Buy And Sell Agreements and The Use of an LLC!

Featured by YOUR BUSINESS WORTH, posted in Uncategorized

By Thomas J. Perrone, CLU, CIC

A much-overlooked area of planning for small business owners is their buy and sell planning. A business is fluid and forever changes its financial position. In many cases industry changes and markets affect the value of the company. Because of the ongoing changes in business value and growth pattern, the buy and sell agreement should be reviewed more than periodically. I suggest the professionals and parties to the agreement review the value and the elements of the buy and sell, yearly. There are two parts of the review.

The agreement should be reviewed for the “triggers” which will set in motion the BSA. There are many BSA that have been executed which only deal with the death, disability, and retirement of the owners. Some other triggers would be bankruptcy, divorce, non-voluntary termination, voluntary termination.

The Funding:

This area strives to make sure the parties are sufficiently liquid when needed to fulfill the obligation of purchasing the ownership value.

Cross purchase: Members buy and own life insurance on other members. For example, if you had four owners, twelve policies would be in force (3×4).

Endorsement: The Company purchases and owns life insurance on the parties to the agreement. At their death, the company receives the proceeds and purchases the value from the deceased’s estate.

The endorsement method is simple, as the company will purchase life insurance on the party to the agreement. For example, if there are only four owners, the company will purchase life insurance on each of them, or four policies. Upon the purchase of the decedent’s equity, the surviving owners will not have an increase in business cost basis.

Using the LLC

The LLC is set up to purchase life insurance policies on each owner. Upon their death, the LLC collects the proceeds and purchases the ownership for the surviving owners.

There is no “transfer for value,” as partnerships are an exemption for the transfer of value. The remaining owners have a cost basis increase.

This short video discusses buy and sell in more detail.

BUY AND SELL MISTAKES FUNDING

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Featured by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Company Wealth, Estate Planning, Executive Benefits, Inside Sale, Key People_Or Group, Passive Ownership, Selling Your Business, Strategies of growing business

IN THE “John F. Kennedy Era”

Business Owners Created Substantial Wealth Using This Benefit!

Business owners are the most susceptible to it…

Don’t feel bad if this happens to you!

WE are susceptible to “not knowing” things WE need to know TO SECURE OUR business growth.

This is why WE need good business advisors.

However, sometimes by not knowing, you are too late to the party, and opportunities are missed.

THIS IS ONE THING YOU NEED TO KNOW!

It is called “The Corporate Equity Executive Plan”, (OR CEEP.) It is designed for highly paid business owners and executives. The plan has been around since the 60’s, and it was used by the “big guns “of the Fortune 500 type companies.

And You Don’t Want to Be Late TO THIS PARTY!

However, over the years, the plans have been redesigned for the smaller business owner, making it possible for you to take advantage of this substantial benefit plan.

Because this benefit has been used in large companies such as the S&P 500, many advisors are not aware of this “Hidden Gem of a Benefit.”

Leo had a successful business in wholesale. He gave his employees great benefits, treated them well, had a 401k, and great health benefits.

His problem was the 401k limited the amount of contribution he personally could make to the plan because of his high salary. This was a problem for Leo, because even though he made 401k contributions his percentage of final pay was much lower compared to final earnings.

Leo didn’t want to depend on selling his business for his retirement, as he had children and grandchildren who wanted to run it and Leo regarded his company as a legacy to his family.

Leo wanted his company to support his future security, however, the 401k limited this ability.

When we projected his retirement benefit percentage compared to his final pay, he was substantially lower than his lower paid employees. His employee group would retire with social security and their retirement benefit at about 65-80% of their final earnings. In Leo’s case, his percentage would be about 40% of his final earnings.

To make up the difference we introduced Leo to the CEEP plan. The plan allowed him to decide the number of deposits he wanted to make into the plan. Leo decided to put in $50,000 more a year until his retirement. This added amount, would increase his final income to around 80-90% of his final pay, adjusted for inflation and salary increases.

Because the business is funding his retirement plan, he has the benefit of having very efficient tax results. The plan allowed Leo to use the funds whenever needed, and all withdrawals were tax-free. Leo was the only participant in the plan, but he plans on adding a few family members to the plan in the future.

Considering all the withdrawals would be tax-free, unlike a qualified 401k plan, Leo was able to secure his financial security through the funding by his company! Because very little of the contribution is part of his total compensation, Leo saw a great opportunity for the company to pay for his retirement. They pay for his cars, country club, lunches, some vacations, why not his retirement?

This was a case where the CEEP allowed the highly paid owner to create wealth for themselves, but also on a tax-free basis, allowing more flexibility at retirement for him and his family.

“Create Your Own “Tax-Free Haven”

By using your company’s cash flow, you can create a tax-free retirement plan. Imagine, no taxes on your income when you retire!

Participations: You do not have to include anyone else in the plan.
Contributions: Contribute to the plan as much as you want with flexible contributions, including skipping ability.
Contribution allocation: All the contributions go to your account, and you are not forced to share contributions with anyone.
Usage of funds: You can withdraw these funds before 59 1/2 without taxes, penalty, or restriction-why not fund your inventory this way- without a banker!
Funded by your company: Like a 401k plan, your company contributes to the plan, to your account, since you are the only participant.
Deductible: The company can decide when they wish to take the deduction of the plan.
At Death: From day one there is a “self-completion clause”, if you die, a tax-free lump sum benefit is paid to your family. In most cases this is the amount of money you would have created in retirement had you lived to retirement.
No force out like RMD: At retirement you are not forced to take withdrawals from your plan, like the required minimum distribution rules under 401k’s and IRA’S.
No Tax on Inheritance: All benefits are tax-free to your family at your death.
more….

