268: How Infinite Banking Solves Business Cash Flow Stress

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If you're a business owner like Rich and I are, then you already know the rules are a little bit different for you. So you're not just saving money, you're, you're moving it, probably a lot of it, especially if you're an established business and, and you're in profit. And if you're relying upon banks or finance companies to help fund your growth, we're going to discuss why you might be missing out on one of the best opportunities and one of the best processes and one of the best financial tools available so that you never have to beg banks for capital again. And we're going to discuss the infinite banking concept and some of the frequently asked questions that come up from business owners in particular. And we'll talk about this process from a vantage point of control and why that matters to the business owners that we most love to serve. And so Rich, I'll kick it off with one of the frequently asked questions which is how does infinite banking actually help with my cash flow? And this is a good opportunity for us to distinguish the process versus the tool that's utilized to implement it. But let's start with that question.

Well, really good, first of all, really good question. What I like about this is that, you know, a business owner survives on cash flow. Depending on the business structure you have, you know, maybe you get paid in like large receivables at different stages. Maybe you have a lot of upfront things and you're holding it for, and you got, you know, 30 day, 60 day, 90 day terms or something like that. And then you have big gobs of money show up. Or maybe you have more product based service oriented business where you have like regular recurring cash flow. Like I was on earlier with a construction business today and they have both a construction arm where they do large home renovations and some custom home builds. And then they also created a side business which was at a necessity, but it's actually become a really great secondary business which is high end cabinet making. Okay, so that one is now what, what I would refer to as the cash flow business. And the construction business is the windfall business. So they have large windfalls of capital but a lot of upfront costs on manpower and things. So they, they get large deposits like when they take on a job, they're getting like 50% upfront for as example, a cabinet job. And then they, they, they continue as they go, but it's more stable and consistent. It's not a seasonal aspect for cabinets and the custom work that they do, whereas construction can be sometimes a little bit more seasonal, depending on that situation. So, so that, that's kind of the dynamic, that's just one example of a business. And so they'll have a different cash flow concern than a business that's maybe a totally different type. So you're always trying to balance, you know, your operating expenses with and making sure you keep the lights on and people employed and what have you, with being able to also sock money away for the things that your business needs in the future, new equipment, expansion, growth, maybe some headhunting for key members of the business. You want to add on like human power, human potential. So you want to be able to have a storage location for where that's going to sit. Most of the people have it in their operating account or they, they might be using a third party credit line with ABC bank and they're paying it down as they have money available and then they're using it when they need to make a decision and they're paying it down. So it's up and down, up and down. Whether it's the third party line of credit or it's your operating account, it's going to be doing the same thing to some degree or another. How much of that control of that process are you optimizing to create other efficiencies in your business? So from a cash flow perspective, if you could run cash flow through a system that now creates some efficiencies and optimization and allows you to play the long game so that you create durable sustainability in the business relative to your cash flow, how much stronger do the business become? And I think that's maybe a missing link that people have because they're so focused on what's the next 30, you know, seven days, 30 days, 90 days happening. Because you're looking at the next quarter, sometimes you don't have a great vision on what's happening over the next five years or decade.

Yeah, that's a good point. And in addition to what you described, you know, I haven't personally met or worked with a business owner who didn't sleep better at night when they had readily accessible cash on demand, on their terms to either take advantage of a great business opportunity or to smooth out some variability or seasonality in cash flow. And by the same token, a lot of entrepreneurs and business owners, they co mingle positive net income with cash flow. And there's a big difference between the two. You can have a profitable business and have very poor cash flow. And if you think of the, the essence of the infinite banking concept, right, Putting someone in a position of total control over how they finance the things that they need in their company, and just by virtue of putting money in the form of premium into corporate owned dividend paying life insurance contracts on key people in the business, you're not only solving for cash flow because of the cash value accumulation that occurs on a daily basis. You're paying no tax on that buildup. It's contractually guaranteed so it can't go backward. These are things that business owners tell us. They, they, when they understand it, they truly value it because they know that that component of their balance sheet is continually rising in value and they can borrow against it on demand. No income verification, no review of the past two years of corporate financials or tax returns, no personal guarantees. It is a very peaceful, stress free way of existence for a business owner and an entrepreneur when you have ready access to cash flow. And so that's how this concept in many ways can be helpful. But that was one of the primaries. The next question that came up was how soon can I access money? Very common question. So what would you say to that?

