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Episode 74: How Small Businesses Can Make the Most of Their Cash Reserves with Phillip Ramsey and Bryan Dewhurst
149 Plays5 years ago
Business is all about managing risk and finding opportunity. Finding that opportunity can mean that your business has excess cash on hand, more than is needed for daily operating expenses.
It seems like a great problem to have: business is going well and you have built up solid cash reserves. The idea is to maintain liquidity, but also generate some yield on that money. It’s great that it is there, but you also want to put it to work for your business in a way that is accessible and avoids unnecessary risk.
You don’t want to take your eye off the main focus of your business, but you’ve got to manage the assets your business has built up. The big question:
How?
For multi-national corporations, they have an entire department devoted to this cash on hand. This unique role is called Corporate Treasury. But what can smaller businesses do to manage their treasury, without an army of accountants and number-crunchers on the payroll?
We want to show you the variety of ways you can leverage your cash on hand, and share with you how a smaller company can manage treasury without staffing up.
what you will learn in this episode:- What Corporate Treasury is
- How your business can most effectively leverage cash on hand
- The right way to manage savings and debt reduction for business
- Understanding the Uncommon Debt Ratio
- Why it’s so important to “know your numbers”
- How to use whole life insurance as a resource in business
- How you can use cryptocurrency as part of your corporate treasury strategy
- Why it’s easier and more cost-effective than ever to outsource your CFO role
Recommended
Transcript
Introduction to Podcast and Hosts
00:00:02
Speaker
Everyone dreams about living an uncommon life, but how we define that dream is very different for each of us. And for most, it's a lifelong pursuit. Welcome to the Uncommon Life Project podcast. We're going to introduce you to people who are living that life or enjoying the journey to get there. We're going to also give you some tools, tricks, and tips for starting or accelerating your own efforts to live an uncommon life.
00:00:27
Speaker
a life worth celebrating and savoring.
Importance of Business Strategy
00:00:30
Speaker
Please welcome your hosts, Brian Dewhurst and Philip Ramsey.
00:00:34
Speaker
Hello, everybody. Welcome to another episode of the Uncommon Life Project where I am your host, Philip Ramsey. And I am Brian Dewhurst. And today we are talking to you, just Brian and I, just some good old friends hanging out at the old coffee shop and hanging out, trying to give you a little bit of a more picture of what we can do and how we've been helping business owners.
Post-Success Business Optimization
00:00:56
Speaker
Here's what I love.
00:00:58
Speaker
We've been in business for quite some time. On Commonwealth Partners has impacted many of many of lives. And because of it, and I would say because of people and they're awesome, really nothing that we've been doing, they're starting to get traction, they're starting to get success. And so this is one of those things where we're going to talk through of, you know, what do you do now when you have a successfully run business
00:01:20
Speaker
How do you start thinking about it? What's your process? What mindset should you have? But congratulations, you're on step two. You did it. You jumped off the bridge of this whole entrepreneurial path. And now we're going to give you a couple things to do with your corporate treasury, your savings, things like that. You betcha. Corporate treasury is probably a weird term, too, to a lot of people. So I just wanted to start.
00:01:46
Speaker
By like defining what that is so my dad worked in the Treasury Department for mutual of Omaha if you remember the Wild Kingdom I was a little tyke when that was rolling but brilliant strategy. Yeah, everybody knows that but so my dad was on a team of multiple people that worked for mutual of Omaha and
00:02:08
Speaker
And they manage the treasury position or cash position for this large insurance company and so talking about hundreds of millions of dollars that's you know coming in going out being invested being paid out death claims a lot goes into that so.
00:02:24
Speaker
That's where we're approaching this from and, corporately, if you're looking at publicly traded companies or large corporations that are sitting on millions or billions of cash, you got to do something with it and optimize it. For a lot of small business owners, they don't have an external person that's thinking about optimizing all of their
00:02:44
Speaker
assets, you know, not only their business, but their cash, you know, 401k, house, real estate, all that stuff.
Financial Planning Phases
00:02:50
Speaker
How does all that fit together to build wealth for me, the business owner and my family? So that's what we're talking about. And that's really the reason why we got into business because we never really felt like there was somebody there to help the individual or business owner really put all their assets to use and make them super efficient. So welcome, uncommon wealth partners. And this is what we do every day. And here's another point that I'd like to make.
