The Easy Process To Identify and To Solve The Problems!

The Easy Process To Identify and To Solve The Problems!

Excerpts from My book, “Unlocking Your Business DNA”

The One Page Solution!

As we start the process of fixing the problems, they need to be identified. In chapter 1, I discussed how the business owner needs to find their “Business DNA”. Again, this is about focus and asking the right questions, and giving the business owners the amount of time, they need to think it through.

I break down the issues into two categories, BUSINESS GROWTH AND TRANSITION.

Business Growth: Focuses on the business itself such as the strategies needed to grow the business, the systems, the culture, and its employees. It is all about the business future.

Transition: Focuses on the categories that relate to the owners, and the changes they need to make in their personal life because the business is growing.

I keep these categories separate because the issues concerning the business growth are different than the owners transition issues. However, as the business growth changes, it affects the transition of the owners, and vice versa.

It is very important that the business owner is committed to fixing their problems.  If they are not, the first time they have a business roadblock, they will tend to put planning on the back burner.  This is a mistake, because most of the time it does not resurface until there is a crisis.

However, in our planning we do create action plans in small steps. Having a team of advisors working together creates the ability to complete the small steps needed to accomplish our goals.

An Example:

A perfect example was when a company we were working with had plateaued in growth and wanted to create more business growth. When we went through some of the planning questions, I realized the owner had spent no time systemizing their business.

The owner had no documentation of operational systems of his business, but instead it was all in his head. He would delegate the tasks to his employees like a drill sergeant.  He never even thought of the fact that there was no continuity in his business, consequently, if something happened to him, the business would have ended.

I asked him, “could you go on vacation for three months and not check in during that time”?

He looked at me and laughed, replying, “are you kidding this place would fold in seven days.”

I replied, at least you are real, the sad part however is you do not have a business, you have a job. You have a position, a paycheck, and a place to go, but you do not have a business.

He looked at me dazed! But he knew I was right.

The Process Using “One Page Solutions”, will keep everyone on track.

To uncover the issues and problems with the business owner we go over the main subjects called “ONE PAGE SOLUTIONS.”  On any subject there are always a few directions in which the business owner can go. We discuss them and analyze what are the most important subjects the business owner needs to deal with currently. “THE ONE PAGE SOLUTIONS” ARE LISTED BELOW.

Each Subject has a few sub-topics we review with the owners. As we DISCUSS the One Page Solutions, we find the strategies which will solve the issues. Once we are done with the subject, we move on to the next One Page Solution, if any.

THE FOCUS AREAS of the “One Page Solution” ARE:

1-Sale of Business (outside)/ Evaluation Methods/Timing

2- Inside Transition (Family, Co-Owners, or Key Employee/s)

3-Passive Ownership- Owner wants to still run the business, but take long trips

4-Retirement; defining and preparing

5-Wealth Accumulation & Asset Protection (both in and out of the business)

6-Premature Death- Consequences

7- Estate Distribution- updating

8- Life Insurance Contracts and Benefits

9-Legacy Planning / Management of Legacy

10-Disability and Illness, Medicare, and Medicaid

11-Key Employee Retention- and Creating A Culture

12-Key Employee Owner’s Manual- systematically creating company manual, business coaching, marketing proceedures

13-Corporate Benefits and Retirement- cost and efficiency

14-Qualified Plans and Personal Liabilities- Executive Compensation

15-Family Relationships/Employee Relationships/Human Resource

We helped a business owner recently with the problem of not having business growth over a prolonged period of time.  The solution was to put in place strategies that would create transferable values for the future.

They included things like creating key group, documentation, standard procedure, diversification, and growth strategies.

In this case we realized this will take some time to implement. The owner was under no delusion that this will be done in one year. Most importantly the owner started the process. A few years from now he will see the outcomes in all its glory. Because we have experts in our toolbox, we shared our professional advisors with our client for coaching purposes, and education.

Besides implementing a few systems, they will also do a business appraisal every two years. Over a period, this will help them evaluate the growth of their company by implementing the systems suggested.

By doing this the company could allow for better planning in the future, and adjust the path towards financial security, and business growth.

One of the key elements to helping Business owners solve problems is to also identify the roadblocks. This eliminates the surprise factor should our implementation strategy not go as planned. In one of our planning agendas, we discuss these roadblocks and try to define the subsequent issues and challenges in the future.

What is extremely important in this process is that it makes the owner aware of any potential issues they must have to deal with in the future and stay ahead of the problem curve.

Over the years what has been extremely helpful has been the communication with the team. Again, these are the client’s advisors that may or may not have been in place before we started planning. Since we update the team regularly, we are often given new advice that has been helpful in forecasting future events in the business.

We normally would not have this knowledge if we did not have the team of advisors in communication. This is one of the biggest advantages of working with the team and having periodic reviews.

We have been successful helping business owners work on their business to get issues resolved and to focus on details. We use a One-Hour a month system for the business owner to do this.  This allows the business owner the brevity they want, but also, gives them quality time to organize the details of their business. Through our step-by-step system, we help business owner cover all the key issues that are needed to cover to run your business smoothly, take more time off, earn more money and just enjoy working and life much better.  

If you would like a FREE WHITE PAPER called “Your Business Essential” which will help you organize your business, CLICK THE LINK BELOW, download the white paper. This is a 128-page guide in business planning Your Free. When you click submit on the form, your file will immediately download.  Enjoy. 

Immediate Download  

You can purchase of “Unlocking Your Business DNA”, AT Amazon. All profits to to Wounded Warrior Foundation and other Veteran groups.

Financial Leaks

If You Had a Financial Leak in Your Financial System, And It Was Going to Bust Your Financial Pipes and Bankrupt You, When Would You Want to Know About It?

Financial mistakes are made every day by many business owners without them realizing they cause leaks in their long-term plans until it is too late. 

This happened to my family 52 years ago. Because of it, I saw the devastation up close and personal. Obviously, I was so passionate about “financial mistakes,” I authored a book about it, and started a podcast to help business owners avoid making mistakes that resulted in major leaks in their lives.[i]

Many, if not most, business owners totally ignore the red flags which indicate the leaks, but go unattended, which ultimately break the pipes of the financial world of the business owner, leading to a swift exit from their businesses, and or bankruptcy. 

