4 ms·

Why would someone sell a passive income business? By definition it's basically free money.

civilian 9y ago
It still takes some energy to maintain. It's passive, but it's low. You might also sell it if someone else thinks that they can do something to ramp up revenue in the business.
sharemywin 9y ago
Good reasons: -More money for a bigger/other project. -Desperate for cash. -Don't want to deal with bookkeeping accounting hassles. Bad Reasons: -Income stream about to dry up (although buffet did OK with that scenario) -Fraud/Scam - probably need to do some research on this to find ways to detect it.
savanaly 9y ago
If a passive business costs you $1000 on the free market to buy/sell (nevermind whether you own it already or not, the opportunity cost of acquiring/retaining it is the same for our decision making purposes either way), and it only returns $10 per year, that's a 1% return on your $1000. Then you would wish to sell the business and spend the $1000 on a strictly better investment like a T-bill which returns more than 1% per year on a $1000 investment.
xkjkls 9y ago
Same reason you would sell any business really. If the price someone is willing to pay for it is higher than what you expect is the discounted return over time, then you should sell.
reefoctopus 9y ago
They are never entirely passive, and revenue can drop precipitously very quickly.
ThomasSmale 9y ago
Lots of reasons. Just beware on marketplaces (Flippa, EmpireFlippers) etc. which have varying levels of vetting (from none to basic verification) as sellers often make up reasons or are lying about hours worked. Some legitimate reasons to sell something "passive" - Have another business growing that needs cash - Need a lump sum of cash for X - Lower tax rate (generally) paying capital gains vs. income tax - Cash in the bank often beats future uncertainty - Being passive doesn't mean it's low risk or doesn't keep you up at night

It still takes some energy to maintain. It's passive, but it's low. You might also sell it if someone else thinks that they can do something to ramp up revenue in the business.

sharemywin 9y ago

Good reasons: -More money for a bigger/other project. -Desperate for cash. -Don't want to deal with bookkeeping accounting hassles. Bad Reasons: -Income stream about to dry up (although buffet did OK with that scenario) -Fraud/Scam - probably need to do some research on this to find ways to detect it.

savanaly 9y ago

If a passive business costs you $1000 on the free market to buy/sell (nevermind whether you own it already or not, the opportunity cost of acquiring/retaining it is the same for our decision making purposes either way), and it only returns $10 per year, that's a 1% return on your $1000. Then you would wish to sell the business and spend the $1000 on a strictly better investment like a T-bill which returns more than 1% per year on a $1000 investment.

xkjkls 9y ago

Same reason you would sell any business really. If the price someone is willing to pay for it is higher than what you expect is the discounted return over time, then you should sell.

reefoctopus 9y ago

They are never entirely passive, and revenue can drop precipitously very quickly.

ThomasSmale 9y ago

Lots of reasons. Just beware on marketplaces (Flippa, EmpireFlippers) etc. which have varying levels of vetting (from none to basic verification) as sellers often make up reasons or are lying about hours worked. Some legitimate reasons to sell something "passive" - Have another business growing that needs cash - Need a lump sum of cash for X - Lower tax rate (generally) paying capital gains vs. income tax - Cash in the bank often beats future uncertainty - Being passive doesn't mean it's low risk or doesn't keep you up at night