Whether you have a service business, distribution business or manufacturing business, your problem remains the same. It’s all about cash flow.
We all know that cash flow is the lifeblood of any business. When cash flow is good, it could feel like your business is doing great. On the other hand, when cash flow is bad, it could feel like your business is falling apart. Cash flow is bad when you have more outgo than inflow. So how do you manage the challenge of daily cash flow?
As a business owner, you know how important it is to use money and credit efficiently so that you can avoid cash flow problems and more importantly, avoid having to make hard choices.
Do you realize that over 74% of businesses either have chronic or cyclical cash flow problems? And this all comes from using cash flow to your detriment. This forces them to either reduce their overhead or increase revenue, increase sales in order to address the cash flow problem. In essence, it puts them in a situation where they have to choose between their business or their family. No business owner should have to make that choice.
Most business owners don’t realize that they have a choice to increase cash flow without increasing revenue and without having to reduce overhead. This is exactly why we’ve developed a process that focuses on how you’re using your money and how to make that cash flow more efficient so that you don’t have to choose between your family and your business. There are no hard choices.
A lot of times when people think about finances, they focus on the product or where their money is parked. But it’s not what you buy that really matters. It’s how you pay for it and how you’re using your cash flow.You see, what you buy is the equivalent of a golf club, but how you pay for it is the equivalent of the golf swing. And we think that you can improve your finances by focusing on how you’re using your money, just as you can improve your golf game by focusing more on how you swing the club and less on the actual club.
Our process focuses on the five major areas of wealth transfer that we all experience to help make your money more efficient. Those five areas include taxes, mortgages, how you’re funding your retirement, how you’re paying for your children’s college education, and how you’re making major capital purchases.
By focusing on these five areas, we’re able to show our clients how to regain control of their money so that they’re giving away less and less of their cash flow. And they’re able to save more and more to accomplish their financial goals. Focusing on these five areas translates into more cash flow for your business, which can be utilized to get you through times when revenue isn’t coming in as quickly as possible or times when overhead is a little higher than usual.
If you’re a business owner and looking to regain control of your finances and your cash flow so you’re able to achieve more of your financial goals, be sure to visit our website at Tier1Capital.com. Feel free to schedule your free strategy session today or if you’d like to learn more about how our process works for our clients, check out our webinar, The Four Steps to Financial Freedom.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
Are you a business owner who is insuring your PCs for more than your VPs? You see, there are three main reasons why you would want to insure your key employees.
First and foremost is the fact that they are the people who are adding to the growth and profitability of your business. Let me give you an example. About 25 years ago, I had a business owner client whose building burned to the ground. And it wasn’t till after the fire that he realized that his building, which was worth over $250,000, was only insured for $68,000.
Most business owners would have seen that as a problem. But he along with his key employees, kept the business going and profitable throughout the time it took to rebuild the building.The point was he didn’t have proper insurance on his building, but he was able to grow the business and came out much further ahead than he would have had he lost a key employee. You see those key employees were the people responsible for keeping that business alive, even when he didn’t have enough insurance to rebuild the building.
You see, people don’t do business with you because of your building. They do business with you because of the people you have working and supporting your business and your operations. If something was to happen to one of them, what impact would that have on your business? And are you willing to take on that cost?
The second reason why you would want to insure your key employees is because with life insurance, it’s the only product that allows the problem the death of your key employee, to also trigger the solution, the death benefit and the cash flow that comes with this life insurance. Think about the devastating effects it could have. Losing a key salesperson, for example, on your business. Think about all of the revenue that your key employee brings in for the business and how many people within the business depend on those sales.
You see, in a lot of situations, the key employee is the founder or the owner of the business, somebody who might be older and the next generation is going to need two things, time and money. Time to make up the mistakes that they might make, and money to gloss over those mistakes.
So again, with life insurance, the problem also triggers the solution. When the key employee dies, it also triggers the solution of money that allows you to make mistakes during the time of transition.
The third reason why you would want to insure your key employee is is because life insurance is the only product that allows you to buy dollars at a discount. Think about it this way. If you had a key employee that passed away, you would need money to attract and retain a new key employee to replace them.
Again, only life insurance allows the problem, the death of that key employee, to also trigger the solution, an influx of cash into your business, exactly at the time you needed it most, on a tax free basis. Now, here’s the best part. If you’re using a specially designed whole life insurance policy designed for cash accumulation to insure these key employees, you, the owner of the policy, the business owner, has access to the cash value via the policy loan provision on a tax free basis. And you’re still able to earn continuous compound interest on that money all along the way.