Do you remember When?

When you were a kid, did you ever lay down in freshly mowed green grass and stare up at the blue sky and watch the clouds move? You smelled the sweetness of the cut grass and just felt so relaxed? In the background, you hear a twin-engine airplane flying above. This is the moment in time when there were no issues in life, things were great and easy, and you were so relaxed…

Imagine that feeling, but now it’s at a time in life where you are ready to enjoy more time to “lay in the grass” again and feel that same feeling. Only now, you are retired, and because you made the right planning decisions, there are no issues. Financially, you are enjoying a wonderful retirement lifestyle. The reason: you eliminated income taxes! You are living the tax-free lifestyle which the CEEP plan offers.

That is what the CEEP can create for you, and I want to give you more information about it because it is

one of the best benefits ever for business owners.

This is one of those moments you don’t want to show up late for the party! If you haven’t been exposed to this type of executive benefit, do yourself a favor and download this Free White Paper that explains it all.

I encourage you to take a new path that will give you the opportunity to create greater financial wealth for your future. A path that will educate you on the great usage of business cash flow to create more financial security. The path you want to take is to request this free report, download it and spend some time learning about this fabulous benefit used by many high earning business owners and executives since the “John Fitzgerald Kennedy Era”.

To receive your FREE WHITE PAPER, SCAN THE QR CODE. COMPLETE the short form and your FREE WHITE PAPER WILL DOWNLOAD IMMEDIATELY…

Or CLICK OR TYPE IN

P.S. SPECIAL OFFER: The first 15 requests will receive a free copy of my book, “Unlocking Your Business DNA”. A BOOK filled with business strategies that will allow you to grow your business and create an ungodly amount of leisure time to enjoy what you are building.

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“FORBES CONTRIBUTOR Reveals the Eight Reasons Why 70% of Small Businesses Fail Within Ten Years!”

Featured by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Company Wealth, evaluations, Executive Benefits, Income from your business, retirement, Strategies of growing business, Tax Efficient, Working On Your Business

Are you working hard to Grow and Prosper in your business?

Give Me Three Minutes and I’ll Reveal the Key Secret to Creating Greater Success and Prosperity!

You saw it coming… The instinct and driving force to create something…

While the outside world thinks building a business is magic and easy, you know differently!

You, like many entrepreneurs, are wired to build, discover, and create success and prosperity. You have the fortitude to survive and grow.

You know taking financial risk isn’t just about you, it involves your employees, vendors, and your family.

Many people would not understand why you take risks with no guarantee of success.

Chances are you entered your business, like many of us, without a lot of business knowledge, but the excitement of a great idea and the boldness and motivation, to make it successful… With all of that going for you why do small business FAIL 70% of the TIME?

FACTS BEING FACTS…70 % OF BUSINESSES FAIL WITHIN 10 YEARS. [1]

86% OF BUSINESSES CAN’T BE SOLD [2]

The answer is obvious, but not to the busy and enthusiastic business owner in the thick of running their business…

The stickler is…. YOU GET HOOKED ON THE “ACTION PLAN”- (the process of bringing your product or service to market and creating cash flow, profits to feed your operations. This is the exciting part of being a business owner). It’s “THE BUSINESS HIGH” …

Holy Cow… you’re saying just because I like doing something and want to be part of it all the time, IT WILL cause my business to fail? Yes and NO! Yes, because you not only spend most of your time there, but no, it’s good, because you are creating cash flow and profits…

THE PROBLEM: -You Have an Action Plan —————But No “PLAN FOR DETAILS”!

A critical part of the long-term success of the business. It is the empowerment of your business, the “Vin Lombardi” attitude for success. It creates confidence to grow. It is the “BUSINESS PLAYBOOK”! In a Nutshell it’s the solution to the eight reasons why 70 % of businesses fail in 10 years, and the reason why 86% of the businesses can’t be sold… IT’s That Simple…

Let’s break it down…

Eight Reasons Why 70% of Businesses Fail Within Ten Years!…

No Vision-No Niche-No Business Plan-No Marketing-No Commitment To Continual Learning-No Action –No Follow Through-No Consistency

The same reasons 86% of businesses can’t SELL! ——— There is no “Plan for Details.”

Why Don’t Business Owners Create a “PLAN FOR DETAILS” to fix the problem?…

The Major Reason Why …

Advisors make planning more complicated than it must be.

They charge too much in fees.

They don’t respect your brevity of time.

They don’t understand the business owner and never ran a business (employees, payroll, worked with bankers and inventory).

The advisors have their own agenda, not the agenda of the business owner.

Many advisors are not competent to plan the complexities of business and only want to sell products under a hidden agenda.

Many advisors don’t specialize and have conflicts of interest- such as a lawyer or account selling investment products.

YOUR “PLAN FOR DETAILS” – “YOUR “BUSINESS PLAYBOOK” to the RESCUE

NOT HAVING A “Plan for Details”, HAS CONSEQUENCES!