Having worked with business owners for many years, I have been up close and personal, to witness some of these financial mistakes. 

I am going to list several of them with the hopes they will make you more aware of the red flags when you see them. 

Mistakes and Leaks

#1. Depending on your Accountant and your Attorney for your long-term planning. 

Business owners assume by having an accountant and/ or a lawyer, they will be up to date on all the tax laws that affect them. False! Most CPAs and accountants provide specialized services and do them well. Accountant’s record history and put out tax fires if your mistake is fixable. Very few are trained in financial planning, or in-depth planning. If they are, they do not usually file tax returns for people, they are in another area of planning. 

Attorneys will keep you from doing things that may be illegal or ill-advised and create an unlawful situation in your personal and business life. They are not in the planning business, but normally in the reaction business. 

However, you may find an attorney who is proactive in planning, and looks at the whole picture, not only from the documents needed to fulfill your wishes, but also to the financial side of the equation. What good is it to have the greatest documents $10,000 can buy, but there isn’t enough cash in the estate to pay the taxes, or keep the survivors in the lifestyle you wanted them in?

#2. Not getting a certified evaluation of your business periodically. Instead, relying on formulas and fixed price values. 

If you think you know the value of your company all you need to do is look at the IRS cases where they have refuted the valuation the estate put on the business in tax court, and you will realize there is more to establishing a value on your company then just general formula.   Just because your competitor tells you they can sell their “like kind” business for 10 x earnings, doesn’t mean you can. Every business is different in its makeup and the way it is run. Consequently, so are the valuations.  I have been told by my clients;” they are using what the “association” uses for their members”? What? Do not drink the cool aid, use a certified appraiser for your appraisal and save yourself a lot of angst. 

#3. Not taking advantage of your company’s cash flow to create “executive compensation” benefits for you and your family. 

By not doing so, you are missing one of the greatest benefits your company can give to you. Your company checkbook can do much more for you and your family than your personal check book, and it is much more tax efficient. You can create a tax-free income for retirement on a fraction of the tax cost of what a pension plan would cost. Also, most of the executive benefits are not regulated by the IRS, giving you much more freedom as to how much you can save, and how long. 

#4. Not delegating responsibilities in your company. 

By not delegating tasks, you are depressing the future value of your company’s true selling price. Purchasers do not want you; they want a viable key group that knows how to run the business. By not delegating, you do not develop the key group, and potential employees that think like an owner, which is an asset for business’ growth and value. 

#5. Not systemizing the business and journalizing the systems. 

Having systems in your company, along with documentation creates a much higher purchase price of the business. A purchaser finds greater value by having a ready-made system which drives the running of your business. Systems and documentation must go together. 

#6. Not taking the time to plan your estate and incorporate your business planning. 

Who gets what, and when? What will it cost to transfer property to your family? What are the things you can do to mitigate the tax bite? Estate taxes are voluntary, and it is only the people who do not plan, who pay large taxes and estate fees. Are the family members ready to run a business? Who will run the business? These are only a few of the many questions business owners should be asking themselves. These are the areas an astute and excellent planner would ask questions about. The type of planning you do, will depend on your family, business, and estate situation. Without this type of planning, great financial pain and disruption in the business and the family can occur. 

#7. Not having an up-to-date transition and succession plan.

What will happen to your business when you retire, have a long-term illness, die, or just need to leave? What do you want to happen to it? Without a thought-out plan, there is a financial mistake and a financial leak. Since your business may make up most of your wealth, without a succession plan, you jeopardize the future value of the business along with the future financial security of the family and your loved ones. 

#8. Not having records of your business and your estate organized for your family should you die

You are not around, what did you want to happen to the estate and the business? Without instructions, the estate is lost as to what you wanted to happen to your business. Without instructions they do not have the permission to continue the business, pay certain bills, keep employees. At the very least, this is an area which you should have communication with your family, and documentation of instructions. 

#9. Not having a “Plan B transition,” when you have not completed a Plan A

So many business owners talk about having a plan of transition and succession, but never get around to getting it done. In this case you are better off having some plan, rather than not having any plan. This is the Plan B: “The JUST IN CASE PLAN.”  This is the plan that comes into effect if you were killed in a car accident on the way home from a party, but you did not have any formal plan, because all the unsigned papers were in your top drawer in your office, for the last three years, PLAN. GET my drift? 

#10. Having most of your sales come from only a few clients

Happens more than you can imagine, and you need to be aware of it. If this is the case, start acquiring more clients. The reasons are obvious. If you have more than 10% of your sales coming from one area, you should start acquiring more clients. What happens if that customer finds a better provider with lower prices? What happens if they are aware that you are dependent on their business? Again, it is obvious that this can be a problem if not changed. 

#11. Your professional advisors should be working as a team with each other for your benefit. 

In my book I discuss one of the best tools I used in planning for the business owners, which was having a periodic meeting with the other advisors to keep them in the loop. The benefit was to learn what they were doing for the owner, and to communicate to them, what I was doing. It helped to avoid overlapping. Also, I found that some of the members knew more about the owner’s likes and dislikes, which helped us understand their thinking, allowing the team to produce solutions that made sense and were workable. Ask yourself, how many times have all your professional advisors sat down in a room together to discuss your challenges and your dreams?

#12. Not sharing you planning with your spouse

It certainly makes it much easier when both spouses are on the same financial page. One of you will be the end user of your estate assets and it would be best for all parties to know what the long-range thinking is. Have a spousal business discussion periodically. It really helps. 

#13. Having the wrong type of business structure currently in your business career

Many times, the business structure you started with, is not the structure you should have currently. Over time, the business grows and outgrows the same business structure you started with. It could be another type of structure would be more effective for your current financial situation. I see many companies who should be an S corporation now, but have stayed in the original structure, only to pay more payroll taxes than they need too. The type of business structure you will use, is driven by tax planning and protection. It pays to discuss this aspect of your business as it may provide better protection and save taxes. Your accountant can guide you. 

#14. Not having a Buy and Sell Agreement/Business succession agreement. What is going to happen to the business at your death, or one of the seven triggers. 