So you’re able to access that money, let’s say, to reinvest in your business, maybe make a major capital purchase like new equipment for the business or new cars for your team. Or we had one of our clients access the cash in their policy to buy out a competitor.
You see, there are no restrictions on what you could use that cash value for. So it’s great for business owners who want to be able to access cash and still be responsible and ensure their key employees.
Also, if you’d like to see how we put this practice to work for businesses and small business owners, check out our Four Steps to Financial Freedom Free webinar right on our homepage.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
As business owners, we make financial decisions every single day. But when speaking with business owners in our office, it’s apparent that many of them fail to consider opportunity cost. What effect is this decision today going to have long term on your business cash flow and ability to grow?
When you’re first starting out in business, it’s all about survival. What can you do to get sales and maintain efficiency so your business doesn’t go under? But as your business matures, it’s important to make adjustments for longevity and efficiency within your business.
We always say it’s not what you buy, it’s how you pay for it. And the key is making the proper decisions with the information that you have to increase your efficiency and therefore stabilize the longevity of your business. One of the keys to efficiency is recognizing the difference between costs and opportunity costs.
Back in the 1800s, there was a French economist named Frederic Bastiat. Frederic Bastiat pointed out the difference between that which is seen and that which is unseen. And what does that mean?
Well, basically what we see when we’re making purchases are the costs. What we don’t see are the opportunity costs. The other things we could have done with that money had we not deployed that capital in the way that we did. And one of our tag lines or one of the things that we always tell people is that you’ll never see the interest you don’t earn by paying cash to make major purchases.
You see, as business owners, we make financial decisions every single day, and a lot of those decisions are based on cash flow. Can I afford this payment? Do I have enough capital to pay cash for this expense? But what’s not considered is, is there a more efficient way to use your money that will leave you in more control and leave you in a better position in the long run?
You see, we finance every single purchase that we make. What do we mean by that?
Well, whether you pay cash or finance, either way, you see the interest that you’re going to be charged. But when you pay cash, you never see the interest that you don’t earn on that money. And what we mean by that is basically, if you invested that money, what kind of rate of return are you giving up by giving up control of that pool of cash?
And once we understand the unseen or the opportunity cost, that helps us to make our decisions much, much more clear. Let me give you an example.
Let’s assume you’re going to invest $50,000 for a major capital purchase to your business. Now, if you finance, the bank tells you that you’re going to pay 8% to borrow their money, but you also have $50,000 of cash laying around in your corporate checking account and you say, hey, if I use this cash, it won’t cost me anything. Big mistake, because it will cost you money. You just don’t see the interest that you’re not earning on that money.
So, if your decision is to pay cash because you’re saving 8% on interest, that you’re not being charged. That, again, is a mistake because you’re not recognizing what the opportunity cost can be for that money that you have sitting in cash.
So you may be wondering how should you be making these purchases if everything all purchased is financed? What is the best way to use your money and make it as efficient as possible for your business and your family?
And that’s where we come in, because we can help you make the proper assessments that take into consideration not only the costs that which is seen, but also the opportunity cost that which is unseen. And again, once you understand the difference between the seen and the unseen or the cost and the opportunity cost, your decisions will become much, much more clear and much more focused.
If you’d like to get started with an analysis of your business cash flow and see if this is a solution that makes sense for you, check out our website at Tier1Capital.com. Feel free to schedule your free strategy session, or check out our webinar: The Four Steps to Financial Freedom. It’s free and right on our homepage.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
We all know that inflation is running rampant these days and the federal governments national debt is now $31 trillion and counting.
Today, we’re going to cover the three things you can do today to protect your family and your business from the effects of inflation down the line.
The first thing you can do to battle the effects of inflation is to go long on your debt, and to go long, particularly, on your mortgages. You may be wondering why that is. Well, it’s real simple. When you go and take a loan from the bank and extend it as long as possible. You’re locking in those payments for that whole term. And what this allows you to do when you pay back your mortgage, the longer you can go on the mortgage, the dollars are worth less and less the longer you can stretch it out. Inflation is affecting those dollars just as it’s affecting your gas bill, your electric bill and your water bill.
In a nutshell, a dollar today is going to be worth less in the future, and 30 years down the line, it’s going to be worth potentially a lot less. So it’s going to feel like you’re paying pennies on the dollar because, quite frankly, you are.