I love that because that is often a barrier of entry for people because they think that they're gonna have to leave things tied up for a really long period of time. And when you're making decisions in the business, you need a degree of liquidity. In Nelson's book, of course, all of Nelson's examples, he doesn't show anyone using a policy in the book earlier than the fifth year. Okay. And the reason that he did that is, number one, it's a static book. So he couldn't be there to tell you and give you ideas and suggestions on the fly. So that's number one reason. Number two, he wanted people to understand and recognize Parkinson's law and that if you could commit to doing something for a number of years, then you would have a very strength, very strong, durable business, at least in relation to a whole life policy at that point that you could pretty much do whatever you wanted. So there's a couple of reasons for that. But actually in the equipment financing example, he said in his live seminars he would say, well, you notice that there's enough to go buy a trip, buy a truck at year two, so what would happen if we didn't, then wouldn't that make everything better if we're being an honest banker in the situation? So it wasn't that he's suggesting don't do anything for three or four years. He was just suggesting what would happen if you could commit to this. How, how, what would that look like from you, from a, from a mindset, human behavior perspective. But the reality is, I would say a large amount of our clients, Jason, and maybe this is different for yourself, but a large amount of our clients, they start working with the policy almost immediately, within that first year.

Oh, 100%.

I personally suggest and recommend to my clients that I want them to take a policy loan within the first 45 case now, even if they don't need the money. And it's not because I want them to have an outstanding loan to the insurance company. It's because what, in my experience, the people that practice taking policy loans and get accustomed to the, the, the, the push button mechanics, the email, the signing a document or what have you receiving it in their bank account, making a loan repayment, even if they're just sending it all back right away. Now the life insurance company probably doesn't want you doing that. They're like, why did you just take this money, take 10 grand and now you're sending it back to me three weeks later? Like, that was really strange. But if you have to go through that whole rotation, there's a great deal of learning steps that take place. Maybe you're working with a financial controller or you know, your accounting team and they have questions or comments, or there's someone who's kind of like, you're the visionary and you're trying to lead the direction of the business and someone's dealing with the paperwork and they want to know what's going on will give them the opportunity to experience that right away. Don't wait 12 months or 18 months or 24 months to all of a sudden need a great gob of money and not have any idea what you're doing. That doesn't make any sense. So the earlier you begin the process, even if it's for testing, the better you become at. It's just like riding a bike. You have to get on and get started. You got to figure out how to get that stability so you're not falling over with the bike so you can use money with most policies very, very quickly. There's the odd contract, not one that we work with very often, but there's the odd contract where maybe they might have a restriction with that particular company that says you can't access a policy loan maybe for 12 months, okay? But far and wide, that's usually not the case. Most people are able to access policy loans within the first 30 days, often within the first seven days, once the policy is submitted, paid, and everything's been put together. Here's a great example. Let's say you've got business. They want to, they're going to run $200,000 worth of their, their revenues through a policy. All right, most of that, a good chunk of that is earmarked for their profits anyway. But they're, they're running capital through a policy. They have a minimum requirement and they have a maximum. So 200 is the ceiling. They can't go more, more above that. But let's just say, for the sake of our example, 60,000 is the minimum. Okay, well, at 60 grand is five grand a month. So what if you made a monthly payment of $5,000 and you got the contract started and then you had money sitting in reserve in the, on the bank account and you could put 140,000 effectively into the policy as a premium to buy paid up insurance immediately. And you could do that virtually on day one. You would create a large amount of borrowing potential off of that premium that was paid and the death benefit it created, it would create a corresponding cash value, which means borrowing potential. So you could immediately begin practicing this right away. And now you have a commitment of five grand a month, and then you carry that forward for the rest of the year. But meanwhile, you're, you're practicing things right away. So the ability to access capital right away and get going and get, get operational can be very, very fast once you get through the application process. So coaching process, policy, design, application, boom. Now you can get going.

I met with a swimming pool.

Like a company that essentially helps you design.

Right through from design to your first dip in the pool.

Like, I've got a gentleman like that in my strategic coach group.

