Business Strategies

Apple’s New Launch of a High-Yield Savings Account and What it could mean for You!

Have you heard that Apple recently launched a new high-yield savings account? This type of account is a great way to earn higher interest on your savings because let’s face it,
we all need a savings account to have liquid cash readily available exactly when we need it.


Hi, I’m Olivia Kirk and I’m Tim York. We’re from Tier 1 Capital, and we’re here to show you how to regain control of your money. For the best advice on controlling your cash flow, be sure to subscribe to our channel. And don’t forget to hit that bell to be notified when we upload new videos twice every single week.


So Apple recently announced a new high-yield savings account that currently is crediting 4.15% APY. This is very competitive, especially compared to other high-yield savings accounts. And you may be wondering, “What even is a high-yield savings account and how could I leverage it? My bank is paying me point nothing on my savings and they’re charging me fees every once in a while.” Well, a high-yield savings account is a type of savings account that has some restrictions. For example, they may say, “You could only withdraw a certain amount of money or a certain number of transactions each and every single month. But in return, you’ll earn a higher rate of return on your savings.” So, this is a great tool to leverage if you’re saving in a savings account and need access to money within the very short term (you might as well be earning a higher interest if you’re saving anyway).

But how does this compare to a specially designed whole life insurance policy designed for cash accumulation? One key difference between a high-yield savings account and a specially designed life
insurance policy, in the beginning, you will definitely have more cash available in the high-yield savings account than you will in the life insurance policy and that is something you must take into consideration when choosing between the two accounts. However, it’s not necessary to choose between the accounts. It can be an “and” situation. For example, I save up for my annual premiums within a high-yield savings account. You see what the whole life insurance policy if I pay on a monthly basis, the insurance company charges me a fee. However, if I save within this high-yield savings account I’m able to earn a little bit of interest as I accumulate the funds and save on the fees when I’m contributing it to the life insurance company.

Leave us a comment down below. How are you utilizing a high-yield savings account and are you using it in conjunction with the whole life insurance policy designed for cash accumulation?

We always say that every strategy you employ from a financial position has a ripple effect on everything else you’re able to do based on that choice. The decision that Olivia made to save in a high-yield savings account, to pay her annual premiums on her life insurance policy, not only gave her a higher interest rate on her cash, but also, saved on the premium that she paid the insurance company. And another thing to consider is that I have access to the money everywhere along the way. When it’s in the savings account, I’m able to access that money if I need to. And once I contribute it to my policy, I have liquidity, use, and control of that money to use as I see fit.

And keep this in mind, there are many tax benefits of having the money in the life insurance policy that you don’t get with a high-yield savings account. So, even though I’m earning a reasonable rate of return within that high-yield savings account, all of the interest I earn is taxable as income at the end of the tax year. However, once I contribute the money to the policy and pay that premium, and have it secure in my policy, that money is able to earn uninterrupted compound interest on a tax-deferred basis, which is a huge benefit. It’s taking money from forever taxable to never taxable.

Another key consideration to think about, is this interest rate and the high-yield savings account, whether it be an Apple or another high-yield savings account, is not guaranteed. You’ll notice that every month or so these interest rates have been fluctuating -going up or down or whatnot. It’s not locked in for any set amount of time. Once the money is put into the policy. I have contractual guarantees. These policies are actuarially designed to get better and better with time.

Then there’s the issue of safety. Is your money safer in a bank account or is your money safer with the life insurance company? And that brings us to the reserve requirements of financial institutions such as banks versus life insurance companies. I’m sure you’ve heard of fractional reserve lending, but what does it actually mean? You don’t know what fractional reserve lending is? Well, it’s really simple. It means that the bank only has to set aside a fraction of their liabilities to guarantee that you’ll get your money. Fractional reserve lending means that the bank only has to put away pennies to guarantee dollars. You see, they’re basing it on the idea that not everybody is going to want their money at the same time, and that works until it doesn’t. Conversely, an insurance company needs to have over a dollar of assets for every dollar of liability. Meaning if all of the claims were submitted for every single policy that the insurance company has, they would still have extra money left over. So, the issue of safety should be paramount in your decision to put money anywhere, whether it’s in a bank, in an Apple savings account, or in a life insurance policy.