Another reason why you want to go long on your mortgage is because if interest rates go down in the future, you can always refinance to create more cash flow. However, if interest rates go up in the future, you’re locked in at a lower rate and now the bank has the interest rate risk, not you.
Third reason you would want to go long on your mortgage is really simple. If you qualify for the interest tax deduction, you will be paying more interest with a longer mortgage. And the more interest you pay, the higher your tax deduction. So that tax deduction can offset the effects of inflation by giving you back more of the money that you spent.
The second way you could combat the effects of inflation is by deferring taking your Social Security income. Preferably at least until age 70. Now, a lot of people say, I don’t want to wait that long because I’m not sure Social Security’s going to be around. Well, let’s face it, if Social Security truly isn’t going to be around, does it matter whether you take it at 65 or 67 or 70?
So the point is this if you defer taking Social Security, that means you’ll get a larger check every month. And that larger check can allow you to counteract the effects of inflation.
The second reason you want to defer taking Social Security is because it will leave a larger survivor benefit for your spouse.
And finally, the third reason why you would want to take Social Security at a later age is because by getting a larger check, you now get cost of living adjustments on a larger base. That larger base, with the added cost of living adjustments, can help counteract the effects of inflation on your monthly retirement income.
Inflation erodes the buying power away from our dollars, but in retirement, we’re no longer working. So it’s important to make sure those dollars that we have are working as hard as possible for us and that we’re setting ourselves up and the best possible solution in retirement. By deferring, taking Social Security, you’re increasing your benefit amount and helping counteract the effects of inflation on your retirement income.
The third thing you could do to decrease the effects of inflation on your life is by purchasing a specially designed whole life insurance policy designed for cash accumulation. And you may be wondering why is that? And the reason why is simple. Because specially designed whole life insurance policies designed for cash accumulation have the power to make all of your other assets even more efficient.
So one of the ways that a specially designed whole life insurance policy can increase the efficiency of your other assets. Let’s take, for example, your house. Your house is there. You’re living in it. It’s not producing any income for you. So what if you took a reverse mortgage against your house?
The problem with that is most people say, “Hey, we’re leaving the house for our kids.” No problem. The kids might have moved out of the area. They probably don’t want the house, but they do want the money that the house is worth. Having life insurance gives you the permission to spend the equity in your house and you can leave them the money from the life insurance. So that’s one reason.
The second way a specially designed whole life insurance policy can make your money more efficient is by using it as a volatility buffer. Well, what does that mean? In the years that the market is down, you don’t want to take money out of that portfolio and have a down year. So what you do is you take money from the life insurance policy instead of from your portfolio, and that gives your portfolio some time to regenerate it`self, gain back the money that you lost in the year that it was down.
Another way you could use your policy to combat the effects of inflation is by using the dividends to help supplement your retirement income, often on a tax favored basis. And think of this, dividends from a whole life insurance policy should not be subject to federal income tax or State income tax. They won’t subject you to a Social Security offset tax, and they won’t contribute to a higher Medicare premium. And in most states, the death benefits will pass to your children, inheritance and or estate, tax free.
Another point to consider is when you buy a whole life policy, you’re locking in those premium payments. So it’s just like the mortgage, the dollars that you are spending on the premiums today are going to have a lot less buying power in the future. And so it’s not going to be as painful making those payments.
And finally, another way that whole life insurance can counteract or help reduce the effects of inflation. If inflation is higher, that means interest rates are higher. And if interest rates are higher, that means your dividends should be higher. As we mentioned earlier, those higher dividends could help supplement your retirement income on a tax favored basis.
If you’d like to get started with a specially designed whole life insurance policy designed for cash accumulation, be sure to 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.
If you’re a business owner, then you know that your success or failure all comes down to one thing: cashflow. Are you wondering how you could increase your cash flow without making more sales or reducing your overhead?
We meet with business owners every single day. Those conversations revolve around three areas.
Two, how to reinvest in their business, to grow their business so that they can have a better future.
Or three, how can they utilize their business, and the cash flow from their business, to enhance their personal lifestyle and meet their family obligations?
Let’s face it, if you got into business on your own, you did it to become financially free. But whether you’re trying to expand your business, maintain your business or increase your lifestyle, it all comes down to one common denominator, and that is how you’re using your cash flow. You see, we discovered over 20 years ago that it’s not what you buy, it’s how you pay for it. It’s how you use your cash flow that determines the success of controlling your cash flow.