You have a Buy and Sell Agreement (BSA); however, the agreement doesn’t discuss the funding of a triggering event. For example, if a partner died, life insurance would be the best choice to fund this triggering event because it would be the least expensive. However, other triggers, such as divorce, termination, bankruptcy, do not have vehicles to fund the event. The BSA must address how they will be funded? Many BSA do not address the funding of a particular trigger. Will there be a loan, a note, cash flow? It is best to discuss these areas while all the parties are living and involved. Keep in mind, that the BSA is a contract, and the parties of the agreement are liable for the payments to be made. 

#15. Not taking advantage of the income tax laws which allow you to spread some of the benefits to lower taxpayers in your family. 

Have your kids work for you and earn a salary? That salary will be at a lower cost and could be part of the funding for their college. Or changing your business structure to save taxes. As an example, becoming a S-Corp and taking a lower salary to avoid payroll taxes. There are many areas of the income tax law that favor family participation where there is a shifting of tax obligations. Your accountant would be a great resource to discuss this with. 

#16. Not taking adequate time away from your business. 

In my book (Unlocking Your Business DNA), I wrote about taking much more time off from your business. There are so many reasons to consider this. For example, I worked 80 days a year seeing clients. The other days, I worked on the business, but did not see clients, and this gave me more time freedom. This allows for more creative thinking, less stress, better family and employee relationships, and a host of other benefits. Many business owners can design this type of arrangement when they consider delegating and implementing systems in their business. This is also important for at least two reasons:  1-Employees can learn how to think like owners. 2- By taking time off you start to create great ideas for the growth of your business and help enhance your qualify of life. I call this the ideal business and personal lifestyle. 

One minute Survey assessment tool get your free Business Assessment using the One-Minute Assessment Tool. This tool will help you uncover potential mistakes and financial leaks you don’t even exists.  When you don’t know they may exist, you don’t have the choices of resolving them, or ignoring them like other KNOW MISTAKES.  This tool will do three things: 

  1. Make you aware of your current planning to this point good or bad!
  2. Make you aware of the financial mistakes planning we do.
  3. Help you formulate questions you may want to discuss

 CLICK HERE. For your One-Minute Survey


[i]“Unlocking Your Business DNA”, Thomas J. Perrone, CLU, CIC – AMAZON

The Key To Creating Value in Your The Key To Creating Value in Your Company

In Chapter 4 of my book, “Unlocking Your Business DNA”, I discuss your key group. I discussed the up side  and the downside of having a key group. 

First, the upside is nothing but good stuff.  Having a key person or group is one of the value drivers which add great value to your business, add profits, frees up your time, and allows you to enjoy your business life more.  Also, they can become the future purchaser of your company. 

The key person or group only becomes bad when the owners don’t pay attention.  They don’t protect themselves from the possibility of being held hostage in the future.  The case study is worth reading as it happens all the time to unsuspecting owners.  

In the case discussed, I pointed out the problems, but also gave some possible solutions where everyone is happy.  

This is a key chapter to read to make sure you don’t make the mistake our client did.  

   If you wish to discuss creating a “Destiny Plan” with me, or discuss general questions about your business’ Key Business and Financial Elements, CLICK  BELOW to arrange a mutually convenient 15 minute discussion.       LET’S DISCUSS “DESTINY PLANNING”  ALSO, if you would like to email me your questions, please do;  tperrone@necgginc.comsubject:  QUESTION 

Creating Great Personal Wealth With Your Business Income!

In my planning with many companies over the years, I realize that many business owners are not using the corporate cash flow to create wealth outside of the business. Normally they are using their after-tax dollars to buy financial products to create a benefit for them personally.

Many of the business owners feel they need to put all their current dollars into the business. This is a mistake! The reason this is a mistake is the business equity can get tied up just like a home-equity can. At a time when the business owner needs his business equity the most, is usually at a time when he cannot get it out for one reason or another. Business equity is not very liquid as it is tied up in receivables, loans, inventory, and the like. By putting too much of the business owner’s wealth in the business, they are risking the loss of it in the future, or the very least, the ability for its use for some major cost.

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Owning a business creates opportunities to use the corporate dollars to create personal wealth outside the business. I call these benefits executive compensation. Normally you can arrange executive compensation programs to be highly effective and efficient tax wise. The corporate dollar can do more for you than the owner could do on their own personal dollar. We have many programs where the corporation is taking a deduction and creating wealth for the owner and their family which is positioned outside of the business.

Below is a project we worked on which shows the value of the corporate cash flow. The names of been changed to protect the innocent, but the case history explains how effective using your corporation cash flow to create wealth outside of your company!

The Case Of Joey Bag Of Donuts

This is the case of Joey Bag of Donuts and his pursuit of keeping wealth outside of his business.  You see, over the years working with Joey Bag of Donuts we told him that leaving too much of his wealth in the business can be problematic, especially when the time came that he needed to exit his business.  He heard me tell him many times, that someday he will leave his business by either a death, disability, or retirement_, and taking the wealth with you when you need it the most, can be a problem, if you do not have the right exit strategy. _

There are many reasons wealth gets lost in a business when it is sold.  It can range from bad planning to bad luck, but Joey Bag of Donuts always remembered to keep as much of his personal wealth outside of the business as possible.  Therefore, he purchased his company building and put it in a separate LLC.  Joey Bag of Donuts also believes in putting as much of his income into the company pension plan. Again, this plan is outside of the business.

We also taught him to have his company support whatever it can legally towards his personal lifestyle.  For example, his cars, gas, some entertainment, health insurance, retirement, and other things are paid for through the company.

Joey Bag of Donuts wanted to put more money away for himself and his family’s future, but did not want to use his own funds, so why not have the company support more retirement contributions?

He already had a profit-sharing plan, and he was sharing company contributions with his employees.

We decided that a non-regulated plan was the best way to go, so we developed a plan for only him.  The plan is a combination of two concepts.  We call this the CEEP PLAN (CORPORATE EXECUTIVE EQUITY PLAN).

The plan is a discriminatory plan, so Joey Bag of Donuts can pick himself or anyone else he wants, unlike a profit sharing or 401k plan, which is a regulated plan.