If you’d like to learn more about specially designed whole life insurance policies designed for cash accumulation, check out our website at tier1capital.com to get started today. Thanks so much for being here. And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Incentivizing Key Employees

When you’re a small business owner, your people are key. But how do you keep your key people happy and keep them from going after a better offer from your competitor?

We recently came across a case where the business owner needed to retain his key employee. He came to us and he said, Hey guys, if I lose this guy, my business is going to fail because I could only go so far. I only have so much bandwidth. And so we need to come up with a way to make him want to stay. How do we incentivize this guy?

The loss of a key employee is devastating to any business, but for a small or medium sized business, it could literally mean life or death because that employee might be the only person in your geographical area who has the required skills and expertise to perform that duty.

For example, we recently had a business owner client whose key person, the plant manager, retired. His skill set was so wide and so vast and accumulated over many years, that it took three people to replace just that one employee.

On average, it could cost about 200% just to replace one key employee. Not to mention the lost time and the lost sales. So what’s the solution? How do we overcome people headhunting our key employees or them going off and looking for a better offer?

Good employees are hard to come across these days, and they’re even harder to keep in many cases. According to the U.S. Bureau of Economic Analysis, 48%, that’s almost one out of two of our employees, are either actively searching or open to the conversation of a new opportunity. That is troublesome if you’re a small business owner.

There are a few solutions that small business owners could take advantage of to incentivize key employees, but more importantly, recapture the cost of that incentivizing in the long run so that they’re not out a ton of money and they could take care of the key employee, their business, and their family.

We have seen several situations where the business put in incentivized campaigns to keep their key employees. The problem is, the employee didn’t recognize it as something that had teeth or something that would keep him from shopping his job.

So the first step when incentivizing key employees is to draw up documents that are going to protect you, as the business owner, and the employee, as the person who’s being incentivized. But also making sure that whatever plan you’re putting together is valued by the key employee. If it’s not, there’s no sense going down that path.

We recently worked with a business in Long Island, New York, and they had a key person that they wanted desperately to keep around. His job was in high demand, not only in their industry, but across the board. So the question became how can we design a plan that has such high value for this individual that he would never consider leaving that employer?

Well, we sat down with the employee and asked him what his biggest financial challenges were, and he indicated to us that he had two children that he needed to send to college. One was eight. The other one was six. He needed to make sure that he can provide them with the best education possible in his eyes, a private school, so that it would not have a significant impact on his overall finances.

So we worked with the employer to design a plan that would provide the employee with bonuses when his children were ready to go to college. And by doing that, that literally tied the employee in. But here’s the kicker. When we presented the plan to the employee, he was in tears with joy, knowing that his employer cared enough for him that he would take care of his children and send them to college.

However, when we met with the employer, we made sure that they knew that they’d be able to recapture the cost of that plan in the long run so that the business wasn’t suffering just from keeping that key employee happy.

If you’re looking to get started with this type of planning, the first step as the employer is to come to us, identify your key employees and say, “Hey, I have this guy or gal and they’re great. I want to make sure they’re taken care of and they don’t leave me.”

The second step is to sit down with the key employee and find out what is most concerning, or what is most valued by that key employee. And then, it’s just putting together the resources that the employer is going to provide and the value or what’s valued by the key employee. But for the key employee, nothing changes. They continue to come to work, excel and provide and build your business.

And by the way, if that key employee chooses to leave before they receive the benefits, they don’t get the benefits. That’s all written into the plan. This planning could seem daunting or maybe complex. However, it’s important to keep it simple. Make sure the employer is happy and the key employee is incentivized.

If you’d like to get started with this type of planning, visit our website at Tier1Capital.com to schedule your Free Strategy Session today.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Navigating the Great Resignation

Americans are quitting their jobs in record numbers, it’s called the Great Resignation. Over the past two and a half years, over 47 million people have voluntarily left the workforce. If you’re a business owner, this could be bad news.

