Finance can be a complicated subject for individuals. When you add a business into the picture things become more complex.
It’s easy to find yourself second guessing your strategy and wondering if you’re on the right path.
“Is there something that can make what I’m already doing even better?”
Here are 5 questions you should answer.
1. Are you valuing your capital?
Every business owner has a cost to using their capital and it’s different for each one as well.
What could you earn safely and consistently on your money if you didn’t spend it somewhere else?
This is your cost of capital and it’s why it’s different for each business owner as well. You all have different places your money can be put to work with a high degree of certainty the principal, AND THEN SOME, will be delivered back to you.
This quote is an excellent explanation of why you should value your capital:
“You finance everything you buy. You either pay interest to someone else or you give up interest you could have earned. There are NO EXCEPTIONS.” –R. Nelson Nash
I call this lost opportunity cost and it looks like this.
Once you understand your cost of capital it makes determining if a business venture makes sense much easier.
2. Have you implemented a tax efficient strategy?
I can’t tell you where taxes will be in the future. It is wise to create a strategy which will minimize the erosive effects of taxation on your wealth down the road though.
Make sure you understand that tax deferral plans are not a deduction, but rather a postponement of paying the tax.
I myself prefer to pay tax on the seed rather than the harvest, in a known tax bracket, rather than a lot of advice today that says to postpone your tax bill to an unknown bracket and pay on the harvest. I know they don’t say it that way but I think it’s helpful to talk about what is actually happening.
Where you place your dollars today will determine your tax liability in the future.
I would also like to challenge the thought process of “you’ll be in a lower tax bracket in retirement.”
You’ve worked hard for the last 40 years or more of your life and now you want to decrease your standard of living when you begin to take passive income?
Will you have deductions in retirement that you have throughout your working years?
Kids are an excellent example of a tax deduction you have in working years but not in retirement. Businesses are also allowed to deduct many expenses from their income.
3. Does your plan help you manage varying cashflows?
Business can be unpredictable. Income is sporadic and you can’t predict when business will slow or come to a temporary halt.
An effective financial strategy will incorporate ways for your money to grow predictably and not penalize you for using it when the business experiences negative cashflow in a month.
With you shouldering the risk in business, your plan should allow for flexibility and minimize your risk exposure. This will provide certainty and a strategy for how to handle low or negative cashflows in the future.
4. Are you in control of your access to capital?
Not having ready access to capital can be a killer, especially when business is slow. Even though you are likely to see better days in the future, you have to weather the current storms.
Meeting payroll, keeping inventory and staying ahead of all the bills can be challenging.
Accumulating capital somewhere you have guaranteed access to use how and when you want, free of penalties and restrictions for use is a must. Keeping that capital growing and knowing you will have more in the account every day that passes would also be a huge advantage.
This means an ideal account will offer:
- Guaranteed access and growth
- Give you the control to use funds at your discretion, free of penalties and restrictions
- High liquidity, providing access not only to your contributions but also the growth
- Profit sharing with policyholders
5. Does your plan provide more than one benefit?
To keep your business open, growing and thriving, you will want a financial strategy with multiple benefits.
A financial asset that provides you with:
- Creditor protection (this varies by state)
- Capital accumulation
- Self-funding if you become disabled
- Self-completion in the event of your death
- Potential chronic and terminal illness benefits
- Highly effective strategy for succession planning and wealth transfer
These are things I’m sure that wouldn’t jump to the front of your mind after the first 4 questions above, but benefits you could really use to keep your business running at full potential.
1 financial strategy can accomplish everything you just read.
At Cash Value Solutions we teach the Infinite Banking Concept.
This is a cashflow management system that is designed to allow you to accumulate capital and have easy access to funds when your business needs them. It is the ideal solution to all the questions I had you ask yourself.
The financial asset we use is a properly structured and implemented dividend paying whole life insurance policy with a mutual insurance company. These policies are much different than the life insurance many individuals purchase.
If you don’t think your financial strategy is cutting it, Book an IBC Discovery Call to see if we’d be a good fit to work together.
We will go over your current situation, what problems you’re trying to solve and answer any questions you have about the IBC.