We can brand our cost segregation studies for your franchisees and increase cash flow for more opportunity to build more businesses.
By now most people realize the benefit of cost segregation. They have seen that by recognizing the most advantageous life for assets, people are able to realize significant time value of money savings. However, often there are times these studies are overlooked. One example of this is retail or restaurant franchises.
Franchise properties are frequently built to a specific plans governed by the parent company. These properties are often heavy in restaurant equipment as well as decorative touches to maintain the branding of the franchiser. These attributes make them great opportunities for cost segregation as the percentages of personal property are usually higher than a comparable property of another type.
Additionally, successful franchise owners tend to own multiple locations. These locations are often similar with minimal differences in order to maintain the company standard. This allows for efficiencies when reviewing. Frequently when looking at franchise locations, the cost per study drops significantly as multiple properties can be reviewed at the same time.
Cost segregation studies can benefit franchisees in many ways. By accelerating depreciation, it has the effect of lowering the taxable income of property owners, and lower tax liabilities can provide additional cash flow. Cost segregation can work even if you’re a tenant. We encourage clients to explore the benefits.
“Cost segregation is a tool that often helps to unlock much of that value by triggering those incentives and, consequently, is a tremendous way for franchisees to sustain and grow their businesses.”
Due to the state of the economy in 2009, Dunkin’ Brands gave franchise owners a pass on their 10-year remodel obligations, but now franchise owners who were due to remodel last year or are due this year, by and large, will have to bite the bullet. So, in a still struggling economy, where can you turn for help with remodeling expenses? Cost Segregation is one answer.
If you have already had a cost segregation study performed on an existing building that you now need to remodel, you’re in great shape to immediately take advantage of un-depreciated values of assets in your store. If you haven’t yet had a study performed and need to remodel, you’ll want to consider our firm for your cost segregation needs. It is important to note that cost segregation studies can benefit both those franchisees who own their shops outright and those who lease space.
Franchise owners often use the tax deferrals and benefits created by cost segregation to fund upcoming remodels. A cost segregation study on an existing property typically identifies depreciation that has been missed in prior years and enables franchise owners to take that depreciation in the current tax year, thereby increasing existing cash flow. In scenarios in which franchisees own multiple stores, they frequently will use the additional cash flow generated by a study or studies on one or more shops to fund the remodel of one or more other shops.
What we find is, with the tax deferrals we create, we end up reducing the amount of borrowing that franchise owners have to do for remodel projects and the like.
Once a remodel has occurred, you can achieve additional tax benefits and savings by having a post-remodel cost segregation study performed. Any property with a remodel investment of $350,000 or more would likely benefit from a study. Typically, a property with a remodel investment of $350,000 would see as much as $100,000 in accelerated depreciation, and the study would create a baseline record of values that could be used the next time the property is renovated.
In the past, this kind of analysis was only available to large Commercial Property investors (think Trump) or Major companies. Today Cost Segregation is available to almost anyone who owns, leases or builds commercial property.