EASY TO PLAN	You can plan your path to success and prosperity within 30 days or we do it for free. You will learn in about a total of 4 hours or less over the 30 days.
LEARN ON YOUR TIME	Our Educational videos are short and easy to understand AND LEARN. The basis for your “Plan of Details”
ONE ON ONE COACHING	Four videos explaining the material along with a discussion after each step. This will clarify the questions you may have.
YOU CREATE AGENDA	Sixteen Business areas of planning. We call it Blueprints. You select the topics for your agenda. Solve one issue at a time and move to the next.
BREVITY RESPECTED	Videos less than 20 minutes. Conference calls, less than 30 minutes.
EASY TO LEARN MATERIAL	Resource Video Guide on many topics. Resource Study Text Guide written in simple language. Also, open a library to use for your knowledge base.
AUTO UPDATING	You set the schedule to update and assess other areas in your planning. You are always current because we make it automatic for you.
ONGOING SUPPORT	Monthly, you receive ideas on planning which you can use, and phone support. You are given a link to our calendar to schedule conference calls.

Situation	NO “Plan FOR Details” THE RESULTS	Business Planning System-PLAN FOR DETAILS
Covid Hits- Lack of Capital	Shut down, layoffs, a business closes. Banks recall your credit line, you incur debt.	Planned for reserve of capital, through cash flow. Bankers are pleased with your plan and extend credit. Business as usual! You are prepared!
You Die or Become Disabled	Key employees leave with others. Family has no permission to run business Banks recall loans.	Planning satisfies banker and probate courts. Employees stay, there is incentive in place for them, Family or key group run the business.
You Want Out of Business	Wealth tied up in your business not liquid. Must sell at deep discount to raise money!	Executive compensation plans set up. You have the capital to retire and sell your business without forced sale.
Key Person (Group) Leaving	Bankers, vendors, end credit. Employees leave.	You created a vesting benefit for your key people. Too rich for them to leave you, along with documents that are in place to protect you if they do leave.

EMPOWER your growth by formulating a “Plan for Details”.

Consequences Don’t Always Happen to the Other Guy! Don’t Be That Other Guy!

Your “Business Playbook” Your Favorite Banker Will Be Impressed!

WHICH PATH? Continue doing what you are doing without a “PLAN FOR DETAILS” and risk MANY UNKNOWN CONSEQUENCES! OR take the path of AWARENESS and Avoid Financial Mistakes through Knowledge!

Educated Entrepreneurs Are Aware of BUSINESS OWNERS!

View the demonstration Video of the GWT Business planning System. Fill in the few questions on the form and it will take you to the short video .

Get My Video

^[1]Lauren Cowan, Former Forbes Contributor CPA, Attorney, Elevate

^[2] Doug Baily Feb. 9, 2016, Talking Business

You Don’t Need a Business Degree from Wharton to Build an Incredibly Successful Business,

Featured by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Buy and Sell Agreements, Company Wealth, evaluations, Executive Benefits, Funding your Buy and Sell, Income from your business, Inside Sale, Key People_Or Group, Passive Ownership, retirement, Selling Your Business, Strategies of growing business, Tax Efficient, Tax Free Income, Value drivers, Working On Your Business

But you do need this…

Dear Fellow Entrepreneur, who wishes to grow their business and enjoy what they are building…

did you ever wonder why some business owners run a successful business while others claw up a mountain to stay in business? It comes down to one STRATEGY, in my opinion.

A Recent Survey Reveals That 86% of Small Business Owners Risk Bankruptcy or A Forced Exit by Missing This Strategy!

Only 14% Of Business Owners Will Enjoy the Value of Their Business! i

You and I are entrepreneurs, wired with passion to run our businesses. I want to share with you a powerful strategy that will change how you run and grow your business. It will give you more clarity and create more simplicity in your life. This powerful strategy is one of the major contributing factors to building value in your business.

Have you ever noticed how some business owners keep more of the money they earn, work less, have unlimited family time, avoid getting drained by taxes, keep the best employees, and run their businesses, not the other way around?

My clients tell me the strategy has given them clarity and has simplified their lives allowing them to enjoy more of what life offers!

THE ISSUE and THE PROBLEM: The mindset when you start or buy a business is to bring your product or service to market quickly to create cash flow. This is the “action planning”, and it’s all about cash flow. The problem is you stay focused on the ACTION PLANNING MODE and neglect the DETAIL PLANNING MODE altogether, creating financial chaos, and diminishing the chances of accomplishing your dreams and aspirations!

Enter the Business Growth, Wealth, and Transition Plan (GWT PLAN) which focuses on the details of the Growth, Protection, Equity creation and Transition of your business. The GWT PLAN is a “Designed Plan” and creates the future financial success of your business. The GWT PLAN is like Kryptonite, fighting off bad mistakes, lost opportunities and keeping you on the path of building your business’ future wealth!

A TRUE STORY: In 1971 my father died suddenly at age 51. His very profitable business in Hamden, CT, was sold for pennies on the dollar. My mother went from middle class to poverty level overnight. She was forced to sell the family home and move to a few different neighborhoods, giving up what she loved the most, which was cooking for the neighborhood kids. This created great emotional turmoil in the family.

THIS DID NOT HAVE HAPPEN, BUT IT DID. Why? Because my father had a “Default Plan”, NOT a “Designed Plan”. He winged it, like so many business owners do. Because of that, he lost his “Life’s Effort”, and his legacy, at an extreme cost to his family.

If You Had a Financial Leak in Your Business That Was Going to Burst Your Financial Pipes, When Would You Want to Know About It?

YOUR SCENARIO WITHOUT A GWT PLAN

If you died or became disabled today, what will happen to your business? Without a plan, the banker would call your credit line, the vendors would stop selling to you, your key people would be looking for new jobs along with other employees. Your family would need to get permission from the probate court to run the business without breaking the law.