00:03:15
Speaker
It's basically 2021 and people are re-evaluating how they run their businesses. The old model was, hey, we have the CFO, we had a CEO, we had all these people. Well, now it's like, no, we can hire out a CFO.
00:03:30
Speaker
We can do things a little bit different. And this is an example of what we do for people is we are kind of like their personal CFO, not only for the business, but for their personal life. And a lot of these people got into business, but they never really thought through like, what, but this impacts my personal life. How does this all fit together? And that's what we do. So we've broken this up to three phases for you.
00:03:53
Speaker
Um, and so we're trying to kind of high level. If you're here, this is a great place to start. If you're here, this is a great place to start. And then if you're gone through both of those here, here's where you got. So we have an ebook on this
Phase 1: Cash Reserves & Debt Elimination
00:04:05
Speaker
too. If you want to go to our website, www.uncommonwealth.com backslash gift.
00:04:11
Speaker
Not plural. There's multiple PDFs there or ebooks. This one is called Corporate Treasury. So if you want to download this before you listen to the whole episode, it'd actually be super helpful and kind of have something in front of you. So let's dive in. Oh, phase one.
00:04:27
Speaker
Phase one is just cash savings. You know, businesses need cash to survive. I think the statistic in a rough sense is 95% of businesses fail due to a lack of capital. So cash is king. That statement is still around before a reason.
00:04:43
Speaker
Oh man. And so the first phase is really just one and two is one debt elimination and two and or savings. And so obviously you're both very important and de-leveraging or using smart leverage and then building cash. Right. I think it's important to talk about savings first before you talk about debt elimination. Because a lot of people will go straight to the debt elimination, which is fine. But if you don't have a reserve of cash, what you find is if there's any, I would say,
00:05:12
Speaker
breach in your cash flow or stop in your cash flow and you don't have cash to be able to sustain that, you're done. You're gone. Holding that money in savings is a powerful thing that we would say, hey, let's get that first and then let's go after debt second. Even if you have enough in savings to pay off all your debt, it might be wise to sit it in savings for a while until you know for a fact that it's wise to move that over to debt. Totally.
00:05:39
Speaker
So, yeah, savings I think is, you know, like Dave Ramsey, Philip's not uncle. Love him. You know, obviously he talks about like the emergency fund. Obviously, you know, each business is different. If you're in a really high cash flow business and you want to do things outside of the company, which we'll get into, you know, having three to six months of payroll in the business and cash and savings is just kind of what we're talking about, right?
00:06:04
Speaker
And the downside, obviously, of holding cash in the bank now is that you just don't get any return on it. So you're really just getting the utility of liquidity, which is great.
00:06:14
Speaker
We'll get into that more and how we can kind of step out of that, but maintain your liquidity. This is the boring one, savings three to six months or more if you want in payroll, just in cash in the bank, so it's not too sexy or complicated. Right. I do want to point out before we do this, Brian and I do not only preach this stuff, but we also, we're in the same thing. We take our own advice, we do this with our own business, we practice what we preach as they say.
High-Tier Financial Services
00:06:43
Speaker
I think that's kind of good to know, because everybody, whenever we do a recommendation, like, what do you do? Right? Totally.
00:06:49
Speaker
Let's move on to debt elimination, cause you know, getting rid of debt is really good. And obviously I think as business owners, you know, being more apt to use debt, whether the debt's fully against your business or personal or both, and you're trying to leverage on both sides, I think this is applicable. We have in the PDF, if you download it, it's called an uncommon debt reduction ratio. It kind of gives you a calculation of a way to lay out all of your debts, payments,
00:07:16
Speaker
All of that and kind of try to, you know, a lot of people are like, which one should I pay out first? I think Dave Ramsey's, you know, the debt snowball makes a ton of sense in that way of just, you know, what's the lowest balance to the highest balance and trying to just take them out smallest to largest. Psychologically, that just makes a ton of sense.
00:07:34
Speaker
This uncommon debt ratio really tries to break down each of your debts and get to the most effective use of cash. It's a little complicated to get into on the podcast. The PDF breaks it down, gives you several examples, a chart.