Yeah, really good business. And so he operates out of the province of Ontario in Canada. And when he asked the same question, how soon can I begin to implement the process? Like, how soon can I access a policy loan? So obviously I responded, in that case, it was right away. So the moment that the policy's enforced, you can begin right away. And I said, one thing to think about is we would often share with people, you can't learn how to swim unless you get in the water. But what I shared with this entrepreneur is I said, when you finish a pool for a customer, if you told the customer, congratulations, the pool is done, but you can't use it for another 12 months. How's your customer going to feel about that? And he said, well, not good at all. They want to use that pool right away. And of course, with whether, you know, he does a lot of indoor pool designs with some really beautiful, like, indoor pools that are just amazing. And he said, no, my customer wants to get in the water, like right away. That's why they paid us to do this. And I said, well, that's why.

You are going to begin getting in the water, so to speak, right away, your pool's ready. And he said, well, that's great. And so he goes through the process. And a policy loan is ridiculously simple. You get in contact with the insurance company, you can borrow against the ever increasing cash value of the policy on demand, and you're not reducing the asset's value. So in this scenario, there's no water leaving the pool. There's only more water being added, and you get to control the repayment schedule. So that's why for a business owner, it's very appealing to get in motion and to get in the process of implementing as soon as possible. Business owners like a rhythm and they want to get this element of their business into a strong rhythm. And when you examine if you are a business owner watching this or listening to this, if you've ever looked at your income statement and you look at both income and expenses, you are in a constant rhythm of transferring money away from your company permanently.

So again, much like I do with an individual, I'll ask a business owner, how much money does your business make? Oh, you know, we're going to make $8.5 million this year. We're not going to make that. You're going to handle it.

So how much do you want permanently transferred away from the business, given that you're going to make, or for clarification, handle 8.5 million. Write down how much you want permanently transferred away from the business.

Now the business owner's thinking differently. Business owner's like, wait a second, what do you mean? Well, let me give you an example. Let's take a stroll down your income statement.

Pick any expense item and tell me, once your company paid it, how much interest you can earn on that money ever again for as long as your company operates, zero, you've got revenue, customers are paying you. Where is that money residing? Well, it's residing in our corporate checking account. Really? Is what you think is there truly there? And we begin to go down that Just that path of thinking. And then once they catch the truth. Right. That your money must reside somewhere if you really want to retain the earnings of the corporation versus just handling the money, then this is the perfect tool and the perfect process. How much of that do you want to control? How much of the function do you want to control? Well, I want to control 100% of it. Okay. What would the disadvantage be to controlling 100% of it? Well, none.

So.

Logically, what disadvantage is there to getting started?

I mean, Nelson would always say, right. Because when a business owner say, well, you know, when I look at how I'm going to capitalize my system.

I may not be able to fully recapture the interest that I would have paid to someone else's bank, or I may not be able to fully control how I finance this large piece of equipment for the next three years. Well, Nelson would say the time's going to go by anyhow.

And so we get countless, countless testimonies from business owners who tell us just how incredibly relieved they are when they're in a position of control. And that's no surprise, given that that's why they became an entrepreneur to begin with. So it's a perfect match. Isn't that good?

Is good.

Okay, the next one I've got is, what if I want to use the policy to grow my business? So I think we described a little bit of that, but is there anything else that you would add to respond to a business owner asking that question?

Yeah, I mean, my response is, what? Why wouldn't you use it to grow your business like your business needs to grow? The fact that you want to grow is. Is the. Is probably the most important question. If you came to me and said, hey, is there any way I can use this to slow down my business and make it smaller? For those of you listening, Jason just about spit out his water all over his microphone. I don't think there's too many business owners asking that. So you're asking the right question. Can I use it to grow my business? Well, the answer is obviously yes, because why wouldn't you? You're not going to add any. You're not going to go get any asset that's going to sit on the balance sheet, on the books of your business that you're going to intentionally purchase with the idea that you're not going to use it to grow the business. Right.

Like, good point.

If you're doing that, you probably have far more issues with your business than we can handle on this conversation today.

Yeah.

