When owners think about raising the value of their com- panies, they usually think about expanding through sales. However, there are other cost-effective options for earning a residual income that adds value to the company.
A common way to create residual income is to own the tangible
property from which you run your business. As mortgage holder,
you charge the company a fair market rent. It may seem like a
pointless exercise to charge yourself rent, but stay with me. Once
the mortgage is paid off, there will be a recurring monthly payment on the owner’s books that will show a profit, even though
the rent is a company expense.
As the owner, if you have been charging the company fair market
rent over a period of years, you will have attractive options when you
sell your business.
• Sell the business with income-generating real estate.
• Sell the business, retain the real estate, and end up with rental
income each month.
• Sell the real estate separately, which is more valuable because it
generates income with a proven track record.
Today’s buyers, of course, understand how this benefits you, so
keep in mind that they are looking at how this will benefit them.
No matter how you structure the terms of the sale, you’ll be in a
stronger position at the negotiating table if the company has been
paying a fair rent all along.
Whether you borrow other people’s money to buy more real estate
or expand within the confines of your current property, think
about putting other businesses under your roof. That way, you can
work toward a true net profit, not simply on paper.
Owners often have ample space in their facilities to rent or
lease to others. Yet many owners hesitate to do so because it’s
complicated, and the return on effort doesn’t seem worthwhile.
Yes, there are liability and security issues, utilities and maintenance,
taxes and fees, and the worries of being a landlord. But there are
Once you are making a profit, you can reinvest in real estate and
expand your holdings. Consider adding a location, buying a ware-
house, or finding a building that gives you residual income such
as co-work space or storage units. If the usage is perceived to be
valuable or the location is popular, you can theoretically charge
more rent. You may even consider setting up a separate entity to
buy and sell real estate. These are important factors to discuss with
your advisors in developing your recurring income strategy.
As you can see, your real estate assets can be more than just
a place to house your business. Real estate is key to a powerful
The next area where you can achieve a monthly income is through an
intangible asset, such as a royalty.
One way to achieve this type of income is to protect your intellectual property and charge others for its use. Examples include: a product;
a unique design; an invention; proprietary software or anything where
you can legally claim the idea.
Chasing down companies that try to steal your ideas is never fun
and rarely successful, so it’s important to create something that is tied
to your company, well-protected legally, and worthy of a customer
paying to use it.
While patents, trademarks, copyrights and franchise programs have
their place, there is a cost to protect and maintain them. Enlist a neutral
expert to advise you and protect your interests.
There are companies that take advantage of people with ideas, so
it’s important to do your online research and go deeper than a cursory
check. I have worked with and for companies that had proprietary
technology that generated substantial residual income, so this is not an
idea to be overlooked.
Think of magazine subscriptions, monthly software fees, or membership websites. The fee may be a modest amount, but multiply that
by hundreds or thousands of members. Look around your business
and see if you have something worth sharing through a member
channel. Create value around the idea, tie it to your brand and
your specific expertise, and then build a community that craves to
learn from you.
Keep in mind that attrition is a natural occurrence in membership
situations, so you will need a way to add new members continuously.
THE BOTTOM Line By Rock LaManna
Increase your company’s value
with residual income