00:07:49
Speaker
So you can kind of do that on your own but it's basically taking the remaining debt balance divided by the minimum monthly payment and that gives you a score and then you rank those scores in order and you kind of take out the one with the lowest score first.
00:08:05
Speaker
Here's what I'd say about having an equation is it takes the emotion out of it. That's what we were trying to do on this equation to help people get some traction on their own personal finance. Hopefully that helps. Some people it's just like, hey, we just want to do the minimum balance. Great. Yeah. But if you don't, this is a way to score things at a very unemotional state and then go after it.
Phase 2: Risk Tolerance & Tracking
00:08:24
Speaker
Totally. And if you want help somebody looking over your shoulder,
00:08:27
Speaker
This is part of a package. So I think the other thing we kind of forgot to mention is this corporate treasury package is our, this is kind of like our highest tier service to our clients is, you know, six meetings a year, live with Phillip and I, you know, we're giving you financial advice on your personal and your business, all your capital, any type of financial related, you know, transaction decision that you want to talk about as it relates to your personal or business, we can talk about it, model it, map it.
00:08:55
Speaker
All of that is included. So we're kind of walking through our highest service, so to speak, with this package. So anyways, this is part of that. Yep. Okay. So we're going to move into phase two now. So let's just say that you have a great savings. You're starting to get out of debt.
00:09:13
Speaker
to the point where you feel comfortable to move into phase two. Something it will say is this is all about your risk tolerance. Do you feel like you want to pull full throttle in this thing? Right. Do you want to make sure that every penny is now paid off in your debt? That's totally up to you. That's case by case. But you're the driver of that. It would never be Brian or I. And then we'd also never tell you that you're stupid. We might say, hey, here's your risk if you want to pin your ears back and you have a whole bunch of debt, but you want to just move straight to
00:09:41
Speaker
Phase two and this that's totally up to you But we will give you your you know risk and reward type of thing, too So we move into the second stage or phase and and the one thing I want to talk about before we get there really quick is just you've got it We've said this another podcast. You have to know your numbers
00:09:58
Speaker
You have to know the numbers of your business.
Uncommon Banking & Liquidity
00:10:00
Speaker
Philip and I track our numbers weekly. To a lot of people, they hear that and they're like, that seems overwhelming. But actually, it's it's underwhelming once you get into it. Right. The overwhelming thing is like getting 90 days into your business and you haven't tracked any of your, you know, revenue or expenses for your personal or business or you get the end of the year. You know, we're shooting this in late December and it's like, oh, crap, I got to get all my numbers to my accountant. Right. And it's like, I haven't done anything this year. That's overwhelming.
00:10:26
Speaker
Right. And you'll find it more and more valuable, more and more you do it. The more data you have next year, think about this, if you did this track this weekly, you'd be able to see, am I on track to beat last year from what last year's numbers were? Right. It's just kind of nice to know. Yes. So great point, know your numbers. If you don't know your numbers, get to know your numbers. Right. Figure out how to know your numbers. And what numbers are important to you might be different than the numbers that are important to Brian and I.
00:10:53
Speaker
So you can't master what you don't measure. So if you want more money in your life, you've got to master this. All right, let's jump in. The first one is uncommon banking. It's our strategy with life insurance. If you've listened to the show before, you've probably heard of this. You can do this corporately as well. So you can have your business be the owner of a policy. You as the business owner, if you have a key executive or a parent that was in the
00:11:18
Speaker
business that you're buying out, we can kind of structure that several different ways based on your personal
Brokerage Accounts & Tax Strategies
00:11:23
Speaker
situation. But in large part, the corporation owns the policy so they control the cash value. And then, you know, you can use that policy as a corporation to buy trucks. You know, we've we've had several business owners. They have very capital intensive business. So they need lots of trucks, equipment, snow plows,
00:11:44
Speaker
you know, lawnmowers, whatever it is, borrowing that stuff from a policy instead of the bank can keep a lot of cash flow within your business potentially. And so it also brings in a death benefit component. If you have business partners or family, if you want to keep the business going after you're gone, all those different things bring life insurance into the discussion and when you structure it,
00:12:09
Speaker
you know, for cash value growth, not just death benefit, we can get an actual compounding on the cash value. So it's worth more than what you've put in. And then you get the death benefit obviously is kind of like extra, but then we can loan against it. And the insurance company still owes you interest on the money like it was still there. So it can kind of give you an arbitrage on cash without giving up liquidity. Anything else you want to hit on that?