So you're you're adding another asset that you're going to be able to utilize as an effective storage location of flowing capital to be able to do the things that you want to grow your business. Well, what's an example then? Pick any example. Like there's, you know, there's so many businesses. You need to get a piece of equipment. Great, it's a truck, it's a car. Perfect. Borrow from here, buy it. You don't have enough to get that done. It's a, it's a $200,000 truck. Because you have, as an example, maybe you have a car hauler business and you've got a truck that can have like nine cars on it, you know, one of those double decker vehicles. Okay, great. So that's maybe that's $150,000 price tag. Well, if you don't have enough in your pile right now in cash in the bank, or you don't have enough in the system that you've built for the policy, exactly what you identified, Jake, maybe you need to finance it with a third party to get started, right? But then as you're building this up, you could take chunks out of that or you could say once you're at a point where you've got a balance, okay, you've got this one now at 75 grand and this loan is down to 75. Can you now absorb that third party debt instrument, move that over into your control in your system? Your system continues to rise and the payment that you used to give those guys is just going back into this pool. It brings the loan down. Meanwhile, the policy keeps growing and it's just, you just continue on. You now have a machine that is growing more efficiently every single day, while that piece of equipment is becoming less efficient every day because it's got more miles on it and you're gonna have to replace it probably another five years. So if you know you're gonna have to replace that piece of equipment every five, six, ten years and you're not building up a methodology that will allow you to control the replacement, isn't that the real problem?

Yeah, very good points. And what's interesting too is that when.

We hear questions around.

What happens in the event of me selling or exiting the business, or how does this infinite banking concept help with retirement or shareholder buyout planning? And that's where there's some misconception or misunderstanding. So the infinite banking concept is a process, right? That's what the business is implementing throughout the day to day operations of the company. Whereas when you start to get into the business owner's retirement phase, or key people in the company, other shareholders, or you get into a buyout situation because of death, disability, involuntary or voluntary termination or a variety of.

Possibilities There now we're dealing with the utilization of the tool, which is corporate owned dividend paying life insurance. And that tool has very specific attributes that once the business owner understands what those are, they're incredibly appealing. The corporation has the capital, so the corporation pays the premium. The corporation is the named beneficiary, the insurance contract, so that there's no taxable benefit conferred to the shareholders. The corporation utilizes the policy loan provision to control how it finances all the things that it needs. And then in retirement phase or in a buyout situation.

There'S ready access capital and we're able to take care of.

The planning element.

And we do that on a tax free basis. And meanwhile, the entire time that the business was operating and that asset, that policy or system of policies was growing every day, it was exempt from the passive investment income tax rules in Canada, not triggering any taxable event. And with proper planning and execution, there was no taxable event triggered throughout the, the entire journey right up to death of the life insured and after death of the life insured. So the corporate owner, the entrepreneur, the business owner says, okay, let me get this straight. Company pays premium. The cash values begin growing immediately on a daily basis. Can't go backward, not triggering any taxable event on the buildup. When dividends are declared annually, they're contractually guaranteed to be paid. They can't be repossessed, they can't lose value ever. We can contribute almost unlimited sums. We're paying no tax on the death benefit proceeds. We're able to fully satisfy our desired outcomes for retirement planning and shareholder buyout planning.

How much capital can we flow into that tool and how long can we run that capital through that tool? Because that is where logic kicks in. There's no other tool that delivers the attributes and the outcomes that we're describing. And so what an, what an amazing position that it puts that business owner in.

I give you an example, exactly what you're talking about, Jason. So I showed an example earlier this morning. I had a lot of fun on a great conversation with a couple of younger guys and they have a great business going on. We were looking at a $200,000 example for their business and the, the, the, the minimum. Just to keep things simple, let's just say the minimum requirement was 50,000. Just to keep the math real simple. Well, if they funded it for the first five years with a 200,000. Okay, so they've put in 200 for five years. They've put in a pretty good chunk of capital. Yeah, they had, they had an asset value of cash value that was greater than all that. That amount. Okay. In the, in the second to the third year they put in their 200,000 and that same year it grew 212,000. So I mean that's a pretty good bank account if you put in 200 and at the end of the year there was 212 in it. Well, from an asset perspective, now what was interesting about this is I showed them if, what if they just stopped and didn't put any more in at year five. Not because I would suggest that, I said that's not what the right thing to do, that's not their behavior. But I just wanted to show you the impact. And then, so then I said, okay, the next example I showed is what, well, what would happen if you just kept paying that 50,000 minimum? Well, in year six, if they put 50 in, the machine grew like a hundred.