Here’s a simple example. Most business owners don’t like debt. They think debt is bad and hate having that weight on their plate. So they’ll accelerate their debt payments and get that debt off their balance sheet as quickly as possible. But what they don’t realize is that by giving up that cash flow every single month to that outside entity, it’s leaving you in less control and less financially stable position.
Think of it this way if you had one extra dollar at the end of the month, that dollar represents profit that you earned during that month. Now you have this dollar that you own and control or your business owns and controls. You make the decision because you don’t like debt, to take that dollar and throw it on one of your loan balances before you pay down that debt.
You owned and controlled a dollar, after you paid down that debt, the bank owns and controls that dollar. It’s your dollar and you willingly gave it to somebody else under the premise that it was advancing your financial position.
So here’s the kicker. By making that financial move, your net worth did not change at all. All that you did was transfer control of that $1 from you to an outside entity. So the question is, did it really move forward or did it just feel good?
So let’s go back to our original question.
How can you increase cash flow without having to increase revenue or without having to reduce expenses?
Well, it’s really simple. You make your money more efficient by making sure every dollar you use is leading you to financial freedom instead of advancing those other guys, the credit cards, the banks and the outside financiers, we take a step back and look through this lens of control. And we say, “Will this move leave you in more control of your money or will it give away control to an outside entity?” And when you look at it from this frame, the decisions are so much more clear.
The first step in increasing your cash flow as a business owner often comes down to a simple move, like refinancing your debt and extending the amortization schedule. What that’s going to do is free up cash flow every single month. Yes, it will pay down your debt at a slower pace, but you’ll have cash flow to save and build a pool of cash that you own and control and have access to while still earning continuous compound interest on that money, even when you access it to do things like grow your business or finance your lifestyle.
When we sit down with business owners, we’ll have a general discussion about how they’re actually utilizing their cash flow, how they’re using their money. And we think how they’re using their money is much, much more important than where their money actually resides. And the reason is, is because that generally creates patterns of profits or cyclical cash flow versus times where there’s no cash flow.
Once we have a good understanding of how the business owner is using their money, it’s easy to make some simple shifts that make their money more efficient and have it working for them to leave them in a stronger financial position from a cash flow perspective for their business and their family.
Just by making their money more efficient, by understanding how they’re using their money and making small adjustments to how they’re actually using their money. They don’t have to increase sales, which usually cost money, or reduce expenses which usually reduces services. We could increase their cash flow without increasing sales and without reducing expenses, and that’s the value that we can bring to any business.
If you’d like us to take a look at your business’s cash flow, feel free to visit our website at Tier1Capital.com to schedule your free strategy session today. We’d be happy to take a look.
Also, if you’d like to see exactly how we use this process for families and businesses, check out our free webinar, The Four Steps to Financial Freedom, found right on our website.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.
We often talk about the living benefits of life insurance, but we’re skipping out on a huge benefit,
and that’s the death benefit that comes with every single life insurance policy. So let’s start at a very high level. What is a life insurance policy?
Quite frankly, it’s a unilateral contract between the insurance company and the owner of the policy. So what’s a unilateral contract? Well, think of it this way. There are two parties to this contract. There’s the policy owner and there’s the insurance company. The policy owner has one job and one job only, and that is to pay the premiums on time. When the policy owner fulfills that obligation, the insurance company has all of the rest of the obligations.
That is, pay a death claim when the insured dies, make sure that all the other ancillary benefits, whether that be cash value, whether that be disability waiver of premium terminal illness or chronic illness, any benefits that are extra to the policy the insurance company is guaranteed and obligated to deliver.
Now, you can’t just demand a life insurance policy. You must first qualify. And there are two main ways that the insurance company is going to qualify you. The first is medical underwriting. They’re going to look at the insured’s health and determine that they’re healthy enough that the insurance company will take on their risk. The second piece is financial underwriting. And basically what this means is that you can’t over insure someone. The insurance company is not going to give you as much death benefit as you want and they’re not going to give you more death benefit than that person is worth. Just like when you’re insuring a car, you can’t get more money for the car if it gets totaled than the car is worth.
So there are three ways that an individual can qualify for more or a larger legacy or larger death benefit. First is based upon their income, and usually it’s a multiple of their income that they can insure themselves for. Second would be based upon their net worth. If they have a $2 million net worth, then theoretically the insurance company would be willing to issue $2 million of death benefit, and the third would be based upon business needs, whether it’s insuring your business interest or insuring your business debt.
Now that we’ve talked about how to qualify for a life insurance death benefit, let’s talk about why you would want life insurance death benefit to insure your legacy versus buildings, your business, or an investment account for that matter.
