The Challenge of the Business Owner
by Chris Gerriets
Every business, big or small, is built on the same universal basics: customers, cash flow, return on capital, and growth. Without even one of these, the business becomes stagnant and eventually fails. At its core, the business entity seeks customers with whom to exchange its goods and services for cash. It uses this cash to pay its expenses, replenish its inventory, and eventually grow its ability to offer more to the public. The goal is to come out ahead – to be profitable – meaning there’s money left over after all expenses (employees, bills, suppliers, etc.) and taxes have been paid.
However, sales tend to go in cycles. A business, such as a retailer, may earn 60% or more of its total annual revenue in the last two months of the year, simply because that is when the consumers choose to make their purchases. There are high volume periods and low volume periods.
Consider how many purchases made are not actually paid in full on the day of sale. How many of us have received a bill of some kind that is 60, 90 or even 180 days past due? This is called “accounts receivable” on the books of the business owner. Simply put, the business has made sales but the money hasn’t actually been paid yet. The sale is on credit, and the buyer still owes the money.
This is the challenge of the business owner. The business might be turning the product over and generating revenue; however, the money comes in cycles and is often overdue. Yet payroll, rent and utilities are regular, monthly expenses that must be paid. And we can’t forget about the suppliers that provided the inventory on credit – they expect to be paid too.
So what is the solution?
The obvious and most popular choice is opening a line of credit with a commercial bank. This gives the business owner access to cash, which the bank advances at a cost, to meet any short-comings in a particular month. If all goes well, future income takes care of expenses and pays down the balance owed to the bank. Access to capital allows for cash flow, and everyone is happy.
But what if things do not go well?
I’m glad you asked. And so is the commercial bank, because this is where we find out who is really in control of the situation. Perhaps the bank will lend more money; however, banks are notorious for withholding when the money is desperately needed. The line of credit might be converted to a note, which still requires a monthly payment. If the business owner falls behind, the bank will remind the business owner that it has liens against the assets of the business, a standard step in opening that oh-so-helpful line of credit. As standard procedure, the business cash flow is through that bank, and the owner may have added a “personal guarantee”, meaning that all cash, inventory, business assets and likely personal assets can now be taken by the bank in the event of a bankruptcy.
That is essentially the risk and the challenge of the business owner.
But what if there was a better option?
What if the business owner could actually be the banker for the business, using the IBC strategy? There would still be a line of credit to smooth out the income irregularities of the business, but it would be controlled by the business owner and there would be no liens against the business assets. The business owner would control the payback schedule, meaning months could go by with no stress about missing the loan repayments. The loans could be taken care of when the profits come in rather than on a predetermined schedule. In addition, the business owner would experience tax benefits and growth on the cash in this alternative bank.
This is the essence of the Infinite Banking Concept, originally championed by Nelson Nash in his book, Becoming Your Own Banker. A more recent book by Nash, called The Case for IBC, speaks especially to business owners and even gives a practical example of how a business can take advantage of this strategy.
While getting out from under the bank and controlling its own line of credit is a great benefit for any business, it is just one of many benefits of the IBC strategy. The team at Life, Success & Legacy has shown business owners how to:
• Deduct costs
• Recapture the interest spent on expenses and capital
• Retain valuable employees
• Create long-term staff loyalty
And we do this at no cost to you.
Our goal is to create value for you and your business. We will teach you more about how IBC works and create with you a plan that works to solve your challenge. There is no obligation at any point in the process. We will even put you in contact with other business owners so you can learn how IBC has worked for them.
Are you willing to learn more?
Contact one of our IBC Coaches immediately so we can show you the power of IBC and whole life insurance today. 888.439.0777