Spoiler alert – Articles start with some basic stuff about Holding Company. If you’re not interested in that than you may jump straight to ” How Holding Company Makes Money “
A holding company ( Holding | Holdings – Same Thing ) can be regarded as the umbrella that provides shelter to a number of companies. The term shelter might not be appropriate because it holds a different type of meaning but to understand it simply…Consider holding company as an umbrella that owns the companies within it's covered area. Click To Tweet
That’s the most simple definition of a holding company one could ever provide we suppose, but if you’re still not clear – leave it for now. As the article would progress further, it would all get clear because half the picture is never clear.
To throw some light over this subject, let me introduce you to one of the greatest Holding Company example, ” Berkshire Hathaway “. For anyone who’ve been paying a bit attention to the list of the wealthiest ones, they must have encountered the name Warren Buffet and his company Berkshire Hathaway. The point of mentioning Warren Buffet was not to make ourselves feel weak and broke but it was the fact that Warren Buffet owns a fortune and he is a business magnate, if he own a holding company then this business structure is legit and proves beneficial,The only thing you need to take into account is that whether it'll work good for you or not because at the end of the day we all have different requirements/expectation/ beliefs when it comes to business. Click To Tweet
For Holding Company To Make Money, it needs to acquire a number of assets
While the other business structures focus on boosting the sales and providing more and more number of services if the business operates in the services industry, the Holding company doesn’t work like that. It makes money by owning such business who make money through sales and services.
Till now, a vivid image of a holding company should be crafted within your brain, notice that we’ve chosen the word ” vivid” although it may seem that all the prophecy has been shown but that’s absolutely not the scenario. There’s a bit more to all of this.
To understand the money making mechanism of a holdings company, let’s get you start a holding company ( imaginary ) so that you can act as the owner of the holding company, see the cash flow and when it’s all done, you can develop a fine understanding of how holding company works.
You’ve founded a company called ” Visitor Sample Holdings Company “
All the necessary registration work and the state requirements are fulfilled and the company has now started to operate
You’ve got 1 million to spend on, that’s all you have for now let’s say
Instead of finding out means to provide sales and services from your newly found ” Visitor Sample Holdings Company”, you need to own the business which seems like a good deal to you.
So with a million you ended up owning two companies, one provides clothing line, the other provides medical services.
Now your money making mechanism is coming up from those two companies which you own, you may get it all set up and it can run without your physical appearance in that company even but the fact of the matter is it’ll continue to provide money for your holding company.
Think of holding company as a teacher, who teaches students ( owned companies ) the values they need to succeed but unlike students, the holding company literally own the other companies, a teacher can’t own the student. The teacher -student example ( really doesn’t fit well here ) but hey– whatever helps us craft the image is welcome.
That’s the simplest possible explanation of a holdings company, by now that vivid image of a holding company must’ve been transformed into a real giant high definition portrait. To patronize the information further, we’ve created these bullet points that’s make people remember what a wonderful thing Holding Company is.
Few Check Points About ” How Holdings Company Makes Money “
- By owning a number of companies ( may or may not be from the same industrial sector ), the holding company makes money from them.
- To increase money, a holding company needs to modify and implement the principles of the companies it owns, it doesn’t need to increase the sales and services of its own.
- Holding company comes up with an upper hand with tax and deductions – that too can result in a money making mechanism because if cash is not flowing out of the company, it’s an asset and assets are always bringing in money.
- When it comes to Holding Company’s Money Making Mechanism, a home can be a perfect example. The holding company is a home and all the members living in that are the individual companies that are owned by the holding companies. Whatever the individual member of the house ( the owned companies ) are making, it stays in the home ( the holding company )
The holding company is one of the popular business modal and is most of the time associated with the business magnates. For example Warren Buffet’s Berkshire Hathaway, Alphabet that owns Google and several others etc. It has been around that the largest companies around the global share the holdings business structure. That doesn’t make it suitable for large scale deployment only, you can scale it down to your requirement.
At Rizvi Holdings, we own three different companies that provide services in [Digital Marketing | Health and Wellness | Gambling Insights ] industries. A Holding company is ideal for the one who is good at leadership on a vast level. It gets really handy for such a person.
Note this guide was beginner oriented and is not meant to be a guide for anyone who already is well aware of the Holding Company. There are a lot of things involved when we take a look from some professional sight and terminologies are confusing for the beginner as well. This article indeed was solely designed for beginner to present the thing in simpler manner to a non business professional.
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