A Tax Free Addition To Your Business Surplus | Wealth Without Bay Street Podcast

Your business is going to be contractually guaranteed to grow on a daily basis and you'll pay no tax on that build up. The business owner is going to say, how much capital can I get inside of that business opportunity and how fast can I do it? So this begs the question of logic. If you understand all of the attributes that I just described, let's introduce logic. How much of your capital do you not want flowing there? Okay, let's create a tax free addition to corporate surplus.

Ooh, how would we do that, Jay? Okay, let's talk about asking for the listener who, who isn't able to listen to the recording and ask. They're maybe asking in their mind, but I'm, I'm asking for you listener at the same time.

Okay, so look at it from this perspective. Let's say you're a business owner, right? You're, you're an established business owner, meaning you have a business that is healthy in terms of the relationship between your expenses and your revenue. Okay, you've got a healthy, well operated business. It's in profit and you've got money left over. Okay, you've got a surplus. And people can describe that as cash surplus, capital surplus, reserve, retained earnings, whatever that is. But it has to reside somewhere. And for Most, let's cover 99.9% of the business owner population in the country, that money's residing on the books of someone else's bank. So who's really retaining the earnings? It's not the company, it's someone else's bank. But so here's the thing. We were just having a conversation about the late Ben Feldman, who was like the Wayne Gretzky of basically life insurance and the sale and placement of participating whole life insurance contracts primarily for business owners. And his approach was so ridiculously simple and it makes perfect sense. And I want to jam together on this, but I just want to set the stage. Let's talk about a real example. Okay? So a few, few clients who, who own and operate businesses and who have implemented the process. And so before we dive into that rich, what comes up for you when you heard me say let's create a tax free addition to corporate surplus?

Well, I mean, first of all, I mean, anytime you say the words tax free, your ears perk up because it sounds, it sounds pretty good. And I don't know any business owner who doesn't want that. I don't know any human being who wouldn't be interested in that. So, you know, I, yeah, there's, there's always question as to what exactly. Does that mean. And ultimately you're talking about the utilization of a participating dividend paying whole life insurance contract for the purposes of creating that, that aspect in a business owner's.

Life all day long. And I haven't met, maybe, maybe, you know, there's one that exists out there, but I haven't met a business owner yet who has expressed that they don't feel like they're taxed enough. Of course they want, of course they want more capital. They want more rocket fuel to build their business.

So are you telling me they don't sit there in bed late at night looking up into the, you know, at the ceiling, wondering, man, I just, I really wish I could figure out a way where they could take more taxes from me this year.

Oh my gosh, I just wish they.

Would come up with a way where.

They could take more and then, and.

Then maybe a little bit more.

No, gosh, I had less to pay.

For employees and less employees I could hire and less investments in other pieces of like technology or equipment that I need to grow the business or inventory. Yeah, I don't imagine that happens very frequently.

And so let's explore this. Okay, let's dive into this a little bit. You've got, you know, this business owner who wants to retain more capital to either utilize, maybe pay himself or herself a little bit more, maybe buy more equipment, maybe grow the business in terms of more people, more technology, more systems.

All that, well, marketing, more marketing.

Acquisition, you name all involves the use of capital. And so when the business owner is contemplating having a corporate owned policy or a system of corporate owned participating whole life policies, the business owner, when they're in our ecosystem, they're getting educated on how to utilize this tool in a very powerful way. When the business owner is putting money in the form of premium payment into these policies, these policies begin to immediately accumulate cash value. And there's no taxation on the contractually guaranteed daily buildup of cash value. And that cash value is contractually guaranteed to grow to match an ever increasing death benefit. And the business owner says, okay, I understand all those attributes. I can flow money into that tool which bolsters my balance sheet. I can create a tax free surplus addition to my company and I still have complete control over the use of capital to set about doing all the things that I want to go and do. But where's the money going to come from to pay premium? Well, the money should come from capital, not from the business owner's income. Let's get the money to pay the premium from capital okay, well Ben Filman was brilliant and we utilize Ben Feldman's approach all the time. This book, this book titled Ben Feldman's Creative Selling was, was authored in 1974, the year that I was born. And these principles still ring true today. And Ben would say, look, you've got an obligation and your obligation is obviously to continue growing your company and you're going to need capital to do that. So if you're going to put a hundred thousand dollars of premium every year into the policy to rapidly accelerate cash value growth. And you, Mr. Business Owner, you're 48 years young, you're a non smoker, let's see if you look just as good on the inside as you do on the outside. Let's get you through the underwriting process. But I want you to understand something. And Rich, if you could help me. If you take a hundred thousand dollars and you divide it by 365, how.