00:12:33
Speaker
Yeah, I'd say that the reason why we ordered them in the way we did it in phase two is because of the consistency of the cash in the actual accounts. As we go further in phase two of what you can do with your money that you've pooled up,
00:12:49
Speaker
it gets a little bit more aggressive and that's why we put uncommon banking as the first thing to talk about because it just doesn't fluctuate value. So the next one is brokerage account. Putting your money into a investment that can go up and down, I would say ideally would go up. But we would probably try to make this a very lower risk portfolio that isn't gonna fluctuate much in value, probably is not gonna go up.
00:13:17
Speaker
double digits, it could, but we're just trying to protect the downside in this thing. When we talk about rates of return, we have to caveat and asterisk, it sure can go to zero. Past performance is not indicative of future returns, so dual compliance.
00:13:34
Speaker
So, but it is a little bit riskier than uncommon banking when you see the fluctuation of your account go up and down. So that's why when we do this for our clients, we do try to like, hey, we're going to be really conservative here. We just want the same amount of money or a little bit more ideally in this account.
00:13:51
Speaker
Yeah, and I think the other side of this, again, this account, we're doing a lot of these right now because I know a lot of businesses are hurting, but a lot of businesses have done well too through 2020 and I think I'll leave that there. And then also with the PPP funds, there's a lot of liquidity out there for business owners and
00:14:13
Speaker
you know, the potential to invest that money. So we're opening these accounts in the business's name. So this is a business owned asset. We're not, you know, shifting the money to the business owner. So the corporation owns the account and thus controls the investment account. And then we also can attach it to your corporate bank account. So we can have like an ACH link
00:14:33
Speaker
So if you're saying, hey, I need that money back, we can drop that money into your bank account within about 48 hours. And then we have model portfolios, conservative, moderate, and aggressive. So depending on your corporate cash situation and cash flow and all of that, you can kind of determine your risk tolerance. But from there, yeah, we're investing the money into these models to try to generate beyond zero and hopefully beyond 2% to 4% return. But yeah, it does obviously carry downside as well.
00:15:01
Speaker
Right. And remember we have a savings account too. Like your corporation has savings, so we're not taking all of it. And then we're also working with your accountant CPA as what money would be wise to put in here. Right. What are the tax consequences if it grows, that kind of stuff. It always helps to just bounce some ideas off of.
00:15:18
Speaker
The other thing that's interesting with the tax code now, you used to be able to deduct financial planning fees on the personal side. Under the tax code, to my knowledge, you're not allowed to do that anymore, but you can as a business. And so if you're a business owner, little caveat, you want to make sure if you're paying financial planning fees or investment fees to your advisor that you're doing that through your business. This is one way to do that.
00:15:41
Speaker
and make sure that your business is deducting those fees. So, kind of a little value add tip there. Perfect. Okay, so we've talked about four things. First phase, we've talked about savings, debt reduction. Now we move to phase two, we got uncommon banking, a brokerage. Yeah. Can I do one more point on that? Yeah. So, the brokerage account is liquid. So, I mean, this is invested, you know, mainly stocks, ETFs, that type of stuff. So, this stuff is liquid. So, if you need the money, you know, three to five days, we got it back to you. Right.
00:16:09
Speaker
We're always trying to maintain liquidity and control for our business owner clients because cash is king and you want to be able to move and shake. Right. This goes back to one of my first points. I just didn't feel like a lot of advisors understood that when I talked to them before I was in the industry. It was like, no, I'm going to need your savings. Like, what? Which made me almost feel more trapped in my situation and circumstance because I don't have cash to even do anything.
00:16:35
Speaker
Anyway, that's important to us. It's probably a core value. Probably should write that down somewhere. Okay.
Crypto Strategy in Business
00:16:40
Speaker
The fifth thing is in phase two. It's Brian's favorite topic. This is where we'll probably lose 20 minutes if I don't keep him on track, but it's crypto. Let's talk about it. Cryptocurrency. Obviously, cryptocurrency, you're going to hear more and more about it. Bitcoin and cryptocurrency are, I would say, the same but different.
