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At a recent gathering, I spoke to Will, a local small business owner. Will and his uncle have built a very successful diesel repair business, they specialize in heavy equipment. I asked how their year had been. Source: NLG

Will was excited over the level of growth they had that year. They took on a large contract with Caterpillar, along with their existing client base, “it set them up pretty”, to quote Will. They hired two additional diesel repairmen and expanded their shop adding two additional repair bays. I asked if they had spoken to a financial advisor lately – his response was, why would they? They are doing great.

I congratulated Will on their success but pointed out to him a few business issues they may want to address. I suggested that they should speak with someone as soon as they could. Planning for the future financial success of a business is too important to leave to chance. He agreed.

Some of the issues uncovered in our brief discussion were pretty significant.

First, they were going to exceed their retained earnings limit for the year. (Anything over $250,000 for a C Corporation is Excess Retained Earnings and is subject to the Accumulated Earnings Tax, which is a 15% penalty.) His comment had been, “you have a great year, and then they tax you for it.”

What Will didn’t realize was that they could address some of these other issues, using permanent life insurance. The life insurance premiums could offset the retained earnings, since they were a legitimate business expense.

There were a few insurance planning concepts I suggested they consider talking over with an advisor:

  1. Will mentioned they had hired the two best diesel mechanics in the area and they wanted to make sure they kept them. Providing them with an employee benefit plan would help them retain and reward their key people.

  2. Key person insurance could be purchased to protect the business against the financial loss of a key person, owned by and payable to the business.

  3. And he had been speaking with his uncle about business succession in the event anything should happen to either of them. Using life insurance to fund a buy-sell agreement is a common financial tool used in a buy-sell arrangement to establish the terms of a business succession strategy upon the death, disability, or retirement of an owner.

I didn’t want to get too far into the solutions, but I wanted to say enough so Will would realize that planning should be considered when a certain level of success is achieved, and they clearly had hit that level with a fantastic year.

I was happy this week when Will called for a referral–they wanted to take action. They had a good year, and his uncle agreed, now was the time to put a plan in place.

I am confident that Will and his uncle will continue to grow and find success in their niche business. I am also confident that with a business plan in place they will rest easier knowing they have done what it takes to protect themselves, their business, their profits, and their people. They will have continued success for years to come.

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