On average, it could cost up to 200% of that employee’s salary to replace them with a new employee. Seeing these statistics can be troubling for a business owner. However, there are some ways  to help you take advantage of the great resignation so you could be in a position of control and not a position of victimization.

According to the Society for Human Resource Management, a loss of a key employee can have particularly damaging effects for small businesses. And here’s why.

The first reason is because that key employee may be the only person in your entire area who has the skill set to perform that job. Not only that, but a lot of times in a small business, they’re the only person who has that particular skill set and knowledge. Meaning the business owner may have trained them, but that key employee may have gone on and learned other things by themselves to help progress. They take things to the next level and that’s why it’s so important to retain them.

The second point is that the loss of a key employee also damages the culture and morale of the remaining employees. For example, if Bob was a really good performer and really moving the company along and Sally sees that, she may think the business isn’t going to continue to grow and prosper because Bob had so much to do with the success of the entire business.

The third reason is because there’s a smaller pool of internal employees who can perform the tasks and the duties of the lost key person.

The fourth reason is because a small business might have less resources, cash, cashflow and contacts that can be used to replace the lost key employee.

Let’s face it, employee departures cost companies time, money and other resources that many small businesses simply don’t have. With talent scarcity on the horizon, it’s going to be harder than ever for small businesses to retain that key talent within their business.

So that’s why it’s important to plan for the future, to protect those key employees and to reward them for their hard work and what they bring to your business. But there must be a delicate balance between taking care of your key employee and not giving away equity in your business.

So what are the possible solutions?

Well, one may be setting up a special retirement plan for that key employee to make sure that they’re taken care of in the future, something comparable that they might get from a larger company. But within your company’s budget. But again, let’s face it, there’s only so much cash flow to go around. How can you take care of the business, take care of your key employee, and also take care of your cash flow?

That’s where we come in. We’ve developed a process that looks at cash flow and makes it as efficient as possible. You have the same amount of cash coming in every single month. However, it’s not how much money you make, it’s how much money you keep that really matters. It’s not the products you buy with the money. It’s how you make those purchases.

How can you make your cash flow more efficient so you’re able to get $1 to perform multiple jobs? The dollar to protect the business owner, to build the company and also to retain this key employee. Getting $1 to do multiple jobs increases your efficiency. It increases your availability or accessibility to cash and also puts you in a position to weather any storms going forward.

We specialize in helping small businesses find the money to reward their key employees without sacrificing the business owners or the business’s livelihood.

You see, the money is literally hiding in plain sight. We show you how to unlock that cash flow or that cash and put you in control of it instead of a bank, an investment firm or the government.

If you’d like to learn more about this process, check out our website at Tier1Capital.com

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Planning for the Unexpected

When it comes to planning for the future, there are a lot of factors to consider. How do you know what’s going to happen from day to day? One day you could have it all and the next day you could be scrambling for cash flow.

Typically when you’re a business owner, the reason why you got into business in the first place was to control your own destiny. Take your fate out of someone else’s hands and to stop being dependent on them for income, and instead go off and make it on your own and be in control of your own destiny.

However, in life and certainly in business, we know that we could plan for the future, but it doesn’t always happen the way we think it might happen. There’s an old saying: man plans and God laughs. The point is you need to build flexibility into your finances.

A lot of times in the beginning stages of business. It’s important to reinvest all your profits back into the business to get the ball rolling so the business will be able to take care of you. However, as your business ages and matures, it’s important to build flexibility into your plan and plan for life’s uncertainty. A lot of times in business there’s cyclical or chronic cashflow issues that need to be addressed.

Think of it as a three legged stool. The first leg is to make sure there’s enough cash to operate the business. The second leg is to make sure there’s enough cash to grow the business, and the third leg is to make sure there’s enough cash for you and your family, both now and in the future.

Now, if you could picture a three legged stool, you need all three legs or else you’re going to fall over. And what we have found in most business is they’re so focused on pouring all their profits back into the business, to run the business and to grow the business, they don’t take enough time to take care of themselves and their family, both now and in the future.