THE PLAN: As you can see, the company made all the contributions, and took the deductions for them.  Joey Bag of Donuts was the sole participant of the plan. His cost was “0” out of pocket and he ends up with almost $800,000 of cash at retirement.  He also could turn the cash into a tax-free income stream.  In this case it was $67,500 tax-free income. The stream of income is worth more than $1,215,000.  Along with that he has a death benefit of $2,300,000 payable to his family tax-free.

THE BOTTOM LINE: Joey Bag of Donuts gets retirement income using corporate funds.  All the contributions can be applied to just his account.  He also has the use of the account before retirement, like a “family bank,” along with the ability to withdraw funds tax-free.[1]  There would be no 10% penalty if withdrawn before 59 ½.

THE RESTRICTED PLAN: The “Restricted Plan” relates to an employee of the company that the owner wants to make a “A key person To Hold onto Forever.”  This is a terrific way of giving someone a benefit with a vesting schedule, so they stay longer.

Summary: If you own a company and are not taking advantage of the CEEP program, you are missing one of the genuinely great executive benefits available to you as a business owner.  The plan is flexible so you can design it to your needs.

OVERVIEW OF THE PLAN (Summary):[i]  Type of Model: CEEP

EMPLOYER

Yearly Premium Payment:  $25,000

Yearly Net Cost:  $17,500

Total Gross Premium to Retirement: $675,000

Total Net. Premiums to Retirement: $472,500

Total Loans:

For Tax Costs: $202,500

For Interest Costs:  $112,003

Net Cost of Loans: $314,503

If Loan Forgiven, Net cost:  $220,152

EMPLOYEE

Annual Average Interests: $4,148.25

Loan Payoff AT Retirement:[2]  $314,503

Net Cost:  0 (all funding came from Ajax Company)

AT RETIREMENT:

Rollout Amount:  $94,350.83

Tax Cost on Forgiveness of loan[3]:  $94,350.83

Net Cost to Mr. Joey Bag Of Donuts

ll :  0 cost out of pocket[ii]

Cash Value in policy after rollout/forgiveness:  $793,4 29

Death Benefit After Rollout: $2,306,317

Tax-Free Retirement Yearly Income: $67,500

Equivalent Pretax Payout Before Taxes:   $96,429

Years of Retirement Income:18

Total Retirement Income:  $1,215,000

All and all, not a bad arrangement.

[1] Fund in excess of the collateralized amount.

[2] Funds are withdrawn from policy tax-free, results are “0” cost to Mr. Joey Bag Of Donuts

[3] Fund come from policy tax-free.

[i]This is only a summary of the illustration attached to this book.  The illustration is a hypothetical model of how the policy would work.

[ii] This is a fully funded Employer plan. There is “0” cost out of pocket for Mr. Joey Bag Of Donuts

For a free repot on creating Wealth Without Taxes, CLICK HERE! REQUEST R2 REPORT
This report will discuss the methods which will allow your business to use its cash flow to create wealth for you outside your business at the most tax effective way of creating wealth. Executive Compensation CEEP planning is more tax effective than a 401k, 403b, or any other pension and retirement plan. 

As a business owner you have the opportunity to create an amazing amount of wealth with little tax cost. Start with the report and find out how you can create your wealth and your financial security for the future. 

The Six Most Costly Financial Mistakes Business Owners Make Costing Them to Owe Huge Taxes!

Many business owners are unaware of the opportunities they have in creating wealth through their business.  Many owners put too much wealth in their business, where it can be tied up or hard to get out.  It also prevents them from accumulating outside retirement funds.

There are several ways to create wealth through your business on a tax-efficient basis which many owners are not aware of.  

I would like to share with you the six mistakes that prevent owners from creating more wealth by utilizing the business cash flow. 

  1. NOT IMPLEMENTING A CEEP: (Corporate Executive Equity Plan) for themselves.  This is one of the most tax effective methods of creating personal wealth using corporate cash flow.  The cost of providing this wealth creating account costs the owner about 30% of the tax cost.  Example: if the company bonused $20,000 to the owner for a personal retirement plan, the tax cost would be $6,000 each year.  However, under a CEEP arrangement, the cost would only be a $60 the first year, and about $1,200 the 20th year. This is one of the most misunderstood concepts in executive compensation by attorneys, insurance professionals and CPA’S.  Consequently, it might be considered under used.  However, the executive compensation specialist understands how the plans work and how it can be of great value for the business owner in shifting income from the company to the personal side of the owner. 
  2. NOT TAKING ADVANTAGE OF THE SECTION 412(e)(1): which allows the owner to make a substantial number of tax-deductible contributions into a retirement plan skewed towards the higher paid owner.  Example, the owner aged 50 can deposit up to $213,905 fully tax-deductible.  Great for good cash flow companies.
  3. NOT USING THE “SAFE HARBOR RETIREMENT PLAN”: where a substantial amount of the tax-deductible contributions can be allocated to the higher paid participants.  Also, included in this arrangement is the “Cash Balance Plan”.  These plans create greater tax-deductions for higher paid employees.   
  4. NOT TAKING ADVANTAGE OF   A RESTRICTED BENEFIT PLANS (RBP): which is a discriminatory and tax-deductible plan.  It can be used to provide valuable benefits to retain key people.  The business owner keeps the forfeitures if the employee leaves before vested. This can lock your key group to your company.  
  5. NOT CREATING A DEFERRED COMPENSATION PLAN:  This is a flexible, separate, and discretionary retirement benefit that can also become a mechanism for funding the sale of your business in the future and create retirement income. The pot is sweetened when you add a DBO (Death Benefit Only) to the planning. 
  6. NOT CREATING AND NOT FUNDING YOUR BUY AND SELL AGREEMENTS: A disability, long term illness, or death may occur long before the owner planned to exit their business, creating a path to financial disaster not only for the owner, but their family, partners, and employees.  This is one of the most egregious mistakes I see business owners make.  Many times, it goes unnoticed by the advisors.  This is one of the reasons why I am an advocate of check-off lists, “fire drills”, and annual reviews.[i]

Simply Put!  By Utilizing These Common Benefits, Owners Can Maximize Their Fullest Potential Business Value! 

