DHill Financial

Trusted Insurance Adviser since 1990

Category: Business Owner

3 Steps to Turn a Great Year into a Succession Plan

Succession Planning with Cash and Life Insurance

Companies that quickly adapt to a changing landscape are continuing to see growth. The current business environment, where technical expertise continues to be an asset, requires the marriage of technology and the strategic use of capital to sustain long term growth success.

Advisers for many business owners continue to stress that the best time to sell a business is when business is good.  After a good year, our tendency is to pay out the success to ourselves and our key people which is well deserved, but if the goal is to build a business to sell we need a strategy to build wealth within the business.

Here are three -steps to consider if you want to leverage a good year into the succession plan you are really dreaming about:

  1. Pay a Bonus – As the founder of Mustang Sally’s Brewing Sean Hunt once told me, “cash is king”. Sean was a corporate attorney in mergers and acquisitions before opening the brewery in Chantilly, VA, and he saw how important it was to take care of key people. Deferred benefits (e.g., defined benefits plans, options, restricted stock) are terrific long-term incentives for key employees.  When a company’s financial performance justifies and enables it and a thoughtful bonus structure is established, though, few things are more effective at demonstrating to key employees that the company values their continued contributions to its success than cash.
  2. Build Reserves – Business Attorney Gosia Bochenek of Cochran Allan wrote in her December 2018 newsletter about the elimination of the Alternative Minimum Tax on Corporate Owned Life Insurance and how life insurance is the preferred model to fund a buy-sell agreement to assure business continuity by providing remaining owners with cash to purchase a deceased owner’s interest.  Buyout upon death  can be funded with both term life insurance and cash value life insurance, but cash value life insurance can also be part of a buy-out at retirement.  While term life insurance can fund the buy-sell (or key man for sole owner), cash value life insurance allows the company to build cash reserves which can be used to fund part of the buy-out for the owner(s).  Life Insurance cash value looks great as an asset on the balance sheet, you have created momentum towards a business succession, and if something happens before you can sell the company, you know your beneficiaries will be taken care with funding for your buy-sell agreement.
  3. Golden-Handcuff Key People – cash once given doesn’t have the same impact in keeping people on board as cash promised. While phantom stock and synthetic stock may play a role in tying key people to the goals of the company, Dan Doran of Quantive valuation shared that most often the way to get cashed out of these vehicles is by selling the company (and understanding your company valuation).  Term Life Insurance is often used to cover the loss of income or expenses that can result when a key person in the business dies.

Using cash value life insurance would allow a company to build cash to retain the key person.  A common approach in which control is required, the company purchases the policy and owns it for 5 years while the life insurance policy builds cash, they assign the allowable death benefit to the key person during that time, then bonus the policy to the key person after 5 years, and if the key person remains for a few more years, the policy is paid in full for life.

If the desire is to provide cash to assist the company or a key-person in funding the succession plan, now you can see a path to allow that to happen.  It all starts with a valuation to understand what you need, and from there you can better understand where cash, stock, and cash value life insurance can work together to allow your dream to become reality.

David Hillelsohn founded DHill Financial, LLC works with businesses and individuals to prioritize meeting responsibilities and using that as their foundation from which to build.  David is an independent insurance broker licensed in the majority states around the country, and he can be reached at 703.435.6028 or by email at david@dhillfinancial.com.  This article is not meant to be tax advice, please consult a tax professional for details.

Health Insurance Tips for 2019

Health Insurance

Health Insurance Tips for 2019

  1. Rates are stabilizing – For the first time in a long time; rates for some plans have started to come down for 2019. The rate reductions have been less than 5%, but that still bucks a trend of annual increases to health insurance pricing, and with inflation factored in, this becomes even more significant.  The change in favorable pricing has been seen in plans with moderate to lower deductibles with slightly higher maximum out-of-pocket limits.  This suggests a positive trend with access to benefits, and some form of cost sharing from the subscriber.
  2. Check for network variations – verification that preferred medical providers are covered is a primary goal when shopping for health insurance, but with the expansion of networks from many carriers, you may find savings by selecting a local or specialized network – and the savings may be more than just short term savings. Many carriers have developed Enhanced Provider Networks of doctors, clinics, and hospitals that follow are prescribed form of service delivery, and they incent services from participating providers with lower co-pays.  If you don’t have preferred doctors, then selecting a local network vs national network may provide you with instant savings!
  3. Employers have more options – there were many changes in 2018 to allow greater access to health insurance. Here are just a few of the highlights:
    1. Sole-Practioners can now consider group health insurance without a W-2; some carriers will require a solely owned LLC/Corporation, others will allow a Schedule C as proof of business activity
    2. 1099 employees can now be considered for employer sponsored health insurance; certain limitations may apply
    3. Participation Requirements and Contributory Requirements are waived for employer sponsored health insurance during Open Enrollment (November 15 through December 15)