Think about it. What’s the point of pouring your blood, sweat and tears into the business if you don’t get to also enjoy life and provide for your family? This is why it’s important to plan for the flexibility, not only within your business, but also within your family finances.

That’s why we always build flexibility and access to cash for our business owner clients, both in the business and outside the business. So they’re able to take care of emergencies and also take advantage of opportunities, whether personal or business.

Think about it. What would happen if a piece of equipment went down, or your hot water heater went at home, or your child’s college tuition was twice as much as you expected it to be?

All of these aspects would pinch your cash flow further and could leave you feeling stuck. And the best way to make sure that there’s enough cash available both in your business and outside, is to make your money more efficient. Get one dollar to do multiple jobs, and by doing that, that positions you to take advantage of opportunities and to work through emergencies because you have access to cash.

The key is not to save in buckets. Don’t put a bucket on the side for retirement, for college, for building your business. All of your dollars need to be accessible so they’re available when you need them. Availability, without penalty and without major tax consequences, so you’re able to adapt and grow within your life.

And that’s the flexibility that we automatically build into the plans that we designed for our clients, making sure that their major needs are taken care of, but also that the plan is flexible and they have access to cash.

If you’d like to learn more about exactly how we put this process to work for our clients and how to build flexibility within your financial plan, visit our website at Tier1Capital.com.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Leveraging the Cash Value of Your Life Insurance Policy

So you’re a business owner, and you have a whole life insurance policy, and you want to leverage the life insurance cash value to make an investment in your business. But what happens when you want to infuse some of that wealth into a business expansion, into operations, or into a business opportunity?

Let’s assume that I own an insurance policy, and I want to take a loan for my business. The first step will be for me to request a loan from the insurance company. The insurance company will send me a check or direct deposit into my bank account, and then I could make a separate loan to my business.

With that, we’ll have a promissory note drafted up between the business and myself laying out the terms of the agreement. It’ll include the payment amount, the interest rates, and the amortization of the loan. Additionally, there’ll be an amortization schedule that’ll lay out the principal and interest payments of this loan between me and my business.

You see, it’s important to make sure that you’re following the amortization schedule because the business is going to want to deduct the interest that it pays to the loan provider (myself), for the loan that I made to my business. So the business wants to get that deduction.

But now, I have to claim that same amount of interest as interest income, and now I have to file that on my tax return as interest income. Any accountant can help with that because they’ll have the amortization schedule and hypothetically, they’ll be handling both my business and my personal tax returns.

So continuing with the logistics, every month, my business will pay me the set amount from our promissory note, and I will repay my policy loan.

You see a very key step is making sure that I make the payment back to my policy. Why? Well, number one, I wants to reduce the amount of interest I pay to the insurance company. But number two, I wants to make sure that I have money in the policy for the next opportunity, or the next emergency, or the next expansion of my business.

You see, there’s a second layer here. With the life insurance policy I’m paying premiums, and after I took the loan, I’m also infusing cash back into the policy via these loan repayments. So it’s like I have two hoses filling up the same bucket. Because I’m filling up this bucket from two hoses, the premium and the loan repayment, it’s going to get more and more efficient each and every single year. I’ll have access to more and more cash with each passing year, and that will help to take advantage of bigger opportunities down the road.

You see, the goal is to control the entire financing function in my life so I could control the financing for myself, things that I want as well as for my business. And when we talk about making sure that you’re in control or regaining control of your cash, we’re talking about your cash. We’re talking about your cash flow. And we’re talking about your future.

If you understand this concept, it’ll be easy for you to create, cultivate and keep your wealth.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.

Building an Efficient Warehouse of Wealth

Cash flow is the lifeblood of any business, and having access to cash is kind of like the lungs. If you’re a business owner, you know this and you know it all too well. When you don’t have access to cash or cash flow, it feels like you’re suffocating.

So the question is, as a business owner, how do you position yourself so you have the lifeblood and the lungs of your business working together all the time.