If your Key Person told you they were leaving along with five other employees, what would you do about this? The banker will call the loan, your vendors will cease to give you credit, you may lose other employees, and you would lose income very quickly!

What if you were in a squeeze economically, business was bad, costs were high, gross revenue is not covering expenses, what do you do? Call in Mr. Banker, and hope he has confidence in your business to solve the problem (remember Covid) and hope for credit!

You had enough; you want out. What’s the value of your business you want to sell? 86% of your fellow entrepreneurs are not going to sell their business, what would make you any different?

The Same Scenario HOWEVER, You Implement Your GWT Plan!

#1: Your banker doesn’t call your equity-line and they are satisfied with your continuation plan. Your family has planned instructions on how to run the business, while your employees are satisfied and confident of the continued success of your business.

#2. Your key people stay on because you have incentives for them to stay. Also, you have protection documents that would thwart their ability to compete with your business if they left.

#3. If you were so unlucky to hit a bad economic turndown, you have a special benefit in place to fund your cash flow without having to beg for money from the bank. This was created through your business cash flow in advance. It is substantial in value, and tax-effective, creating personal wealth outside of your business.

#4. You have been systematically formulating plans over the years for the purpose of transition someday. Because of that planning, purchasers are interested in buying your business at the highest potential value.

If You Are Investing Money, Time, Pride, Sweat and Nerves in Your “Biggest Effort in Life”

Why Would You Not Spend the Time to Protect It From the “What IF’S By Implementing Your GWT Plan!

It’s Not Your Fault However! It’s the Planning Professionals Fault!

Here is the difference between planners and what we do and why we make a difference…

It’s their agenda, not yours. –

The GWT PLAN agenda is designed by you. You pick the subjects you wish to plan for.

No respect for your brevity-take too long to plan.

The GWT Plan uses educational tools such as short videos, so you learn on your own time and verification of what you learn via conference calls.

They charge too much and complicate the planning making it more complex than necessary.

The GWT Plan charges are a fraction of the market charges for planning and is designed to be communicative and simple. We use a patented plan called, “The One Page Solution”, which describes the issue and the solution on one page, and this is done, one issue at a time.

They are averse to working with your other advisors.

The GWT plan encourages your other planning team to join us, so we have all the information about your dreams and aspirations and what your team has been doing for you. We welcome all professionals to engage in your best interests.

Many planners have never run a business or walked in your shoes.

We have been in business for over 50 years and have never been in any other business professionally, and know what it is all about having staff, payroll, working with banks and having an array of tasks to deal with.

They don’t spend time learning about your business and your value system, and don’t listen well.

The GWT plan doesn’t start planning until we feel we understand what your dreams and aspirations are. By using our tools, we not only learn about what the facts are, we learn about how you feel about what you are trying to accomplish.

Despite this…To Survive and Thrive in the Future Economy YOU NEED A GWT PLAN TO…

Create a path to follow for success with clarity and simplicity for your business and personal life to help you enjoy your life.

Create a business culture to help hire the right employees, develop middle management for your future transition, and free up more time for you.

Uncover opportunities in creating wealth in your business with tax efficiency through your cash flow while protecting and growing your financial future.

Develop a solid transition plan to maximize the value of your business for your future financial security while creating wealth outside your business!

Learn the secrets of developing your GWT Business Plan by requesting my FREE E-BOOK. I am offering a limited amount of copies for distribution over the next fee days! Take control of your future and go down the path the will give you CLARITY AND SIMPLICITY ALONG WITH GREAT SUCCESS!

REQUEST YOUR FREE COPY of my published book, “Unlocking Your Business DNA”, and learn the benefits of having a GWT PLAN! ORDER NOW- distributing a limited number of E-Books.

Click Here to get your Free DOWNLOAD E-BOOK

The Benefits Of Keeping Your Key Person And Key Group!

December 28, 2022 by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Company Wealth, evaluations, Executive Benefits, Income from your business, Inside Sale, Key People_Or Group, Life Insurance Types, Strategies of growing business, Tax Free Income

Recently, I wrote an article about the “Quintessential Employee” and covered all the benefits of having a key person in your company.

The Education of the Quintessential Employee!

Some of the attributes of the key person are:

Creates more business value by freeing owners to focus on other profitable tasks
Purchasers of a business want to have middle management in place
Builds reputation and culture
Key people tend to impress other employees as a good example

Key people, as described, are also likely future purchasers of the business, or
Likely to run the business while the owner enjoys life, but still has the control and wealth

For the full article, download The Benefits Of Keeping Your Key Person And Key Group

Enjoy the download of the full article. The link in the article will download immediately the option of receiving the report.

Download The Article

Estate Planning Chaos for the Business Owners

November 25, 2022 by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Company Wealth, Estate Planning, Executive Benefits, Income from your business, Inside Sale, Key People_Or Group, Life Insurance Types, retirement, Selling Your Business, Strategies of growing business, Tax Efficient

Why do some Business Owners have higher costs than others when…

– They settle their estates…

– They retire…

– They transfer their business….

Let’s call the above items, “triggers”

Over the years I have had the experience of seeing the end results of the estate settlement process for many business owners. In many cases the results were not pretty because of the excess settlement costs. From my own experiences and case studies with associates, I have come to the realization that some business owners have higher estate transfer costs than other business owners. The interesting thing is the excess costs can be controlled by the estate owner.