The answer is real simple: liquidity, use and control. We talk about it all the time and it’s more important via the death benefit than ever. You see, when the insured dies, it triggers something in the contract and the insurance company is now obligated to pay the death benefit, whatever it may be in that contract.
So keep this in mind. We’ve seen so many times where people pass away and their children have moved out of town and they leave their home to their child who lives four states over. The kid doesn’t want the house. The kid moved to Ohio or Maryland or Massachusetts for a reason. He didn’t want to be here. And because of that, the first thing they’re going to do is sell the house. Well, if the house is worth $200,000 right away, they have to pay a 7% real estate sales tax, plus a transfer tax, plus a probate tax. They thought they were leaving their kid $200,000. It’s only going to be about 150,000 after everything is said and done.
Now, let’s look at if the parent dies with an investment account. Same thing. There’s management fees, there’s liquidation fees. And again, there’s taxes and probate, probably end up with maybe $160,000.
So now let’s look at an investment account. Same thing. They’ve got to pay somebody to manage the money. They got to pay somebody to liquidate the money. They got to pay taxes on it. And it’s going to go through probate.
When all said and done, they’re going to end up with way less than $200,000. Now, if you really want to get sick to your stomach, let’s have the parent die and leave the child a retirement account. Same management fees, same liquidation fees, same probate fees. But now they got to pay income tax on top of it. And that income tax is in the kids tax bracket, not the parent’s tax bracket. So when all is said and done, they’re left with pennies on the dollar.
Well, how does this contrast with a life insurance contract? Well, first of all, it’s a contract between the insurance company and the policy owner. So it doesn’t need to go through probate. There’s no income tax. In most states there’s no state inheritance tax. It’s simply a claim form to the insurance company. And whatever the death benefit states is how much the beneficiary is going to get. So you know exactly how much money you’re passing on to your heirs and you get to determine where that money is going at your death. You’re completely eliminating the middleman. There’s no management fees, there’s no taxes. There’s no probate fees.
Like so many other times, when you’re dealing with an insurance company, you’re giving a direct order. You’re not asking permission. You’re saying, hey, when I die, I want my money to go to this person. And so that person fills out a claim form and they get a check from the insurance company.
Oftentimes when you’re dealing with a life insurance claim, the first money that the beneficiaries are able to get their hands on are from the insurance contracts, not from the bank account, not from the investment account, certainly not from the real estate. This money is going directly to that beneficiary as soon as possible.
And keep in mind, one thing about life insurance, it is the only financial vehicle, the only asset that you will own that guarantees that what you want to have happen will happen, even if you’re not here to see it happen.
So what does that look like? Well, let’s say you’re alive now and you’re young and you have a child and you want them to go to a good college. So you’re saving for retirement. But let’s say you die in five years. How is your child going to afford college now that they don’t have the savings that you’ve been accumulating for them? So one way to do that is to take out an insurance policy to make sure your child has the money to go to a good college, even if you’re not there to see it happen.
Another reason why you’d want to buy life insurance for the death benefit is for income continuation. If you’re a breadwinner or a dual household income, wouldn’t you want to make sure your spouse could maintain their current standard of living even if you’re not there working with them?
Another reason to buy life insurance is if you’re a business owner, and we see this so often, where a business owner will insure his business interests or the value of his business interest
so that his spouse doesn’t have to run a business they’re not familiar with. They can utilize the cash to create the lifestyle that the business created when the husband was operating the business.
So it all comes down to, once again, having full liquidity, use and control of your money even after your death.
If you’d like to get started with a life insurance policy to protect your family or your business, visit our website at Tier1Capital.com to get started today.
There are a lot of things to consider as a business owner with a business partner. And one question that should be answered by any successful business owner is what will happen when my business partner dies?
When you go into business with a partner and they die, you’ll have two choices without a properly drafted agreement. Those options are really simple.
Option one you’re now in a partnership or in business with your former partner’s family.
Option two, you’ve got to come up with enough cash to equal the equity interest that your partner had.
So the simple solution is to draft a buy-sell agreement, which will detail exactly what you want to have happen when each partner dies. The buy-sell agreement is an obligation that literally tells what has to happen when one of the partners passes away. This brings us to the second part of buy-sell planning, which is funding. Where’s the money going to come from to buy out the partner? Do you have enough cash on hand or are you going to have to liquidate assets in your business? But if you liquidate the assets, how is your business going to function? This brings us to our next option and the best option for funding any buy-sell agreement, which is life insurance purchased on each of the partners that would produce liquidity at the time of death.