Recently, Intuit did a survey of business owners all over the world, and they found that 61% of all businesses struggle with cash flow and 69% of business owners admitted to losing sleep or sleeping less due to cash concerns.

Some businesses are seasonal and their cash flow operates on a cyclical basis. Some quarters they have cash. Other quarters they’re a little light on cash.

On the other hand, some companies have chronic cash flow issues. It seems like they’re always playing catch up or they never have enough cash to take care of either running their business or growing their business. Either way, it could feel like you’re always putting out cash flow fires. It could feel like your business is suffocating and that could be very stressful. It all comes from cash flow not being as efficient as possible.

Over the past 37 years, I’ve worked with small business owners. I’ve worked with families. One thing I’ve determined is that their cash flow issues don’t have to be. It all stems from an inefficient way of utilizing their cash and their cash flow.

You see, it’s not how much money you make, it’s how much money you keep that really matters. What are you doing to maintain wealth within your business so that you’re off the debt cycle and you’re not dependent on external things in order to have smooth cash flow?

It all starts with building a warehouse for your wealth. So let’s talk about the qualities we want in this warehouse for our wealth.

Number one, we want tax advantages. We are business owners after all.

Number two, we want guaranteed access. We want to be in control of the cash and the cash flow going in and out of this warehouse.

Number three, we want a reasonable rate of return. We don’t need to hit a home run, but we want to make sure that our money is working for us 24/7.

You see, we believe there’s more opportunity in avoiding the losses, than picking the winners. Meaning that if you could make your cash flow more efficient and make this warehouse for your wealth as efficient as possible, you don’t need to hit it out of the park with investments. You’re able to maintain your wealth, keep it safe, keep it within your business, keep it within your family, and still accomplish your goals with guaranteed access to that money.

But what does that guaranteed access actually mean for you?

Well, it means that you could take back the financing function of your business. Imagine not having to be dependent on banks and creditors in order to make major purchases within your business.

Now imagine being able to restructure your current debts to build this warehouse of wealth, to finally be in control of your cash flow so you don’t have these chronic or cyclical cash flow dry spells.

But you see, the first step is creating that warehouse of wealth, because if you don’t have the warehouse, you don’t have a pool of money that you could access. Everything else is out the window. You no longer have control. You no longer have uninterrupted compounding of interest.

So let’s talk about the warehouse. What we talk about on our channel is a specially designed whole life insurance policy designed for cash accumulation, where you are able to store and warehouse your wealth, build up that cash over time, and leverage it in the future without interrupting the compounding of interest on your money.

You see, the money never actually leaves the life insurance policy. A lien is placed against the cash value and a separate loan is taken out from the insurance company. It’s a loan, so naturally there’s no tax to access that money through the loan. And you, as the business owner, get to decide the repayment terms.

What this translates to is a tool that you’re able to use as a business owner to function within your business to relieve the cash flow stress that 61% of you are facing,   and ultimately build a warehouse of wealth for your business and your family.

If you want to learn more about exactly how we put this to work for our clients, check out our free webinar, The Four Steps to Financial Freedom.

Remember, it’s not how much money you make. It’s how much money you keep that really matters.

How to Reach Your Financial Position A

When you’re starting off in business, your goals are certainly different than when you plan on exiting your business. But the question becomes how do you build within your business to get to your business Position A?

We define Position A as having enough cash outside of the business equal to the value of your business, so that your exit or your retirement is not dependent on your ability to sell the business.

Now, when you’re growing the business and you’re just starting off, it’s important to reinvest the profits back into the business so you could explode the business and grow so it could take care of you and your family.

But reinvesting your profits back into the business creates its own set of problems. According to the Bureau of Economic Analysis, 80 to 90% of a business owners wealth is tied up in the company and that makes their money inaccessible for things like repairing equipment, hiring new personnel, or growing the business.

However, as a business owner, we all have life hopefully outside of the business. You have a family, you have other goals. Maybe you want to send your kids to college, travel the world, retire one day. When all of your money is tied up within the business it makes these other goals very complicated.

