Slippery Rock Gazette
February 17, 2008

Business Succession Planning; Facilitating the Sale of the Business How captive insurers can reduce taxes and insurance costs
By Lance Wallach
Industry Consultant

Most business owners want to: build wealth and maximize the value of what is left behind for heirs; protect their wealth to insure that what they have spent a lifetime building isn’t eaten away by taxes, inflation and/or the cost of medical care; distribute their wealth so that their loved ones may be taken care of, and see to it that their assets and possessions go where they want them to go in the time frame they want this to happen. This is the essence of estate planning.
Eventually the business owner leaves the business. If a family member or employee can buy the established business, planning needs to be done years in advance for the best possible results.
If an outside buyer is desired, the company should be positioned so that, if a favorable opportunity arises or an unfortunate event occurs, the company is completely ready for transition. In other words, the business should be ready for sale versus up for sale.
Determining the value of a business is an art. There are no fixed rules, just general guidelines. All characteristics of the business must be considered. The value, however, is ultimately what a buyer will pay considering all relevant circumstances and bargaining at arms length. This is referred to as the fair market value.

Non-cash Payment

Today’s would-be sellers are seeing attractive purchase prices offered in currencies other than cash. The purchase might be part cash, and the remainder an unsecured promissory note. But cash is the only sure thing.
Should the business falter, the remainder of the purchase price may evaporate or become subject to litigation. A sale to the highest bidder is not always the most appropriate sale.

Make plans for the future

Most small business owners are so busy running the company they fail to plan for the eventual transfer of the business. By not planning, they jeopardize the futures of the business and, possibly, of his or her family. We are often consulted at this time, but, at this point, it is almost too late to help.
Succession and estate planning involves various questions of tax, law and business planning. The business owner(s) should make the final decisions after being provided with various types of information. If planning is done early, the process is not difficult and the results are maximized. No one plans to fail, but many fail to plan.

How to use a captive insurer to save money
Small companies have been copying a method to control insurance costs and reduce taxes that used to be the domain of large businesses: setting up insurance companies to provide coverage when they think outside insurers are charging too much or coverage is simply unavailable. A small company can also use this as a tax reduction strategy, with the ability to get money back tax free.
Often, they are starting what is called "a captive insurance company"— an insurer founded to write coverage for the company, companies, or people who founded it.

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