To help you understand some of the ways to utilize your business cash flow to create more wealth for you and your family, I put together this FREE WHITE PAPER, CALLED “A TAX -FREE LIFESTYLE FOR BUSINESS OWNERS”, AND I would like to GIVE this FREE WHITE PAPER TO YOU.  

THIS REPORT will help you understand how you can use your business to take advantage of discriminatory benefits   plans for yourself, family members, and key employees.    The Tax-Free Lifestyle REPORT is strictly for small business owners who want to grow their business while creating more wealth outside of their business.   I designed this white paper to help business owners avoid the COMMON MISTAKES made by other business owners which forced them to work more years, save less retirement, pay more in taxes, and tied up too much wealth in their business, creating more stress, and had no free time for themselves! 

You’ll also discover in the TAX-FREE REPORT:

  • One simple concept allowing you to retire with more wealth or retire years sooner.  (This one simple financial principle is rarely ever talked about on “pop news” financial TV shows or by other so-called “financial planners”. 
  •  2 proven strategies to increase cash flow and reduce expenses if you really want to sleep at night!
  • 3 secret ways to have your business build a tax-free wealth account for your personal and business use!
  • Your Business DNA” Understanding this key allows you to double your savings and retirement investing without making a single dollar more in income or investing in more capital equipment and labor.
  •  5 value drivers to prepare your business for a sale, even 20 years in advance!
  • How a simple inexpensive benefit plan can keep your key people! 
  • How creating a Deferred Compensation plan can help finance the future sale of your business.
  • How having a benefit plan for you in the future can lower your cost to sell your business?
  • Misleading and incorrect “old wives’ tales” about creating wealth in your business. 
  • Tax saving strategies that 9 out of 10 business owners don’t use and end up paying more taxes
  • Much more…

TO RECEIVE YOUR FREE   NO OBLIGATION WHITE PAPER Called: 

The Tax-Free Lifestyle for Business Owners”

To request your free white paper 

CLICK SUBMIT:     Wealth Without Taxes Report

Once you submit your email address, you will receive your report immediately! Enjoy!

Now you may be asking…Why would I spend my own money to send you this FREE WHITE PAPER? Think of it as my personal introduction… a way for you to get to know me better.  Nothing more than that! 

Often enough, when business owners learn the information in this guide, they decide they want to know more about what we do, and possibly do business with us so they can have our business owner expertise and in-depth knowledge of how business owners think.  I know, I am one of them. I know what you think because I think about it all the time.  Let’s say 24/7 to be safe! Just as you value the expertise in your business field, I believe working with a financial expert who knows what it is to run a business and knows the business world is critical to your financial health.

That’s it!  Let me send you “The Tax-Free Lifestyle for Business Owners”.   Do with it what you want. Maybe you’ll want to talk to us further, maybe you won’t.   There is no obligation to do so.

Either way, I think you’ll find the information in this report will be immensely valuable to helping deal with the “what if’s, grow your business value, enjoy it more, and create more time for you and your family while creating an almost “stress-free” life with tremendous financial freedom in the future.  Oh yes! NO TAXES EITHER!    Visit www.yourbusinessworth.com  to learn more! 

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[i] Paul Hood: “Buy and Sell Agreements- the last will and testament for business owners”.  Paul discusses his check off list, and his “fire drill”.  I am an advocate for these systems to make sure the buy and sell agreement is a perfect of a fit to the entity and owners as possible. 

Pending Tax Changes May Be Around The Corner 2022!

 

I am currently reviewing some of the pending tax proposals being presented. Again, these are proposals and most of them will change before enacted.  

It occurred to me as I was reviewing the details of the tax proposals, how many changes I have seen over my long planning career.  It made me think of  how many times clients (YOU AND ME) had to  update our plans at our cost.  It is amazing the disregard the government has for the U.S. citizen in making this system easier to work with. I can understand why so many citizens put off planning, or just get tired of updating.  Unfortunately, this is the reality of the tax system and the changing of administrations.  

In 2017 we had a major income tax change which in most cases helped many  citizens lower their taxes.   It was easy to understand and it did what it was suppose to do, stimulated the economy along with increasing  public confidence.  

It also gave estate owners a path to plan to preservation their estates. The tax policy was working very well and our government tax coffers where growing.  

Pending Tax Changes- Again These are only proposals!  

The Green Book 2021  

Sr. Van Hollen (Sensible Taxation and Equity Promotion (STEP) and other plan such as the American Families Plan, and the “For the 99.5% Act (Bernie Sauders)”  

Income Tax Changes 

  • Top income tax rates 37%-39.6% effective January 2022; > $509,300 for married, and $452,700 for single 
  • Restrict tax deferral, “like-kind exchanges” (swaps of real estate that avoid current taxation that a sale would tigger  
  • Capital Gains might double-(sale of stock, investment real estate, etc. ) qualified dividend with incomes over $1million taxed at ordinary rates. This could be triggered for gains after April 28, 2021 

Social Security Taxes 

  • To coordinate the net investment income and self employment taxes, so unlike current law, a company could pay the owner a reasonable salary or guananteed payment, the overage became federal taxable profits, but not defined as payroll taxes.   This was assuming that the salary, and withdrawals were reasonable  compensation .  

The proposal is to tax pass-through business income (e.g. S Corps, limited liability companies, partnership) of high income taxpayers will be subject to either the net investment income tax or the social security taxes.   

Audits from the IRS: $80 BILLION increase over 10 years for IRS for audits.  

Estate and gift tax:  

  • Bernie Sanders proposal (For the 99.5% Act) calls for a return to lower estate and gift tax exemptions as well as significant changes to the rules on GRATs and grantor trusts 
  • Most dramatic:  Biden’s plan is to make the transfers of property by Giftand on assets owned at death (as of January 1, 2022) triggering events for capital gains taxes.  The gain is measured by the date of gift or death fair market value less basis.   
  • Exclusions: transfer at death to a US spouse.  