And I would argue that the number one stressor that all of us face when it comes to money is not having access to it to do the things we want to do. According to a study by Intuit, 61% of business owners struggle with cash and 69% of business owners sleep less due to cash concerns.

Now, it’s one thing when you’re starting off your business to be stressed about money, but when your business is doing well, your business should be able to also take care of you. And it all comes down to how we’re using our money, how to get to position A so that you’re able to live your life now without financial stress and the health problems that come with stress, but also to know that your business is going to be able to take care of you throughout your entire life.

 

We recently had the good fortune of helping a client of ours who had been with us for 37 years retire. He had an offer on his business and it was an offer he literally could not refuse. But the great thing was he waited for the best offer. Why? Because he was in Position A. He had enough cash equal to, actually greater than, the value of his business so that his retirement was not predicated on his success of selling the business. His retirement was predicated on the success he had for the past 37 years.

When you’re not dependent on the outcome, you’re able to make clearer, better financial decisions. And the way to get to that position is by taking care of the business in the beginning, but also saving outside of the business so that you’re able to take care of yourself and your family and your financial future.

If you’d like to get to your Position A so that you have enough money saved outside of your business, as well as a thriving business, because too is better than one. Be sure to check out our website at Tier1Capital.com to schedule your free strategy session today.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

How Important is a Clearly Defined Succession Plan?

Being in business with your family could get tricky. For example, a recent study showed that two thirds of small business owners plan on passing their business down from one generation to the next. Yet, of those respondents, only 18% had a business succession plan that was clearly documented and communicated within the business.

There are two main reasons why business owners fail to plan for the future. The first is that they literally don’t think that they can afford to retire. 37% of respondents said that they didn’t think that they could afford to retire from their business. And we all know that cash flow is the lifeblood to any business. So it makes sense if you don’t have the cash flow to try to avoid it. But what if there was a way to find that cash flow within your current expenses to fund this planning?

If you’ve worked for the last 30 or 40 years, building your business, the last thing you want to do is strap the business with payments for retirement plan for you. But at the same time, you’ve put your blood, sweat and tears into this business for the last 30 or 40 years. You deserve to use that business for retirement. So it’s a double edged sword.

The second reason that business owners fail to plan for their succession is, they don’t want to let go. Statistically, business owners retire later than their employees and later than the average American. On average, a business owner retires at age 72 versus 66 for their employees and 64 for the average American.

If you think about it, it makes sense, though. A lot of times when people start a small business, the reason why or one of the main reasons why is because they want to be in control. They want to be in control of their own destiny and their livelihood. So the very thought of giving up control can cause stress and anxiety for the business owner who’s been in control for 30 or 40 years.

However, holding on for too long can have some negative side effects. When a business owner stays on too long, there are three negative effects. Number one, it can slow the growth of the company. Number two, it can limit your successors. People aren’t going to wait around forever before you decide to retire. Additionally, they’re not going to put their heart and soul into growing the business if it’s only helping you and not benefiting them. And third, it can literally bankrupt the business. And think of this. Business failures have increased by 226% over the past decade.

Our specialty is helping business owners plan a strategy to set them up for retirement success, as well as set the next generation up for success within the business. We do it in three steps. First, we show you how to regain control of your cash flow so that you can utilize that cash flow to help fund your exit strategy without taking away from the viability of the business.

Secondly, we can help you to incentivize key personnel to stay on, to help you to grow the business and fund your retirement without bankrupting the business. And more importantly, these plans could help incentivize key personnel to maintain their production, help grow the business, but also provide them with meaningful benefits to secure their financial future. And number three, we’ll help facilitate the difficult conversations that have to be made between family members and key people so that everybody’s on the same page and everybody’s pulling in the right direction.

The bottom line is this: with proper planning, business succession can go smoothly. It could take care of the founding generation and generations to come. If you take care of the business, the business will take care of you.

If you’d like to get started with this type of succession planning, check out our website at Tier1Capital.com to schedule your free strategy session.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

Are You Utilizing Your Cash Flow Properly?

