Many Corporation’s future market value ultimately will come directly from
liquid assets. These assets will be cash or cash equivalents, such as bonds or money market funds.
In other words, a Corporations’s value has a direct relationship to the amount of liquid assets it
can amass.
This ability to amass liquid assets depends on corporate earnings.
A potential buyer of the Company, or the investment banker looking to finance bond issuance for
the Corporation, will look at current and retained earnings and the potential for future earnings
growth. Growing earnings and retaining the resulting cash flow is the best way to quickly build
substantial shareholder value. Every dollar of additional earnings adds $5 to $25 of shareholder
value to the corporation based upon current P/E multiples.
Every privately-held company that desires earnings growth needs a strong
balance sheet – a strong balance sheet provides the fuel for growth by creating an asset base to
finance internal growth or external growth through mergers, acquisitions and issuance of private
placement bonds. Retained earnings are the foundation of a strong balance sheet, especially if they
are in the form of “current assets,” which are assets the corporation has at its disposal that can
be easily converted into cash.
Strengthening a Company’s balance sheet will allow it to jump-start future growth by:
Attracting and retaining talented new employees.
Minimizing the uncertain expense and hazard of short term debt.
Allowing the Corporation to grow through acquisition of other companies or their technologies.
Allowing the Company to qualify for preferred bond financing and issuance.
In summary, by resolving to quickly build a strong balance sheet a Corporation
can significantly improve its credit rating, enhance its opportunity for leveraged growth through
long-term, low cost debt, and substantially add to shareholder value.
Executive enters into an agreement with
the employer to defer future compensation in return for the payment of supplemental retirement income.
The Corporation purchases a life
insurance policy on the executive’s life, naming itself owner and sole beneficiary of this policy.
The policy provides a death benefit and deferred accumulation of cash value.
At retirement, the executive receives his
or her deferred compensation from the employer and pays income tax on this compensation when received.
In the event of the executive‘s death,
heirs will either receive taxable annual income or a taxable lump sum payment from the corporation.
Today’s highly compensated executives are experiencing a form of “reverse
discrimination.” The impact of recent legislation on retirement plans has penalized these
individuals by reducing their retirement benefits to a small percentage of their pre-retirement income.
Consequently, these executives are often faced with paying additional taxes on income they currently
don’t need. Although companies would like to find a way to assist these key people, the costs and
restrictions of providing conventional benefit packages are prohibitive. Therefore, many
companies are finding it very difficult to develop incentive programs which will attract and retain
their most important assets - their key employees. Fortunately, there is a strategy to address
this common problem.
The Corporation enters into a non-qualified deferred compensation program with
an executive. Through this voluntary arrangement, the executive elects to defer a certain amount of
future income. In return, the Corporation will provide supplemental retirement income for the executive
and his or her family. Since these benefits are an unsecured promise to pay and could be at risk in the
unlikely event the Corporation becomes insolvent, they are not currently taxable to the executive.
However, when this deferred compensation is distributed it becomes tax-deductible to the Corporation and is
reported as taxable income to the executive and his or her heirs.
The Corporation uses the executive’s deferred compensation to purchase life
insurance on the executives’s life. In accordance with the agreement, the Corporation retains all ownership
rights in the policy and names itself beneficiary. The policy creates an income tax-free death benefit and
over time a tax-deferred accumulation of cash value for the Corporation. At retirement, the executive begins
receiving the agreed-upon deferred compensation from the Corporation, at this time the Corporation may
choose to draw down the cash value accumulated within the life insurance policy. The Corporation may
access cash value through withdrawals and policy loans, which will reduce policy values and death
benefit. In the event of the executive’s death, the Corporation can use the death benefit to pay the
executives’s heirs either annual income or a lump sum settlement.
Plan has minimal ERISA requirements, and can provide selected employees with
supplemental benefits.
The Corporation controls the plan, owns the policy and carries the cash value
as an asset on its balance sheet.
The Corporation’s cash value accumulates within the insurance policy on a
tax-deferred basis.
Plan benefits are paid with tax-deductible dollars.
The policy, which serves as an informal funding vehicle for the plan, can be
structured to allow for employer cost recovery.
The plan can be custom designed to meet the Executive's individual needs.
Retirement income is accumulated without current taxation to the Executive.
The plan, through the policy's death benefit, can be self-completing in the event
of the Executive's death.
The Executive avoids "reverse discrimination" associated with qualified retirement plans.
The Business Planning Group
3186 Eaglecrest Lane, Clinton WA 98236
Phone: 206-255-5700 Fax: 206-260-2721
At The Business Planning Group, Inc.™ (BPG) our focus is to provide our clients with strategic,
knowledge-based consulting and advice. At times, we may also assist our clients with securities-related services.
However, these services may only be provided to individuals residing in the states in which we are registered or
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