So there are other potential changes coming down the pike and we’ll have to wait and see.  Here is the bottom line:   

Split Interest Gifts: Grat’s ; watch for developments 

Grantor Trusts:  At Grantor’s death or trust is no longer revocable 

BOTTOM LINE- 

If you are a business owner with wealth in your business and you have not done any planning, it may be a good time to start thinking about a certified appraisal of your business and your holdings.  Also, you might want to start thinking about what your goals would be for passing your estate assets.  It’s to early to tell where the wind will blow and how you will be affected by any change, but it is not too soon to think of what you wish to accomplish in your estate and business planning. 

As I look some of the potential changes, Life Insurance Planning will become more significant in paying for the additional liabilities of passing your estate assets either by gift or death.  

To help you with your planning, I would like to offer to you my newly published Ebook called,”Unlocking Your Business DNA”. In the book I cover strategies I have used with business owners for over 50 years  with powerful strategies to create growth and profits in your business and also create an amazing amount of leisure time. 

To get the book, CLICK AND SUBMIT 
 
OR,  
 
If you with to receive a free business assessment of your business planning, take our ONE MINUTE SCORECARD SURVEY. Literally, it takes one minute to go through. Once submitted I will send you a FREE ASSESSMENT of our findings. We will be able to pin point the strong point and the points that you need to work on to create more business growth and profits.  

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More to come… stay tuned.  

Issues Of A Growing Company

This is a case study about   a company that did not have a buy and sell agreement in place.  The business has grown substantially.  The owners were concerned about the growth of the company, sacrificing larger salaries to invest and grow their business. 

The accountant recognized that there was a problem if there was a termination of a partner, and referred me to his clients to help educate  them on estate and business planning, and also to help them design a buy and sell agreement.   

Scenario:  

Bill and Sam started a very successful manufacturing company.  They produced the assemblies for hard drives. 

They are a C corporation and have scaled tahe business from four full time workers to about 34 employees. Their client base has grown from just a few to a few dozen over the years. 

One Page Issue(s) (With our team we identified these issues)

  1. The business has never been appraised so there is a question of the value of the company and estate.  
  2. Both partners have families and larger personal liabilities than when they started. 
  3. They have invested their earnings into the business and don’t have a retirement plan.
  4. They don’t have a binding buy and sell agreement, nor a method of funding the liability. 
  5. The owners are expecting the exemption credit to lower which will expose them to death taxes.
  6. Neither partner has done any estate planning, other than simple wills. 
  7. Retaining the key person in the firm who has the relationship with the customers, vendors and key contacts. Because he basically runs the company, the owners take a lot of time off.  They are concerned that the competition may try to recruit him.  If lost, it would have a major impact on the company.

Major issues and immediate concerns: 

  1. Potential fire sale of the firm if there is not a “planned design for buyout
  2. Uncertainty and instability for the employees, especially the key people in the firm.
  3. The possibility of the deceased partners family running the business with the surviving partner, leading to inexperienced leadership. 
  4. Lack of liquity to pay the taxes assessed on the value of the business and other administration costs. Without the valuation, it was a best guess estimate, jeopardizing accurate estate planning. 
  5. Business valuation disagreements, especially IRS litigation. 
  6. Lack of market for the business.
  7. The loss of income for the family.
  8. Lending from the banks could be cut off after the death of one of the owners. No  assurances that loans would be immediately available upon an owners termination. A concern that any new loans in the future may have convenants that credit lines would be redeemed upon a partners termination unless there was a valid buy and sell agreement. 
  9. Stress on the business’ cash flow or credit line  as a result of the surviving owner trying to purchase the deceased partner’s share. 
  10. The possibility of losing their key person to a competitor would be a significant loss to the firm.

One Page Solution

The most critical issues to solve now : 

  • Complete a Buy and Sell Agreement with funding/ both life insurance and disability insurance
  • A Certified appraisal to be done
  • Create strategies to keep the key person with the company
  • Start the process of personal estate planning for each partner

 There were other issues, but we all felt the buy and sell agreement was the most important at this point. 

One Page Solutions For Buy and Sell Agreement: 

  • Cross purchase buy and sell agreement funded with cross owned permanent life insurance
  • The insureds were about the same age
  • They were  both in great health
  • Premiums were about equal in cost, and the corporation would bonus the premium to the owners
  • Since the owners willl sell in the future, having the increased stepped up in basis would save taxes, as the partners plan on selling in the future.
  • Also wanted the insurance company to define full disability through the contract definition.

One Page Solution FOR KEY PERSON:  

A CEEP for the key person (Corporate Executive Equity Plan); For Key Person

  • Cash Equity for retirement
  • Tax free death benefit for family
  • Limited contribution by employee-basically paid in full by employer
  • Tax-free income at retirement- Will create about $200,000 tax free for 20 years at 66

There was a vesting schedule designed for the employee for 10 years. If he stayed he would have a much richer benefit than his 401k would provide

  • Non-compete, Non-recruiting  and solicitation of  employees of the firm,  and Non-disclosure agreement to be executed by key person

Estate Planning: 

Currently, working with the attorney on new wills, trusts, and an irrevocable trust for life insurance. There are some other things we are considering with real estate owned outside the state, such as LLC, AND inter vious trusts.

Triggers:  In the agreement we established the major triggers: death, disability, termination, retirement, divorce, bankruptcy.  We decided to use a disability income policy to fund that part of the plan.  We also wanted to have the definition of disability decided by the insurance company. 

As we move forward we are reviewing other issues yearly.  Also, forming the team with the attorney, CPA, and others was instrumental in accomplishing the results.  

Receive your Free Business Kit Guide. A Great guide to help you understand some of the business planning issues. CLICK HERE

Reasons They Do Not Have A Transition Plan That Will Be Efficient – Part 2

Over the years, my experience with many owners I have found a major conflict with owners is the working in their business vs. working on their business. It is extremely hard for many business owners to make changes and spend the necessary time. I have a book called “Unlocking Your Business DNA”, which discusses the personal tragedy of not having the proper planning.  

FOR A FREE EBOOK; REQUEST UNLOCKING YOUR BUSINESS DNA 

I have heard the stories from “I will live a long life”- “I need to work and won’t retire” “No one can do this like I can”   

Four possibilities of leaving your business:  

  1. Death (that includes dropping dead at your desk) 
  1. Disability 
  1. Retirement 
  1. Cannot do it any longer 

By not planning, the owner may find themselves receiving much less for the business, walking away without any value, or just die working at their “bench.” 