Business owners usually have more value in their estates because of business values and settling the estate can be usually more complex. But as mentioned, in my opinion, there are controllable aspects of the costs and ways to mitigate these costs.

Estate transfers Cost: Three major reasons for higher costs!

No planning: This includes not having any plan, or not updating any earlier planning. Their estates are complex, and they need more than surface planning when their situation calls for more complex planning to carry out their goals. This takes more time and money. Without it they pay a price in estate settlement because they designed the wrong plan or have no plan at all.

No time: In many cases, there isn’t any time to make changes. It is too late! All the changes should have been made in advance. Therefore, working on their business and estates yearly is a major benefit as opposed to waiting until it’s “too late”.

Owners don’t spend enough time asking the “what if’s” of their situations. Every year many changes come out of Washington that affect business and estate planning. Being unaware of these changes makes them vulnerable to excessive estate settlement costs . In many cases the business owner loses by default.

No liquidity: Settling the estate takes money. In many cases, most of the wealth is in the business and other personal hard assets which are difficult to turn into cash within a o brief period.

§ Even if they could be liquidated, they either run the risk of losing value, or causing major tax issues . Consequently, the estate is open until the taxes are paid and dissolution of assets is completed, causing major costs. Wealth gets stuck in business and its value is at the mercy of the market and other economic factors.

§ To prevent the lack of liquidity, we suggest that business owners use the business cash flow to create executive compensation plans with tax-free death benefits, and tax-free withdrawals. By doing this they create liquidity. When an estate owner dies, there is a guarantee that a tax-free death benefit will create the liquidity needed. Funded by the company cash flow .

Succession of the Business

No planning within the business for successor management. No building of a key group or key person to learn the business as an owner. Consequently , when the time for transition is near, there aren’t many options. This affects the “most potential value” of the business. The time to start planning transition of the business is when you start your business or buy a business! The key group is also the group that starts to define the culture of the business, making it easier to attract talented employees.

No systematizing of the business- the owner has not taken the time to prepare systems. Everything is in their heads, literally. There are no written down notes, no manuals or guides to pass on the instructions to others. “In simpler terms, the boss must be around for things to get done.” This limits the future ability to sell the business. Purchasers are looking to buy a business that has growth potential. Nor do purchasers in most cases want to invest in a company that has to restructure its operations. A purchaser is not likely to invest in a company where systems are not in place, and which are not transferable.

No development of “value drivers” to create growth and culture. Consequently, there is no culture, systems, and no middle management to take on responsibilities or a group to transfer the business to as mentioned above. This is a major issue with companies. A true test is asking the business owner if they can take 30 or more days off a year. If not, I tell them they have a job, but not a business. The owner of the business has not let go of the control they have of the business. It’s the business that controls the owner.

Retirement Planning and Why the Wrong Type Causes Chaos!

The wrong type of retirement plan- although qualified plans like 401k’s or profit-sharing plans are good for rank and file. They are not always the best retirement vehicle for high income business owners for a few reasons. Qualified plans are riddled with rules that business owners don’t need in their life. Qualified plans are needed in the company to attract employees, so in many cases, they are a particularly good method of attracting employees. However, for the business owner, Executive Compensation plans are more useful. Here are why qualified plans can be a thorn in the side of the high earning business owner:

No discretion as to who gets what amount in the plan-meaning the owner doesn’t get 100% of the distributed amount.
Who is to be in the plan- The owner can’t discriminate as to who should take part in the plan
No use of money 59 1/2 without penalty- Business owners are always looking for cash to support their businesses. The inability to withdraw funds from their retirement account is problematic when funds are needed
Age 72 RMD forcing high income owners to pay more taxes- business owners usually have other assets to rely on for income. It could be passive income from rents, income from the business and income from investments.
IRS in your life – Qualified plans need to file with IRS. However, if business owners used executive compensation plans, this is something they could avoid.

Many business owners can use executive compensation programs to develop wealth outside of their businesses and get great tax efficiency. For example, using a “Corporate Equity Executive Plan” will allow the owner of a company to use the company cash flow, pay 10% of the tax they would pay under a pension plan, and create a tax-free family bank. The family bank allows the owner to use the money, tax-free, any way they wish. Also, they are not forced to take the money out when they are retired.

For more information about business planning, I am offering YOU A FREE copy of my eBook, “Unlocking Your Business DNA” FREE Business guide which will help you understand some of the planning concepts used in retirement planning, business succession and estate planning. CLICK HERE for your free download. Your book will be downloaded automatically.

If any problems with your download please email me; tperrone@necgginc.com

“The Story of Retirement for The Business Owner”

Featured by YOUR BUSINESS WORTH, posted in Company Wealth, Executive Benefits, Income from your business, Life Insurance Types, retirement, Strategies of growing business, Tax Efficient, Tax Free Income

It is quite common for an employer to think in terms of a qualified retirement program when they think of retirement. The benefits of having a company plan would be tax-deductibility, tax deferred, an employee benefit to help attract employees, and a host of other reasons to have one. Most companies should have a long-term retirement plan for their employees. Most accountants will normally jump on this idea because it is another tax deduction.

However, what is rarely discussed are the benefits that the owner of the company receives from the qualified retirement plan! In most cases, the qualified retirement Plan will not be the best choice for the owner of the company, for various reasons.

Here are a few disadvantages for the high-income business owner:

No control of deposit amounts

Limited contributions

Government controlled IRS FILING

Administration costs- actuarial costs, filing, accounting

Employer is the fiduciary is having responsibility and accountability to the plan (what happens when the employee loses money in the market?)