Much is that as a real good question? Let's find out.

Let's find out. Let's do that number. We'll keep the viewers and listeners in temporary suspense.

$274 rounded up.

Okay, so let's say $274. So we would ask the business owner, is there anybody presently on your payroll that you're paying $274 or more per day? And in this particular business the business owner had a team of remarkably skilled people, many of whom who were earning six figure incomes. And the business owner said, of course. And so we expressed to the business owner, put me on your payroll for $274 a day. And in exchange starting death benefit in this particular instance being just north of $3 million, I'll put 3 million into escrow with your name on it, your company's name. And if you put me on your payroll for $274 a day, I'm never going to call in sick, I'm never going to complain about anything. I'm not going to try to unionize. I'm not going to do anything other than work extremely hard at adding more tax free surplus to the company every single day.

You won't have to pay for continuing education. You won't pay for me to sit through useless safety meetings. You don't have to pay me to go through any other form of like corporate retraining that comes up from time to time, usually mandated by government agency. You won't have to pay the increasing payroll taxes that presently are being shoved on down everyone, every business owner's throat in the country, at least In Canada here presently. Yeah. And if that happens again in the future, you want to worry about it then either. So you really actually get a compound effect on my 274 a day because it stays 274 a day and it never goes up for the rest of the life of the business. I don't, I don't expect any wage increases with inflation, nothing. But if inflation does go up, I will increase the amount sitting in escrow for you with the business named on it every single year that you keep me employed with the business.

And in addition to what you just described, we would ask the business owner, if you were to add another employee to your business at a rate of $274 a day or a hundred thousand a year, would that bend or break your business? Because we can see that there are several hundred thousand dollars flowing to the bottom line of your business each and every year. And the business owner says, yeah, I could certainly add another employee to the business without bending or breaking it. Well, good, put me on your payroll. And the, the business owner understands that and grasps that. And then when you start borrowing against that ever increasing accumulation as a company, and you're utilizing it for all those things that you set about to do, and you're never interrupting any of the daily growth that's piling up, any of that tax free surplus that's piling up each and every day, and there's no taxation on the death benefit proceeds, no tax on the buildup. If you use the loan proceeds as you borrow against the accumulation over time. If you use those loan proceeds to create taxable gains or taxable income, you also create deductibility inside the business for a real interest expense that the business is paying. And the business owner is actually creating another business, one that is already profitable, one that is contractually guaranteed to grow. So think about when you first started your journey as an entrepreneur. Your business is going to be contractually guaranteed to grow on a daily basis and you'll pay no tax on that buildup. The business owner is going to say, how much capital can I get inside of that business opportunity and how fast can I do it? So this begs the question of logic. If you understand all of the attributes that I just described. Well, let's introduce logic. How much of your capital do you not want flowing there? Doesn't matter if it's a business that owns it and it's a business that's paying the premium and it's a business that's utilizing it, how much of the business's Capital do you not want flowing there? And it's meant to be achieved gradually and incrementally over a period of time. This contract is participating dividend paying whole life insurance contract is the greatest exemption that exists in the US and Canadian tax codes today. Why not take full and complete advantage of the greatest exemption? Why do you think the government puts a limit on how much money can go in? Because it's a terrible instrument because it, it shields the accumulation from taxation. That's why. Think about it logically.