Take the stress out of shopping for health insurance, and talk to someone local who you can trust.  Plan options are REGIONAL and can vary zip code to zip code which is why you want to talk to a LOCAL agent.

We want to be your guide as you evaluate the health insurance plans available to you for 2019!

Let’s set a course together for healthy living.  Current plans allow preventative services with no co-pay, have no pre-existing condition limitations, and no coverage limits for benefits!

Call for a quote today or email for a cost estimate … our counselors are standing by at (703) 435-6028!

4 Benefits Blunders by 1 National Payroll Co.

4 Benefit Blunders by 1 National Payroll CoMost business owners started their businesses to address market needs, serve the community, possibly to create generational wealth.  I haven’t met one business owner yet who told me they started the business because they like compliance and administration.

It’s more common that they might view these areas as a barrier to entry, or at least to company growth.  Companies know that in order to grow, they’re going to need good people which only amplifies the administrative responsibilities of the business.

So, it’s no wonder that when companies start adding people, that they look for efficiencies and expanded sophistication in payroll and benefits.  Having a strong payroll system to support process and compliance is critical as a company grows, and payroll companies have deep expertise in this area.

A dedicated and visible health insurance broker can enhance the employee value proposition by making sure the employees feel connected to their benefits.  On site meetings, one to one consultations, and visibility during open enrollment help employees to feel valued.

While marketing experts stress specialization, there has been a move for payroll companies to offer insurance benefits as an additional service.  Here are four blunders I’ve witnessed from one national payroll vendor from the least egregious to just unacceptable.

  1. Mismatched Benefit Plans – the benefit plans should match the financial needs and culture goals of the company, the type of employee they are targeting, and the experience they want to provide the employee. If you want a Platinum health insurance plan, make sure you pay 100% of the premium for the employee and rich vision and dental benefits.  The vision and dental does not add much cost, but keeps the program consistent in terms of quality.  Gold and Silver plans also have a place for employees responsible for dependent costs.
  2. COBRA / Continuation of Benefit – Departed employees who wish to continue coverage pay the premium to the employer, and the employer submits the premium to the insurance carrier. When using a payroll company, the premium may get paid to the payroll company.  In one case, a terminated employee found a new job with benefits, the payroll company didn’t collect premium from the employee once new coverage was secured but continued to bill and pay the premium on behalf of the employer.  When the employer submits premium directly to the insurance carrier, they can see if the money has been collected.
  3. Failure to Terminate Coverage – Not terminating employees in a timely fashion can create administrative and compliance problems and the responsibility remains with the employer. Having direct access to an online system either at the insurance carrier level, or preferably through a Third Party Administrator who handles insurance benefit administration, ensures there is a process in place with checks and balances.
  4. Letting Coverage Lapse – If the employer is not sending in the premium payments, how do they know if coverage goes unpaid? While it seems unlikely that this would occur, this happened with a new client as of January 1 who found that one of the plans had lapsed for non-payment some time the previous year.

In fact, all four of these issues came up with the same client last year, a key reason they needed to make a change.  So why change to an insurance broker for benefits management instead of a payroll company?

This business owner wanted a vendor partner who is attentive to their business, cares about their people, understands their value proposition, and find ways to work towards that mission.  If you don’t feel like your benefits broker understands your mission, consider making a change and see how powerful it could be if they did.

David Hillelsohn founded DHill Financial, LLC with the mission of enhancing the cohesion among families and businesses by prioritizing meeting obligations and taking steps to ensure people know you care.  His vision is for people to want to do for others thereby doing for themselves.  David is an independent agent licensed in the majority states around the country, and he can be reached at 703.435.6028 or by email at david@dhillfinancial.com.

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