After-tax cost and non-recovery of the net outlay for the company

The percentage of payout for the employer is usually a much smaller percentage compared to the employees when they retire, so the employer owner is being discriminated against

The withdrawal is 100% taxable on all the funds

Tax exposure and penalty for using the funds before 59 ½.

Forced distribution RMD

For the employee, having a 401k and/or profit-sharing plan is a great deal. They could have matched contribution’s ability also. It is probably one of the best ways for people to save for their retirement.
The business owner or highly paid executive has the problem of creating enough capital for retirement so it can produce enough income to narrow the gap between their final pay and retirement needs. In most cases, because of the limits imposed on qualified plans and the taxability of the withdrawals, the qualified plan will not be the answer.
High Earning Business Owners – it’s a different story!
However, for the high earning employer, this is not a great deal compared to other executive compensation plans the employer could be. implemented for them. There are several major pension destroyers for the employer when comparing retirement plans vs executive compensation plans.
Disadvantages of a qualified retirement plan to the “high earning business owner”, compared to using a CEEP!

Limited contribution amount

100% of withdrawal taxable at retirement – With a CEEP you control the contribution amount

Pre 59 1/2 with penalty.

Funds in a qualified contribution plan would be very hard to extract (hardship clauses)

Bottom line, when the employer needs funds to build inventory, buy equipment, payroll, retirement funds are not a source, however, in a private executive compensation plan, they would be.

With a CEEP you have access to funds without a penalty

Death benefit; limited to accumulated fund, and taxable in a pension.

With an executive compensation plan like the CEEP, the death benefits are tax-free and large

CEEP would have a large tax-free death benefit to finish the retirement that wasn’t even started, and the benefit would be tax-free

Deductible:

Contribution plans are tax deductible as the contributions are made, consequently showing a charge to earnings in the year of contribution.

CEEPs are balance sheet friendly as a receivable asset with interest.

CEEPs can be cost recoverable for the company, while retirement contributions are not. The qualified pension contributions are normally tax-deductible when made, but not recoverable for the company.

With a qualified plan, you are forced to take RMD (Required minimum distributions)

With CEEP, you are not. CEEPS distributions are tax-free.

Table below: A qualified contributory plan doesn’t do the job when the owner of a company has an interest in growing wealth through their business. As mentioned, the contribution must be shared with the other employees, and there are rules as to the maximum contribution which high earners can make. In this case, the owner only could put the $30,000 in their account. With the CEEP Executive Compensation plan, the full $50,000 could be deposited into the account of the owner of the company!

Plan	Contribution	Future Value 66	Gross 15 payout	Taxes YRLY	Net Income
Qualified	30,000	893,351	80,348	24,104	56,244
CEEP	50,000	1,863,708	165,099	0	165,099

Many advisors including accountants, lawyers, and financial professionals are not aware of some of the great programs that can be designed using executive compensation. The CEEP program (Corporate Executive Equity Plan) is a flexible design built around the tax code.

Here is a chart comparing a Profit-Sharing Plan/401k and a specially designed CEEP Executive Compensation Plan.

ITEM	PROFIT SHARING 401K	CEEP
Tax deductible	Yes	Yes, optional
Tax deferred growth	Yes	Yes
Government Controlled	Yes	No
Selective as to Participants	No	Yes
Pre 59 1/2 availability	No	Yes
Tax Free withdrawal	No	Yes
Death Benefit	Only current accumulated value of account, taxable	Immediate substantial tax-free benefit
Required Minimum Distribution	Yes	No

Bottom line:

Contributory plans like 401k’s, SEPS, simple plans and IRA are wonderful plans for employees to save money for their retirement. However, given the above list of restrictions for employers, they are not effective for high income business owners in my opinion.

Note: I used 30% marginal bracket. Over a 15-year payout, the pension would have a $361,560 tax liability, while the CEEP was tax free.

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Someday You Will Leave Your Business By Retirement, Death, Disability Or Drop Dead At Your Desk! Do You Have A Method Of Taking Your Business Equity With You In A Tax Efficient Way?

Featured by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Buy and Sell Agreements, Company Wealth, Estate Planning, evaluations, Income from your business, Selling Your Business, Strategies of growing business, Tax Efficient, Valuation, Value drivers

There are millions of small businesses in the United States, and many of them have something in common, and that is that they do not have a succession plan.

I have heard figures like 80% or higher do not have a succession plan. Over 50% of the companies that have a succession plan, have either outdated plans, or incomplete plans.

Why is this an over whelming problem with small business owners? Why would a business owner not want to make sure their “lifetime of effort” isn’t lost because of a lack of planning?

SCENARIO: Someday all business owners will leave their business, either by retirement, death, disability, or just drop dead at their desks.

There will be a great loss in the value of the company because of this lack of planning, and consequently, the owner or the family will not receive the true potential value of the business.

While I cannot explain why business owners do not do their planning, I can tell you some of the reasons the business owners and their family will not get the true value of their company when one of the three triggers occurs (retirement, death, and disability) They would be:

Lack of planning -. They do not implement systems such as value drivers’ systems, next middle management, systematizing procedures, and others business building procedures. These are the elements that create the future value which a purchaser looks for when buying a business.