One of the things you mentioned, you know, as far as what, what the business owner might do with their capital that accumulates you, you listed off a variety of different things and reinvestment in, into the business. We mentioned marketing, number of different items. You know, I had a gentleman recently who had an opportunity across his desk and you know, there could be a variety of reasons for this opportunity but he just so happens that he's well capitalized. He's well capitalized with cash value and insurance contracts and holding company and he had a, not really a competitor I guess in the same business, same industry, but they, they kind of tackled a little bit of a different niche market and in a different area. And this is, you know, their area is like a northern Alberta territory. And he's more spread out between Alberta and B.C. doing you know, work, it's oil field related work. And the business owner, this other business reached out to him and said, hey Mike, do you have any interest in maybe taking, taking this over? I've been in Hawaii for the last two years and I have two managers that are running everything for me and I don't really plan on coming back to Canada. And so I kind of think in order to run the business I, I probably should come back, but I really don't want to. So you know, I'm thinking about getting rid of it. And your name came into my, you know, your name popped up. You know, we've talked about this maybe in the past. I thought I would reach out to you and see if you're interested. So it's profitable business. He's got great management team, obviously has been running on its own for two years and he's got some, you know, multiple crews, some equipment. They haven't decided if they're going to move forward or not. But what it would do is it would open up new markets for them, it would allow them access to some new territories that they normally wouldn't operate in with their main business. It would add quality team members, some, some okay equipment and it give them A new footprint in a new area and it would, it would diversify their, their, their lines of business a little bit more than they currently have. And you know, sounds like the, the current owner of the business is already ready to sell or finance it. So maybe it, you know, let's just say it's a million dollar price tag, maybe puts up 250 or $300,000 from a policy loan and the balance of the business purchases seller financed. Well, the profits of the existing business that's being ran and managed by other people already will cover the payments over a four year period to pay out the current owner. And he just absorbs everything and then automatically adds a new line and increases the valuation of his, his overall structure. So.

And the company will never have to pay, let's say just using your, your same example while we, we, we talked, the company will never have to pay that much to pay that much, if you understand what I'm describing. Okay, if you've got the business owner, let's say if you look at this from just a bit of a different vantage point here, that same business owner that we were describing earlier has a terminal tax obligation of 3 million bucks. And we described to the business owner very accurately, look, we're going to put 3 million into escrow right away. You put me on your payroll for $274 a day and someday I'm going to pay your company a minimum of 3 million. And so you're going to have all the money that you need to, to pay the $3 million terminal tax obligation. So your estate's going to have to pay that, but the company won't have to pay that much for the 3 million. Think about it. And so again, if you understand all the attributes contractually guaranteed daily accumulation of cash value, that's a tax free addition to your corporate surplus and it cannot go backward. The dividends that the policy is paid each and every year that they're declared, which has been each and every year since inception, since 1936 with the mutual carrier that we work with. Those dividends do not trigger a taxable event because we coach you on what to do with those dividends so they don't trigger a taxable event. You've got an ever increasing supply of capital that's readily accessible on demand, on your terms. On your terms. You're paying no tax on the buildup. You're not going to pay tax on the death benefit proceeds. You're going to have all the capital that you need to set about financing all the things that you need anyway in the, in the business. And when you're measured against what all your other competitors are doing, who do you think's got the advantage now? So again, logically, how much of your capital do you want? Not one flowing there. And most business owners that we meet with who are doing a hundred thousand, two hundred thousand, three hundred, a million dollars a year in premium, what they're asking in very short order is how much more capital can I get flowing in to that second business that I've created? And that's the one business in that owner's portfolio of companies that is never going to stop growing.

Well, Nelson said you needed to be in two businesses. One is the business which generates your, your living, how you pay your bills and put food on the table, and the other is the banking business. Of which of the two the banking business is the most important? You're already in the banking business. You're already doing it now. It's just that you're not on the receiving end of any of the profits or any of the advantages of managing, owning and controlling that banking business.

And when you, when you think about, we talk about growth, how much growth do you want to keep away from the tax collector.

Much as possible, right?

Like just put a number on it, right? As your business continues to evolve and grow and, and think about this. Doesn't matter what kind of business you're in, even if you're an active real estate investor, you own these assets. Corporately, you're a business owner if you're a dentist, in practice, if you're an orthodontist, if you're an anesthesiologist, if you're an attorney, an accountant, the list goes on and on and on. If you're a physician, if you're just pick any type of business, you're going to need to use some money in order to grow along with people, technology, all those things, equipment, you're going to need capital. So why not become the banker as it relates to your business's capital needs and immediately create a tax free surplus corporately. This is brilliant. Isn't that good?

It's good and simple.

Cool. So for all you business owners out there, we appreciate you viewing us on the YouTubes and tuning in on the podcast platforms. On the YouTubes, the next video just showed up. So click on it, start watching it, and we're going to make some kind of offer. In this episode. It's going to be showing up on the screen like maybe we, maybe it's for the book. Cash follows the leader I think that'd be a great read for all of our business owner viewers. Get your hands on this copy. You're going to be glad that you did and you can read it in just over an hour because we know that business owners are always busy being busy. They make time for things that they find important and this topic very important. So enhance your financial life, corporately and personally, and we look forward to connecting with you. Thanks for tuning in.