That's incredible.

So why would you stop putting the 50 in?

Logically.

Logically, right. And it's not to say that that's, it's not some magical tool. We're not, it's not an investment. We're not creating this magical money out of thin air. It's just about recognizing that we built a business that is very efficient. And now every time that a dollar goes into the business, the business creates more dollars over that same year for the, for the equivalent injection of capital. And as you continue to do that over a period of time, because they were young gentlemen, the ability for that to multiply actually becomes very high. So you get to a point later on where now you're 20 years into the business and for every dollar that you put in, it's creating 3, 4, 5, 6, 7, maybe even as many as, maybe not as high as $10, but it's creating a lot of extra dollars of usable capital. Right? Not just capital, usable capital. The ability to take working dollars using collateral. The beauty of collateral, other opm, other people's money. All the real estate investors want to use opm. Well, the OPM you get to use is the insurance company and you co own them. You are a part owner in that big pool. They're going to let you tap into that big pool and put it to work for your needs. At the same point that you're doing that, they are putting it to work for the needs of everyone else in that pool, which includes you.

It'S an incredible model. And you're absolutely right. I mean it's the insurance contract. So it's a contract for time and money. And we're the only profession that can bind the policy owner to the life insurance company using a contractually guaranteed promise to pay a contractually guaranteed accumulation that occurs daily, a contractually guaranteed payout. And you can never pay in more than what the insurance company is going to pay out. It's contractually impossible. And so naturally the business owner asks the question, how does the insurance company make money? Well, the insurance company, think about it from this vantage point. If you were to look back at any of the economic calamity that we've experienced over the past 100 plus years, pick any instance. Great Depression, H1N1 Covid, the tech bubble bursting, the Internet bubble bursting. Black Monday, Friday, Tuesday, Wednesday. However many stock market collapses have occurred, life insurance companies remain the most financially solvent institutions on the planet. They're going to be just fine. They're making plenty of money. Double digit returns on policyholders equity. So if you know that you can get into a business that is producing double digit returns on policyholders equity and when you become a policyholder, you become a co owner of the company producing double digigit returns on policyholders equity. How much capital do you not want flowing there? Because to add to your point where you demonstrated, you said, hey, I just want to show you what happens after year five if all you did was pay the minimum required premium or you just didn't have any additional capital outlay. Well, if you recognize that your money must reside somewhere and your business is going to be bigger five years from now than it is today.

If I even introduced putting less capital into this asset, you should fire me as your advisor. If I even remotely suggested that you stop putting capital in your business is bigger.

You have to store more money somewhere. What you should be is pissed off at me that I didn't create more room to put more capital in. And so that's where we flip the script and the business owner goes, that makes perfect sense. It's so logical.

Isn't that good?

It is good. I had a little.

Query that I just asked Grok while you were saying that just because you sparked me around like return on equity and stuff for mutual companies and it says unlike stock based insurers, mutual companies don't aim to maximize shareholder value. Instead their goal is to balance profitability with policyholder benefits. Return on equity tells you how well they're doing this for business owners exploring this option, like incorporating ibc, what have you return on equity offers a great insight into the insurer's ability and stability to deliver on promises like dividends that directly impact cash value growth and death benefit growth in a policy.

So good. And I think this reminds us of why Nelson. We're referring to the late R. Nelson Nash, who pioneered the infinite banking concept. He's the developer of it and he wrote the number one best selling book titled Becoming youg Own Banker. We'll include a link for that so you can go purchase a copy. And I'll tell you flat out, like what I was sharing with someone earlier today, like this, this book.

This book is an absolute, like, you've got to read this book. You just have to read it. It's.

Trust me, go buy it and thank me later. You know, as evidenced by the fact that it has sold probably close now to almost 600,000 copies, I would say. And, but if you're, if you're solo, if you're an individual, a family or a business owner, just order it, read it, and good luck putting it down. Okay, we'll do more of these FAQs. This was a lot of fun, Rich. And for everybody watching on the YouTubes, go buy that book and thank us later. This was fun. Thanks, Rich.