The lack of planning also includes the failure to develop a middle management which could take over most of the tasks of the owner. By not creating a middle management, it leaves the owner as the indispensable person, the essential person in the firm. This is a dangerous position for the future of the company. It may be the greatest threat to the future value of the business. Like anything else, when you lose the essential indispensable part of a machine, the machine will not work. This is the same for the company when the owner is the “essential and indispensable” employee.

Time- Most systems need time to develop and cultivate when building a business. Processes and systems need years to mature and create the potential value of the company. Consequently, when the owner gets near retirement with no more road left to plan, it is too late. Selling the business at the most potential value is not attainable.

No liquidity: Many business owners put too much of their wealth in the business, such as inventory, machinery, receivables, and benefits, to name a few. They do not make the adjustment to using business cash flow to create wealth outside of the business, like pension plans, executive compensation plans, and other value building programs. Consequently, when capital is needed, it is hard to raise it, and is not readily available to the owner when needed the most.

When business owners, decide they want to retire, and leave their business, they find themselves in a conflicted position. Because they did not take the time to plan, they have run out of time, and they will not yield the value they would have normally received if they had done planning over the years.

The only options they may have:

Sell at a reduced price

Stay in the business until they find a buyer willing to buy at this price
Continue in the business to fund their “retirement years”

The bottom line is to start your planning early. My suggestion would be on the day you buy or start your business, start implementing a transition plan, as most of the transition planning requires an extended period in order to implement.

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Unknown Ways You “Shipwreck” Your Business!

Featured by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Estate Planning, Strategies of growing business, Value drivers, Working On Your Business

This blog post is for the business owners who want to make sure their planning is solid and won’t shipwreck their businesses, estates, and legacy. However, because of past experiences dealing with some professionals, their planning is incomplete, and they have put their financial planning on hold. In summary, they are motivated to make sure they have good plans but are frustrated with the system of getting their planning efficiently completed.

Throughout my career I have often wondered why business owners put things off that should not be delayed, as the price of doing nothing can be very costly. Ask any attorney how many unsigned wills they have in their file cabinets and watch them roll their eyes.

I have concluded owners end up with incomplete plans because of the way some professional advisors work with the business owners ^[1].

Advisors have their own agenda and put the business owner’s aside.
Advisors don’t work together to share knowledge about the business owner to maximize the effectiveness of the planning.
They protect their territory and don’t share information.
They make planning more complicated than it needs to be.
They are not good listeners.
They tell the business owner, as opposed to asking, them what they want.
Brevity- Business owners really like to get things done. Advisors in many cases are not efficient time managers when it comes to presenting ideas to business owners.
Many advisors come to meetings without preparation and wing it.
In some cases, business owners don’t trust their advisors.
Some advisors are not open to educating themselves in other planning areas, and neglect bringing in a specialist for the purpose of protecting their planning turf. Consequently, the business owner never gets exposed to the planning that needs to be done.

Keep in mind that most business owners have many opportunities to plan, however, they are frustrated from their past experiences and give up, never getting their plans completed.

Communication with the business owner

Business owners are busy people. To get their attention requires communication skills.

Business owners are looking for someone they can trust to get these things done. Someone they can rely on, and someone who will take the time to really understand what it is that they want and need to do in their planning.

Your Ears

You have two ears and one mouth. Get it? By asking poignant questions and listening, you can learn much about the business owner. Let me show you by an example. Recently I was referred to, and helped, a business owner named Bill. Bill was frustrated that he hadn’t done particularly good planning .

Our first conversation was about estate planning. I asked him, “up to now, what has been the extent of your estate planning”? He said he had a will but did it many years ago.

I asked him if he knew who Doris Day was, and told him a story of when Doris Days’ husband died (he was her manager and took care of every detail in her life), she found herself in a huge dilemma. You see, she never bothered to know anything about her business arrangements. She avoided the business part of her life. She left it up to her husband 100%. He died in his 40’s of a heart attack. Because she did not have any knowledge of the personal estate and business estate arrangements, she ended up owing a fortune to the IRS in income and estate taxes.

Bill, “I am sure the last thing you want to happen is to have your wife end up being like Doris Day.” He agreed.

“How much do you discuss estate planning with your spouse?” Followed by the question “Do you have an estate equalization plan for your children”? Our discussion lasted over an hour, while I asked questions and took notes.

How many business owners do you know who died at the right time? In other words, they die when they start things (new loans for expansion), or in the middle of things like expanding key groups in the business, but they never seem to die after they finished something.

They never die at a good time, and because of that, they normally have chaos in their estates, causing hardship during the estate settlement phase, costing much more to settle their estates .

My question to Bill was, “Someday you will leave your business by death, disability, or retirement”. What plans have you made to take your equity of your business with you in a favorable manner”?

You see most business owners haven’t planned for this transition. When the time comes to retire, they can’t get their money out of the business, they don’t have any updated plans, and they have no time to adjust. Consequently, their “Lifetime of effort” is stuck in the business. If they tried to sell it, they wouldn’t get the true potential value from the business, because of a lack of planning. Normally they want out and end up selling at a discount. They don’t have time to create a better value because they have run out of time. They haven’t done the necessary planning to build systems in the business to increase market value.

The business poured out the gravy!

By the time they want to retire, they have been used to a nice lifestyle, supported by the business. This may include the social club, lunches, luxury vacations, entertainment, and in other areas of their life.