 

In America, family businesses and small businesses are the backbone of our economy. 50% of all employees in America work in a small business. But small businesses don’t come with small challenges. Today, we’re going to talk about the cashflow implications of having a small business.

According to a recent study, 69% of business owners either lose sleep or have trouble sleeping because of their financial cash flow issues. And that was in 2019, before the pandemic.

Lack of sleep causes stress, and stress has been linked to chronic disease, stroke, heart attack, diabetes, depression, not to mention the stress that’s put on relationships by cashflow being pinched.

On top of this, small business owners are facing the twin challenges of high inflation and high interest rates. In essence, you’re paying more for your employees, you’re paying more for your supplies, and you’re paying more for your money. This is further pinching your cash flow and putting you at a very strong disadvantage.

The question becomes how do you make your cash flow more efficient so that there’s less stress within your entire business and your family? And the amazing thing is most business owners don’t even realize this, but they have the cash flow available. It’s just not being utilized properly, or they may be just looking at things the wrong way.

If you’d like a second perspective and see where we could help make your cash flow more efficient so that you’re able to relieve this financial stress. Check out our website at Tier1Capital.com to schedule your free strategy session today.

And remember, it’s not how much money you make. It’s how much money you keep that really matters.

The Importance of Building a Proper Succession Plan

In life, everything has a cost. There are the things that we see, but there are also the things that we don’t see. And unfortunately, the cost of the things we don’t see could be significantly greater than the cost of the things that we see.

When it comes to business succession planning, a lot of business owners tend to put it off. They don’t want to pay the cost of getting the planning put in place and funding the plan. But what they don’t see is the cost of that inaction.

 

When it comes to family businesses, there are a lot of dynamics involved. You have spouses, you have children that are involved in the business, you have children that aren’t involved in the business, and it could get a little sticky. So how do you smoothly transition and allow the next generation to step in, gain control of the business while you’re still there and ultimately at your death?

One thing we know for sure. Fair is not equal, and equal is not fair. What do we mean by that?

Let’s assume you have two children, one working in the business and one who is not working in the business. If you leave the business 50/50 to each of your children, that’s not fair to the child who’s working in the business. And ultimately, it’s not going to be fair to the child who’s not working in the business.

The child who’s working in the business wants to grow the business. The child who’s not working in the business wants to take income from the business. Those conflicting goals can cause a lot of strain on the relationship of your children, and it could also put a lot of stress on the business.

If I’m the child who’s working in the business and my sibling is getting half of the profits, what motivation do I have to build the business If I’m only getting half of what I deserve, what I’m earning, and what I’m working towards every single day?

Conversely, the child who’s not working in the business wants to take as much income out of the business as possible, stripping the business of its profits and its ability to reinvest and grow the business.

So how do we solve this issue? How do we make sure that the child who’s not in the business gets properly compensated from her parent’s estate and make sure that the child that’s in the business is able to grow and expand and really profit from what their parent has established for them.

And the answer is with properly documented and properly funded businesses succession planning. You see, business succession planning lays out exactly what you want to have happen at your death, disability or retirement to take care of the child that’s in the business as well as should properly fund the buyout of your other child who’s not involved in the business.

But the problem becomes how do you come up with the funding, the liquid cash to buy out the nonparticipating child? That’s where proper planning comes into play. And there are many ways that you could fund or reward the child who is not participating in the business.

Number one, you could pay cash. Keep it liquid. Take it out of the business. Buy out that child. Number two, you could finance. You could go to the bank finance a loan, and pay it back over time if you don’t have the cash. And the third way is to buy life insurance, insuring that first generation owner so that at their death, liquid cash comes out of the life insurance policy and allows us to buy out that other sibling.

By insuring the first generation owner. Nothing happens until that person dies. And the event that creates the problem, the distribution of the business or the value of the business is also the event that triggers the solution, life Insurance.

If you’re interested in learning more about how to put this process to work for your family business, check out our website at Tier1Capital.com and feel free to schedule your free strategy session today.

If you’d like to learn more about how we put this to work for business owners, check out our free guide for business owners.

And remember, it’s not how much money you make, it’s how much money you keep that really matters.