The buy-sell life insurance policy is the only option where the problem, the death of the partner, triggers the solution: instant liquidity to buy out their shares. Think of it this way, if you pay cash, you’re giving up that cash amount plus the interest that cash could have earned. You’ll never see the interest you don’t earn on that money. If you pay out over time it’s the same thing. You’re giving up control of the money, plus what that money could have earned. That would be an installment sale. But the third option, life insurance literally gives you a discount. You should never pay more for the business interest than you do for the insurance. The insurance should be discounted from what the principal or the death benefit is.
So the buy-sell agreement creates the obligation. The obligation can be paid either in cash if you have the money, in which case you’re giving up control of the cash, plus what that cash could have earned: opportunity cost. The second way you can buy out your partner is to borrow money from a bank to pay for his business interest. But will you qualify for a loan when you’re down one business partner? Will the business still continue to perform at peak level once that business partner is gone? And the third way is to buy life insurance. Life insurance could literally give you a discount on the amount of money that you need to buy out the partner. Often people look at insurance premiums as a cost, an obligation to dish out money to the insurance company every year. And no one wants to do that. But a simple reframe could shift it into an asset.
First of all, you have full liquidity use and control of any cash value via the policy loan provision that you have access to throughout the policy’s life. And number two, once your partner dies, it triggers an automatic death benefit to fund the problem of the buy-sell agreement. Your obligation to buy out your partner is solved with a snap of a finger. The event that triggers the problem, the death of a partner, is also the event that triggers the solution: life insurance death benefits.
I can’t tell you how many times I’ve seen very successful businesses, businesses that have been around for 40, 50 years that never address the buy-sell issue or they had a buy-sell agreement and it wasn’t funded. I could tell you of a manufacturing company been around for over 50 years – they never addressed the buy-sell issue. When one of the partners died, they didn’t have enough money to buy out the partner, so they had to borrow money. They borrowed money in 2005. Well, when the financial crisis hit, business went down. They didn’t have enough cash flow to pay for the loan and ultimately went bankrupt. That business had been around for over 50 years and went out of business like that because they never addressed the buy-sell issue.
It’s our mission to help as many families and businesses as possible to make the best financial decisions possible. If you’d like to get started with this conversation today, visit our website at Tier1Capital.com to schedule your free strategy session where we could do a deep dive into your situation and how we could meet your needs with a buy-sell life insurance policy.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
Are you a small business owner and looking togrow your business, but wondering how you’re going to retire one day?
If that sounds like you, stick around because today we’re going to talk about how you could continue to fund the growth of your business and still save for the future.
As small business owners, everyone knows that the number one issue is often cash flow. There are constant demands on our cash flow and the question of how do we manage everything?
Think of it this way. There are several types of cash flow to pay attention to.
Cash flow needed to operate your business.
Cash flow needed to reinvest in your business.
Cash flow needed to grow your business.
Cash flow needed to support your family.
With all of these demands on your cash flow. Every single day, it becomes incumbent upon you, the business owner, tomake your money and your cash flow as efficient as possible so you can manage all of these demands.
The first step in making any change, is to acknowledge that there may be a better way out there and to be open to hearing about it.
Whenever we sit down with a business owner and it comes to the recommendation of doing a cash flow analysis.
They all say unequivocally, “Well, I’m using my cash flow properly,” or their CFO will say, “Well, we’ve already done this. We’re using our cash flow efficiently.” Or their accounting firm will say, “Well, you know, we’ve done the analysis. They’re using their cash flow efficiently.”
I’m here to tell you, you’re probably not using it as efficiently as you possibly can.
What does it mean to make your cash flow efficient?
Well, first of all, we like to get $1 to do the job of many dollars. And we like to make sure that the cash flow is working as hard as possible for you, not for the banks, not for other institutions, but for you, your business, and your family. So getting $1 to do the job of many dollars, we call that multi-duty dollars.
How do we get $1 to do multiple jobs?
The first step is toidentify dollars that can be working harder for you. We usually find that in how you’re making major capital purchases and how you’re financing your debt. It’s not what you buy, it’s how you pay for it that really matters. That’s where efficiency can come in.
Recently we worked with a retail operation and they said they wereusing their money efficiently. The problem was they needed over $300,000 to fund their buy-sell agreement. The question was, where in the world were they going to find $300,000 to do that?
