856