00:16:58
Speaker
And so, I think the important thing is and you're starting to see the headlines now almost daily and why I added this to that. There's a company publicly traded called MicroStrategy and their CEO, his name is Michael Saylor and he has just come out of really nowhere in the last four to five months. Again, this is late 2020.
00:17:19
Speaker
But he's been a publicly traded company since the 90s. He's one of the longest sitting CEOs of any publicly traded company in the US. And he basically had a decision. He's sitting on $500 million of cash generating free cash flow every month. And he's like, what do I do with all this money? Went through looking at real estate. He basically went through everything we're talking about. So the timing of this is very interesting.
00:17:43
Speaker
as we were kind of building this offering and really trying to formalize it for our clients. And looked at real estate, looked at gold, looked at stocks, looked at bonds, and basically came to the conclusion that they should put most of it in Bitcoin. And so he just, they just did another purchase and now they did a bond offering. So I think he's up north of like 675 million or no, no, I think it was even more than that. I think it's upwards of like 875 million of their corporate treasury they've put directly into Bitcoin.
00:18:13
Speaker
It's something good to talk about. Here's what I would say for all those naysayers, which I could be talking to myself. No, I'm just kidding. The banks aren't paying you anything. The banks aren't paying you anything. You've got to figure out something else. We need something that's safe, but that's going to pay us a rate of return. I wish the days were when you put it in the bank and they were giving you 8%. This would be a different story, but they're just not.
00:18:40
Speaker
So the main point that Michael Saylor makes, and he's done several podcasts, so if you want to listen to one, I would highly recommend it. Maybe he should be in ours. I don't know. We're trying. Michael, if you're out there.
00:18:52
Speaker
But he makes this point that I think is so fascinating because we're in this business and we talk about inflation a lot. You see inflation modeled by the government and it's like 1% to 2%. Michael's point of view is I think the true inflation rate is what does it take in assets to generate $50,000 a year of cash flow?
00:19:12
Speaker
Because, you know, like basically 20 years ago, 50 grand a year if you had no debt would carry most American families, like on the average. And, you know, you used to be able to get, let's just say, yeah, like six to seven to eight percent in bonds. And so to generate $50,000 a year of income, you know, net of tax, let's just say it was a million dollars. You know, you're going to pay some tax depending on what state you're in, federal. But for this example, it's just a million dollars. Right.
00:19:36
Speaker
Now with interest rates as low as they are, micro strategies of this company, they just did a bond offering. It was kind of a convertible deal, so it's not like a true bond. But their interest rate was 0.75%. So his point is, let's just say you're buying bonds and you're trying to carry a 5% or $50,000 rate of income that you're now having to spend way more. You're going to need way more than a million dollars
00:20:03
Speaker
What's that number? I want to do the math to do that. You know, I mean, that's over two or $3 million. Yeah. And so his argument is, is like inflation isn't one or 2% and like based on the calculations that he ran, you know, inflation is running actually closer to 15 to 22% annually. If you look at the asset needed to sustain the rate of cashflow, and then when you factor in that that 50,000 doesn't buy you what it used to buy you, the number goes North from there.
00:20:33
Speaker
Right. And so it was really interesting because when you hear about a lot of this stuff, we all experience inflation all the time, especially in 2020. Groceries have gotten more expensive. Pretty much everything has gotten more expensive. And so his point is that true inflation is not being represented in these financial models. And that was another driver of what drove him to Bitcoin.
00:20:55
Speaker
We're not saying or sitting here advocating that you put 80% of your corporate treasury in Bitcoin, right? If you come to that conclusion, obviously that's up to you, but I just want to be very clear that we're not saying that. I wanted to use that story as an example that you're seeing a major shift, especially publicly traded companies, Wall Street, and then yesterday it just came out that Mass Mutual Insurance Company just bought $100 million worth of Bitcoin.
00:21:23
Speaker
Square, the company that's owned by Jack Dorsey who owns Twitter, they invested $50 million into Bitcoin in their corporate treasury. So, you're seeing lots and lots of companies invest into Bitcoin. You're seeing like Paul Tudor Jones, one of the most storied hedge fund managers in the world, allocated 2% of his overall net worth to Bitcoin.