Because they can’t get the value they need out of the business, they are forced to stay in the business and hope it can continue being profitable, even though the business owner doesn’t have the heart to run hard any longer. In most cases, the business owner is trapped in their own creation. ^[1]

Building value in your business takes a long time to create the systems and strategies to maximize the fullest potential value. Unless the business owner takes the time to discuss this with advisors, implement value drivers and systems needed; they will never realize the greatest value of their business.

As Bill and I talked, he realized the story of his business and future needed to change.

My story is really about business owners that pour a “lifetime of effort” in their business but don’t put the necessary time and consideration in how to get their “lifetime of effort” out of the business when they or their family need it the most.

The business poured out the gravy!

As Bill and I talked, he realized the story of his business and future needed to change.

The Indispensable Owner

The problem was that nobody else knew what Bill knew. Nobody would know what to do if something happened to Bill. He was an indispensable owner and an essential employee. He knew the clients, vendors, bankers, advisors, and the key people he needed to know to run his business.

I told him that when a motor loses its “indispensable and essential part”, the motor will not run any longer. I told him when he dies, retires, becomes ill, and leaves his business, the “indispensable part” will destroy his “lifetime of effort”.

That resonated with Bill. We are now working on building a middle management and putting together an estate plan and a succession plan.

MESSAGE TO PROFESSIONALS:

When dealing with business owners keep in mind that they are focused. They don’t like complexity, and they want to completely understand everything before they make any decisions on issues. Listen to them and ask them questions.

To Business Owners

Business owners make a big mistake by not putting in the effort and being aware of the other parts of their business. They don’t need to learn it, but they need to be aware of it. By not being aware of certain parts of business planning, they end up in a financial chaos situation.

The solution is to have discussions with your advisors regularly about the different areas of your business that you are not involved in. Such as; succession planning, estate planning, keeping your key group, executive compensation plans. These are areas that need to be reviewed and considered. Without them you will “shipwreck” your family legacy or create missed opportunities.

In my practice I have set up a bi-monthly sessions to cover issues and topics for our business owners. This keeps them up to date and gives them a resource to address other issues.

^[1] If he sold his business, paid all the taxes and fees (which would reduce his net value by about 40-50%), and then took that value and invested it at 3-4% (to avoid taking risks), his return would probably be much less than the perks and income he was taking from the business. And that is what provided his lifestyle.

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^[1] Professional financial advisors (anyone who is giving financial advice to business owners)

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https://podcasts.apple.com/us/podcast/building-and-protecting-your-business-worth/id1539791693

The Costly KNEE JERK FINANCIAL SUGGESTION!

Featured by YOUR BUSINESS WORTH, posted in Business Growth and Transition, Company Wealth, Estate Planning, Executive Benefits, Income from your business, Life Insurance Types, Passive Ownership, Tax Efficient, Tax Free Income, Uncategorized

Over the years, I have been asked by business owners how they can use their company to create more tax deductions and to build retirement funds for themselves. When you put tax deductions and retirement funds in the same sentence, it suggests the vanilla response, of a pension plan of some type or a contributory retirement plan, like a profit-sharing plan, or a 401k.

However, is that what a business owner is really asking? Or, do they mean, they would like to build retirement funds through the business and assume they can get tax deductions? Or do both elements co-exist in the plan that they are thinking of? I think most advisors would suggest a 401k plan, a cash balance plan, a simple plan, or a profit-sharing plan for example.

This is what I call the costly, KNEE JERK REACTION. When asked by a business owner, about retirement plans, I have learned to slow it down and ask the business owner to clarify exactly what they are trying to accomplish, rather than rattle off a KNEE JERK response, such as a “profit sharing plan, or 401k plan”.

Questions like:

– Do you want to include everyone in the plan?

– Do you only want to favor yourself and family?

– Are you trying to give a benefit to a specific employee?

Do you want all the contributions to end up in your account, or are you willing to share with other employees? If so, how many and who?

If the employer/employee is trying to stockpile contributions to their account, they will have limitations with money purchase plans (limitations on contributions for 2022 of $58,000.) This makes it hard to deposit substantial amounts of money into the employer’s individual account, since they must include everyone.

Based on the response, this will determine how I design the plan. If he wants to spread the dollar among the group, you are talking about a qualified retirement plan. On the other hand, if they want limitations as to who can be involved, they are speaking about a non-qualified executive compensation plan.

In this model, I compared two scenarios so my client would have an idea of the difference in absolute dollars. I based the model on conservative values and returns, staying consistent with both types of plans . I am comparing a CEEP to a Hypothetical Pension plan (money purchase plan). ^[i]

As you can see in the chart below, based on the same parameters for each plan, the CEEP program created much more retirement benefits for the owner than a qualified retirement plan.

The owner participant received a much higher payout (tax-free), than the pension plan. In addition, if the owner died, from day one, the CEEP plan would pay a substantial tax-free amount to the family, while the qualified plan would only pay what was in the account which would be taxable to the beneficiary. The CEEP death benefit would be 100% tax free and would not be required to be withdrawn at death, or older ages like a pension or IRA plan would.

Once you compare a CEEP to the Pension plan, you can then see why defining exactly what the owner wants to accomplish is important as both plans offer different benefits and different tax scenarios .

KNEE JERK advice happens more than you think! And when it does, it can cost your client a lot of money, NOT to mention your reputation as an advisor.

In this case, the “Knee Jerk” suggestion to use a pension plan to solve the problem, shortchanged the business owner from having greater benefits for the future when compared to the suggested pension plan.

^[i] In this scenario, the owner could only put in $30,000 of contribution out of the $50,000. Based on a five many company and different salary ranges.

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