Well, we looked at how they were making major purchases and we looked at how they were handling their debt. Lo and behold, we found over $400,000. They were completely blown away. But again, it’s not what you buy, it’s how you pay for it that matters. So basically, we took the dollars that they were utilizing to pay off their debt and we converted it to create an asset that they can use to fund their buy-sell agreement.
So think about it.
We got $1 that was used for debt and we made it $2 by not only paying off their debt but also creating the asset that they needed to fund their buy-sell agreement. Multi-duty dollars. The same principle of converting liabilities into assets can be utilized forfunding your own retirement or major capital purchases for your family, like sending your kids to college, or financing major purchases for your business, like equipment or vehicles for your business.
Also, you could use it to expand your business so you don’t have to choose.
“Hey, I need to get out of debt as soon as possible. Let me put all my extra cash flow towards this goal.” You can achieve that goal, but also save along the way to achieve your ownfinancial goals and put you in a more secure financial position.
So here’s the point. Over 35 years ago, I began working with a young couple who happen to be business owners, and I said, you know, let’s set up some life insurance that you can utilize along the way. Basically, this will be your exit strategy. You can borrow against the money for whatever you want between now and the time you retire. But then, when you retire, you can live off the growth of that policy. And sure enough, that’s what they did over the years. They borrowed against their policy to grow their business, expand their building, buy equipment and buy cars. They used it to educate their children, but they always borrowed and put it back.
Now, they recently sold their business. They came into a huge windfall and they’re getting all this advice to tie up their money to prevent themselves from having to pay taxes. But, because of all the work that we did, their legacy is intact and consequently, they can use the proceeds from the sale of their business to fund their retirement instead of their life insurance, and all of that money is now going to be utilized for legacy purposes for their children and grandchildren.
The point is we got $1 to do multiple jobs over a 35-year period, and it gave them the flexibility to do the things that they want to do for their children and grandchildren.
If you’re tired of giving away control of your cash flow, and you’re looking for a cash flow analysis. Feel free to hop on our website at Tier1Capital.com to schedule your free strategy session today.
Also, if you’d like to learn more about how our process works for families and business owners, check out our free web course, the Four Steps to Financial Freedom. It’s right on our website.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
Have you ever wondered how banks make money? Well, stick around to the end of this blog post because we’re going to go over the velocity of banking and why it’s vital to control the finance function in your life.
When it comes to banking, there are three main characters to consider:
The Depositors, who save their money at the bank
The Borrowers, who need access to money and are willing to pay a premium
The Bank, who connects the two
So the temptation is to say, okay, the depositor gets 1%, the borrower pays 4% on a loan, and the bank gets to keep the 3% in the middle. That oversimplifies and ignores velocity banking. Fortunately, there’s a company, Bauer Financial, that does financial reports on banks. Bauer financial reports will show you exactly how velocity banking, or turning the money over, makes huge profits for the bank.
So, here’s an example of a Bauer financial report from 2016 for Bank of America. Bank of America had $860 billion of deposits for which they paid the depositor $1.9 billion in interest to attract those deposits. Now, the borrowers of Bank of America paid Bank of America $44.8 billion in interest. This came from credit cards, mortgages, home equity lines, fees, and business and personal loans. So, if you look at the ratio of interest paid by the bank, 1.9 billion, versus interest paid by the borrower to the bank, 44.8 billion, that’s a 23.5 to 1 ratio.
That’s 2,350% more being earned by the bank than is being earned by the depositor. But here’s the kicker. They’re using the depositors’ money to make their money. The bank has zero skin in the game.
So, this just illustrates how powerful velocity banking is and illustrates perfectly why Nelson Nash’s fourth rule, Never Rely on Banks, Especially For Lending Money is so important.
Nelson knew the importance of pulling yourself away from the banking system because they control you. And when you control the financing function in your life, now you are in control. And more importantly, you’re no longer controlled by the banks.
The best way we know how to put this to work for us is with a specially designed, whole life insurance policy designed for cash accumulation, so that you could capitalize your own money and borrow against it and pay yourself back. Not only will you earn the interest in the policy like the depositor in the bank, but if you charge yourself more than what the insurance company is charging you, you also get to keep those profits. And again, you’re in control of the process and you get both sides of the street.
We always preach about being in control of your cash flow, and if you’re looking to get started with implementing this process in your life, be sure to visit our website at tiercapital.com to get started today. Feel free to schedule your free strategy session to get on our calendar or check out our free web course where we go through a deep dive on how we put this process to work for our clients.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.