Because of this one reason, we developed the two hour a month planning process, called:  THE ONE PAGE PLANNING PROGRAM.   

The Owner AND Their Issues:  What is important for the owner is to have a personal retirement and estate plan to define their future needs. Do they want to stay active in the business even when retired? Will they have enough money for retirement? Will they have estate tax exposure. Do they have the proper estate documents? Do they have someone to sell the business too? How much will they have to sell their business for to net the amount of assets needed to provide their financial security? 

Owner Issues 

  • Financial Security 
  • Wealth Preservation and transferring the business with as little taxes as possible.  

The Family: What is the status of the family relationships in the business? Do any of the family members depend on the business for income?  Do they own stock? Are they in agreement with the proposed succession?  Are their careers involved with the business? 

Key Issues for family  

  • Compensation among family members in the business?  
  • Inheritance among family members?  
  • Management of family business, who is involved?  

The Company. 

  • What are the assets in the business? What is the value of the assets? What is the value of the business?  
  • Has the company been appraised in the last few years? 
  • Is the buy and sell agreement in force-signed and dated?  
  • Does there need to be more formality in the governance of the structure? 
  • Has there been a systematic attempt to enhance business value drivers over the years? 
  • What is the structure to get earnings out on a tax advantage structure?  
  • Who will be the leader of the company, and will there be a change in ownership? 

The Succession Plan 

  • Business Situation and questions when thinking about succession. 
  • How are you getting earnings out of the company on a tax advantaged structure?  
  • Have you considered the leadership and owner issues to be addressed?  
  • Each entity structure has advantages and disadvantages, and each should be looked at carefully when considering your future status as you transition? 

FOR A FREE EBOOK; REQUEST UNLOCKING YOUR BUSINESS DNA 

Selling Your Business To The Younger Generation!

I am old enough to remember the many small businesses in my hometown. There were all types of businesses such as, meat markets, hardware stores, small groceries stores and many specialty stores. Large shopping centers and malls were just starting to appear, as they would be the future home of many of the smaller stores along with the big chain stores.    

FREE OFFER:  Receive my free E-book;  “Unlocking Your Business DNA” to learn the strategies of growing, protecting, and transitioning your business for greater value” CLICK HERE 

It was the fifties and small business was booming. There were many reasons for the business boom, but mainly it was the population of the baby boomers which gave way for opportunities to buy or start a business.   

Now over 60 years later, things are changing. The boomers that started the businesses are now older and would like to retire and sell their businesses.   

Baby boomers own 2.34 million small businesses and employ more than 25 million people (about the population of Texas)i. This represents about 100 million citizens when you consider family members.   

Incomplete Plans 

A recent surveyii shows that 58% of small business owners have not only failed to complete a succession plan, but many haven’t even considered a transition plan. The significance of this figure is the potential catastrophic effect on our economy as the boomers burn out, die, or become too ill to work. Other studies tell us that only 30% of business owners have a succession plan, and 50% of them are incomplete plans.  

The impact of this lack of planning not only affects the consumer, but also employees, family members, partners, independent contractors, part time workers, down the line suppliers, an endless road of dependence on each business.   

Even the younger generation business owners are affected by the closing of these businesses, as the younger business owners have a type of dependence on the success of the boomer’s generation of businesses.   They rely on these established businesses as suppliers, mentors, etc. 

Receive my free E-book;  “Unlocking Your Business DNA” to learn the strategies of growing, protecting, and transitioning your business for greater value” CLICK HERE 

Younger Generations 

Interestingly, many younger generations are not interested in running the family business. They have seen the sacrifices their parents and other family members have made over the years; they don’t want to spend all the time necessary to run the business.   

This generation, beginning with the babies of 1965 and continuing through 1984, is a big problem for Boomers, who are preparing to sell their businesses. The issues are three-fold: numbers, values and choices. 

A major reason for the potential problems for baby boomers is in the pure number of them. From 1945-1964 there were many baby boomers born during that period which stemmed the growth of the economy. However, the next generation is about 23% less in population. This means there are less people in the younger generation to purchase businesses.   

In the next 4-6 years, when the last of the boomers hit 65 years old, almost 5 million fewer people (23%) will be turning 45, and entering their prime business buying years. This shortage of buyers will create the worst imbalance between small business sellers and buyers in history, and it will continue for the next 20 years.iii 

Values 

Boomers have a vastly different work ethic than the Generation X’s. Not that they are lazy, but their values of working, when and why, are very different. Because of these values there are many Generation Xer’s who don’t wish to have the same work schedule their parents had.   

Generation Xers want to define the “work-life balance”.  Their observation of life watching their parents work all the time, didn’t really make sense to them. Consequently, they want to create more of a balance in life.    

Generation X’s, by and large, doesn’t equate material comfort directly with work. Their “balance” is oriented towards separating work and life. Unlike most Boomers, who live to work, the X generation only works to live. Work isn’t their identity, it’s merely the thing that allows them to pay for what they really want and their living standard. 

Many Baby Boomers’ attitude was, “live to work”. Working a 50–60-hour week was part of their business. Based on data, the Xer’s don’t agree with that lifestyle and are not interested in having a business where the cost is many hours of work.  

Planning for the Boomers and Their Business  

Because there is a shrinking number of future purchasers, small business seller’s must take all the necessary steps to prepare their company for an ultimate sale. In most cases they will need help in preparing for the sale of their business.  

There are professionals who can recommend to you how to prepare for the sale or your business, and to help you create the key strategies to implement for a greater potential value.  

Past Problems  

Many of the strategies needed to create value in business need time. You normally can’t wake up one day and decide to sell your business next week and expect to get the highest potential value.  

However, with the right coaching, you can start working on the strategies that can increase the potential value of your company. Even if you are years away from thinking about selling your business, business owners should engage with professionals to start the process of implementing the right value drivers early, with the end game being to increase the potential greatest value of their company.  