00:21:44
Speaker
And just recently came out, he said he's upping that. So you're seeing a major shift, not only domestically, but internationally of companies, leveraging Bitcoin and blockchain and cryptocurrency as part of their overall corporate strategy. Perfect. So that's why we wanted to talk about it. Okay. Pulling out, pulling out. We're getting in there. We're getting in the weeds. That being said, I did want to point out that it's $6,500,000 if you have a 0.75 interest rate. Right. To generate the $50,000. I did the math. Thank you. Thank you. Thank you for being here.
00:22:14
Speaker
Okay, moving on. We are now phase three, which now I would say this gets a little bit, I wouldn't say risky, but it just is like on the trajectory of this.
Phase 3: Real Estate & Investments
00:22:24
Speaker
That's why they're phase three. The liquidity difference with phase three is a lot different than one in two.
00:22:30
Speaker
There you go. So good. Okay. So trading off liquidity for your return and upside. Right. And what we would say too is you can skip, I would say two, phase two if you'd like and go straight to phase three. Yeah.
00:22:45
Speaker
So, but I think that's just good to know, just depends on your personal risk tolerance and also personal plan. Right. And the first thing I would say is just corporate like real estate building. Right, commercial real estate. Commercial real estate, we can do something like that. It's all fun and games.
00:23:01
Speaker
But when you're the renter, things get opened up and the tax code is a little bit different if you're a renter and owner. And so when you are thinking about your business and you need a commercial property, it'd be kind of nice to own that. Sometimes that works, sometimes a triple net lease works. There's a lot of different strategies out there. But that's the first thing in phase three is just your commercial real estate and thinking through that as well as not only your
00:23:25
Speaker
I would say rent, but you can also get a little bit bigger place and have another business's cashflow and rent and lease options there.
00:23:34
Speaker
Yeah. And so, you know, I think about this as like the dentist, you know, down the street, you know, you maybe be renting six to eight grand a month for the space. Well, what if you own that space and, um, and started paying yourself that money. And so that's the easy part about it. I think the important thing is, is like, you don't have to do all of these. You don't have to do any of these, but a lot of our business owner clients are doing several of these at the same time. And that's where we want you to get the point of like,
00:24:01
Speaker
On the level that we're talking about, a business owner can build wealth pretty, I want to say easily because running a business isn't easy. But once you get that cash flow thing figured out, you can build wealth almost five different ways at the same time very quickly. We'll come to that at the end. I'm going to say this. Yes, it's actually when you get that mindset, it's fairly simple to figure out how to do that. But if you don't have an advisor or somebody helping you do that,
00:24:27
Speaker
It doesn't even feel like the realm of possibility. And so for us, we just want to educate people of like, Hey, you can do this differently. And for the, sometimes people are like, I just never knew. Right. You don't know what you don't know. Right. And it's just not like there's like a person in every corner talking through this stuff. So.
00:24:44
Speaker
That's interesting. The last thing I want to say on commercial real estate is, especially if you're trying to control the building or space that your main business is in, that's what we're talking about. If you want to buy real estate on top of that, whether that's single-family home rentals or other industrial or whatever, we're helping our clients look at these financials. Now, we're not saying, hey, you should go buy this building on the corner street. We're not doing that.
00:25:10
Speaker
but it's more of like, hey, I wanted to move out of my space, I've been renting, I want to do something. These are the numbers that I'm looking at. Can you help me fit this into my overall financial plan? We're doing that a lot and helping people understand how they get the down payment, what the rents will look like, potential impacts to taxes, working with their accountant and trying to help them see how this could be a part of their overall financial plan.
00:25:33
Speaker
What's interesting about corporate real estate to me is it still can be an asset after you exit the business in the form of, hey, we just signed a 10-year lease. I'm going to sell my business to Joey, and then Joey's going to be now paying the rent to me. So it's also an exit strategy as well. It's just something to think through. You also could sell that building with the purchase of the business. It just gives you a little more options.
Business Acquisitions for Growth
00:26:00
Speaker
Also, it's like renting versus owning. It's kind of nice to own that building. Yeah. I want to highlight that because I think that's a really important point. We're helping our business owner. He's got a successful business and owns real estate that business is in. And he's selling his business and the person buying it wanted to buy both the business and the building at the same time. Well, the valuation of that was hard to take down all at once.