If you have been following our blog post, you know that we are constantly talking about the importance of you being in control of your money or regaining control of your money. So why is it so difficult to accomplish despite it being a very simple concept? Today, we are going to talk about the unintended consequences that result from following traditional or conventional wisdom when it comes to your finances and how to regain control of your money by just knowing these things.
Now there are three main institutions that are trying to gain control of our cash flow on a monthly basis: the banks, Wall Street and the government. It is like a game to them in the sense that they set the rules. These rules are:
1. Gain control of as much of our money as possible.
2. Get that money on a systematic basis, meaning they want their hands in our checkbook every single month.
3. Hold on to or control that money for as long as possible.
We are going to take a look at how Wall Street gets us to act in their best interest. By following the rules that benefit them. Firstly, they want to take control of our money. So how do they do that? They will tell you that the only chance you have to beat inflation is to be in equities. They tell you that you have to be in it to win it. They tell you to employ strategies like dollar cost averaging. That’s how they get us to do things on a systematic basis. Also, they tell you that the higher the risk, the higher the reward. So these are things that they tell us to get us, to play the game by their rules so that they could win. Secondly, when the market is down, they tell you that you can’t sell now because you are going to be locked in losses. But when the market is up and you say, “Hey, I wanna sell because I think we made a pretty good profit”. They will say, “Geez, I don’t want you to miss out on this profit”. Plus if you sell now, you have to pay taxes on the gains. So if you don’t sell low, because they don’t want you to lock in losses and you don’t sell high because they don’t want you to pay taxes or miss out on a run, then, when do you sell? Well for Wall Street’s benefit, they never want you to sell.
You see, their job is to get you in the market and keep you in the market at all costs because that is what benefits them, but it doesn’t necessarily benefit you.
Now, how do the banks get us to do what’s in their best interest? Let’s take a look at the rules again. Rule number one is they want to get our money. So when it comes to a mortgage, we want to put a downpayment as high as possible. Because with a lower loan or a lower mortgage, you will pay less interest. Rule number two, they want to get our money on a systematic basis. So they will entice us with lower interest rates on shorter term mortgages. For example, a 15 year mortgage will have a lower interest rate than a 30 year mortgage. Rule number three, they want to keep our money for as long as possible. So with the 15 year mortgage, we’re giving up more of our monthly cash flow to the bank. Even though we’re paying them less interest, we’re still losing control of that monthly cash flow. With the home equity, they tell us that it’s our home equity as if we have control of it and that we are more secure when our house is paid off. But in reality, we don’t have access to that money unless they give us permission to access that home equity. So who’s really benefiting from a shorter mortgage, us or the banks? The answer is clear. The banks are following the three rules and they are in control of our money by positioning it as if we are in control and that it is in our best interest.
Finally, the government gets us to play the game by enticing us to invest in retirement plans for our future. They give us a tax deduction on a small amount of money today so that money can grow on a deferred basis and then they have the potential to tax us at a much higher rate in the future.Think about it, you are putting money away today for a small tax deduction, but in the future, the government determines how much of that money you get to keep. Even if you earn a decent rate of return over many years, you don’t know how much of that money is actually going to be available to you to fund your retirement lifestyle. The government gets us to play the game, but they are also consulting with Wall Street and the banks to create the rules. Who else benefits when we participate in retirement plans? Wall Street, because they get to hang onto our money until 59 and a half, or we pay a penalty and tax. Secondly, the bank’s benefits because if we’re maxing out our retirement account contributions, that means our money is tied up. When the time comes that we have to pay for our children’s college education or buy a car or go on vacation, we don’t have access to our money as it is tied up in retirement accounts or home equity. Therefore we have to borrow more money and who benefits when we borrow more money? Obviously it’s the banks.
Now that we have looked at how the government, Wall Street and the banks get us to follow their rules so that they can win and can be in control of our money, what’s the alternative that is not following their conventional financial advice?
The alternative is to save in a place where you have full access and control of your money. A place where your money could grow on a continuous compound interest scale and never be interrupted even after you spend the money. We accomplish this by saving in a specially designed whole life insurance policy, where we get to control our money, where we have full liquidity use and control and access to our cash value for whatever we want, whenever we want. So that we will not be forced to go to the banks to borrow and give up control of our monthly cash flow.
If you’re interested in learning more, book your free strategy session today to know exactly how we can accomplish this. Remember it’s not how much money you make. It’s how much money you keep that really matters.