Point to be made  

By kicking the “transition of your business can”, down the road, owners are putting themselves in a terrible position. Not only are they not prepared to sell, they don’t have the systems in place that create the potential highest value, but also there may be a limited number of buyers in  the younger generations.  

If you are a business owner interested in discussing the future of your business, we would be happy to have that discussion with you.  

To aid you with the conversation, we have created an assessment tool that it easy to use. It takes about two minutes to complete, and it will give you an idea of your strong and weak points in your business planning. It’s a free tool called the “scorecard”.  Once completed we will send you a free analysis report of your strong and weak points of your business planning. We will also offer a free phone conference to discuss the results with you. Once you submit your scorecard, we will send you an assessment report in approximately 72 hours (about 3 days).  

Receive my free E-book;  “Unlocking Your Business DNA” to learn the strategies of growing, protecting, and transitioning your business for greater value” CLICK HERE 

Common techniques and situations where life insurance is required!

When you apply for life insurance with a trust, how is it set up? What are some of the ramifications? 

Basically, a life insurance policy is purchased by the trust and is owned by the trust.  The Grantor pays the premium in the form of gifts to the trust.  By doing so, the life insurance is not part of the estate, the benefits are tax-free, and if done correctly, premiums are considered present interest gifts in most cases.  The combination of the trust (Irrevocable Insurance Trust), and the Life Insurance maximizes and leverages the amount of property which can pass to the estate!   

  • The Trust needs a Tax ID (EIN) from the IRS since this is a tax paying entity 
  • A non-interest-bearing checking account in the name of the trust is needed to deposit cash into to cover the premium payment.  
  • The Grantor makes gifts to beneficiaries of the trusts. Gifts are deposited into the checking account. Gifts are normally within the annual exemption limit. 

Life Insurance and Business Succession Planning 

  • Equalization when leaving a business to family members when some of the members will receive the business while others will not.  Life Insurance can be the equalizer for the other children not receiving business interests.  
  • For businesses that are heavy in real estate, the life insurance can guarantee liquidity to cover maintenance expenses and lost cash flow. 
  • Life Insurance is a component of most buy and sell agreements to ensure the surviving partner has liquidity to buy out the interest of the deceased family member. 

To receive our FREE Estate Planning Guide for Business owners, BUSINESS OWNERS ESSENTIAL R-6:  CLICK HERE FOR THE DOWNLOADON the drop-down menu pick R-6 Business Owners Essentials. 

Types of Insurance:  Whole life, 2nd to die. What are the benefits of each?  

  • Second-to-die/survivorship life insurance can be in the form of a whole life or Universal life insurance policy.   It covers two lives and is paid at the survivor’s death.  It is normally when the capital requirements are needed at the death of the survivor.  Based on the mortality of two lives, it provides a discount for the insurance.  However, after the 1st insured dies, the premiums are normally needed, so a consideration would be the cash flow after a death of either one of the insureds.  However, if the capital requirement will be at the 2nd death, this type of policy is less expensive than buying two policies.   
  • Whole Life Insurance and Universal life are designed to stay in force for the insured’s lifetime. Whole life has guarantees, while Univeral life is albeit more flexible. It has the potential to cost more to keep in force for the whole of life.  However, universal life does offer guaranteed death benefit plans. Whole life and Universal Life can be used when the capital is needed for the lifetime of the insured.  
  • Term insurance is designed to last for a specific period before it expires.  Although term insurance is the least expensive initially, with outlay, it can become the most expensive over time.   However, it is a great plan to own when you have defined the capital exposure needed for a specific period and no longer. An example would be a bank loan for a brief period, a potential exposure or need not lasting for more than 20 years.   

Is life insurance death benefit tax free  Most of the time if arranged correctly.  However, there are a few exceptions when life insurance is not taxfree.   

  • Paid directly to the designated beneficiary (trust or individual) it will be paid tax free.   
  • The unholy triangle:  owner –dad; Dad gifts the policy ownership to daughter.  Daughter names her daughter as beneficiary.  At dad’s death there is a gift from Daughter (owner) to her daughter as the named beneficiary.  
  • Transfer for value:  This is when a policy is sold to another person as owner and paid to a non-exempt class, the policy will be taxable on the proceeds in excess of what the policy was sold for.  
  • Owner A, sells, his policy to his brother-in-law. At A’s death, the proceeds will be taxable in excess of what the brother-in-law paid towards the policy.  
  • However, if the brother-in-law was a Corportation (office of), a partner, a partnership, there would be no income taxes.  
  • Or anyone whose basis is determined by reference to the original transferor’s basis.  
  • The insured (or insured’s spouse or ex-spouse if incident to a divorce under Sec 1041) 

Avoiding the three-year look-back period when existing insurance is transferred to a trust.  

  • If the policy is already owned the insured can gift the policy to the trust, making a lifetime gift to the trust, the trust can then buy the policy for the interpolated reserve value of the policy  
  • Set up the trust before the purchase of the life insurance. Have the trust buy the policy, the trust would be the original owner and beneficiary.  

Download Our  FREE Business and Estate Planning Guide for Business OwnersBUSINESS OWNERS ESSENTIAL R-6:   

CLICK HERE FOR THE DOWNLOADON the drop-down menu pick R-6 Business Owners Essentials. 

What changes can be made to an irrevocable trust when the estate planning has changed?  

  • Decanting the trust varies from state to state. Decanting techniques can pass the assets into a new trust and take advantage of enhancements that may have appeared in the trust code since the original trust was created.  
  • Establishing a new trust for the life insurance:  The funding must be valued at the value of the old trust (namely the interpolated reserve value). It requires an exchange of assets. The trustees would also sign a contract of sale when the life insurance is transferred.  Certain procedures need to be in order.  

These are a few of the areas professional planners should be aware of when working on the estate of their clients.  These are some of the more complicated planning techniques, which come up often and are critical to making sure advisors are aware of the potential tax traps.   

I have found it best to work with the “team” of the client’s advisors so there is less of a chance to make mistakes when planning the estate of the business owner.   

To receive our FREE Estate Planning Guide for Business owners, BUSINESS OWNERS ESSENTIAL R-6:  CLICK HERE FOR THE DOWNLOADON the drop-down menu pick R-6 Business Owners Essentials.