00:26:21
Speaker
And so kind of walked him through and the seller through of like, hey, pay full value for the business, sign a lease on the building. And then we kind of created an option where they had first ready refusal to buy the building five years down the road. If everything goes according to plan, great. But it was a way to get the business owner full value on both assets.
00:26:43
Speaker
step into the business sale and continue to get that cash flow, have that tax protection because you still own a building which can be owned by an LLC and hedge his bets about what if this doesn't work and I get handed back my business in two years. At least I know and own and control the space and some of the assets so that I'm going to have flexibility to make this work.
00:27:07
Speaker
But obviously, everybody wants to go according to plan. But anyways, separating those two assets is huge for business owners. So anyways, good. All right, let's move to the next one. I would say business acquisitions, buying a business that complements your business or gives you more clients.
00:27:26
Speaker
is always something that you can do, put your money in. Right. With that, we would expect the cash flow would go up, which would be able to help you fund said acquisition. And so that would be one that definitely a lot of people are excited about and a definitely different way to scale that business up, potentially. And we're working with somebody right now doing that. Yeah.
00:27:48
Speaker
Business acquisitions is super interesting i think because you know once you start running a business and you figure out how to produce cash flow and you got systems and operations then you're kind of always like what if i had another one now some people are cut out for that and that's okay great point a lot of people are and i think you know obviously like in the franchise model.
00:28:06
Speaker
You know, it's nice to have one. It's also nice to have 10. And the difference of owning one to owning 10 is kind of like, you know, being worth a couple hundred grand or a couple million to being worth 20 million. You know, and that's like, you know, I always remember the interview of Peyton Manning, you know, when he was in Denver, he bought into, I think he owned like 20 Papa John's right before they legalized marijuana. And they asked Peyton, you know, like,
00:28:31
Speaker
How's your investment doing? He just smiled. He's like, yeah, it's obviously been very fruitful, but he owned 20 Papa Johns, not two. And I think, obviously, Peyton Manning is a professional football player and has a lot of money and has done well, but it's that scale that really gives you leverage. And so helping business owners look at acquisitions,
00:28:51
Speaker
How would they pay for it? How would they structure it? All those
Premium Financing for Growth
00:28:55
Speaker
different things. We're helping model those things out for our clients if that's what you need. And we've seen several clients purchase other businesses and it's been highly successful.
00:29:05
Speaker
It also can take you down for the record. Totally. So it does have risk. That comes back to your point of risk tolerance and where's your family at, where's your lifestyle at, can you handle this, all that. So honestly, it just feels good to have some people to bounce those ideas off of, fears, excitements, all this stuff. It's always nice to have somebody kind of be the contrarian or the opposite viewpoint of like, hey, everything's going to go great. Okay, great. What if it doesn't? What's our options here?
00:29:33
Speaker
So that's kind of nice. Okay, the last one I get super hyped up about because it's one that we've talked about before. We've had somebody on the show, but what I see, especially business owners, is they jump into business because they love what they do. Once they get into business, they've never really thought about exit strategy.
00:29:50
Speaker
What I like about this next one is it gives them an exit strategy and it also helps them in cash flow later and it's helpful in taxes. So it's premium financing. We've talked about this before, but I get all hyped up on Mountain Dew Chip. So talk about it.
00:30:05
Speaker
Interest rates are so low and so you're hearing a lot and thinking in the media about income inequality, how the Federal Reserve plays into income inequality. Obviously, the lower interest rates are, the better it is for people that have money, the people that have assets, the people that understand how to use leverage in the right ways. This is a way to leverage really cheap interest rates for business owners.
00:30:32
Speaker
Instead of creating a life insurance policy that has high premiums that you pay and you part ways with your cash, we're able, if you meet the requirements, to borrow 100%. So think about if you could buy a business for 100% bank financed. You don't have to put down a dime for down payment.
00:30:53
Speaker
And then because the cash value builds from the premiums the bank is paying, the asset is over time self-collateralized. So you're not collateralizing some other asset that is going to put you at risk. You do need some collateral at the beginning that's liquid for sure. And over time, as the plan builds, that collateral can go away. And so it's a great way to create
00:31:21
Speaker
kind of like a big hole that will either self-complete, meaning you can surrender money to pay off the loan and you'll still have some leftover, or if you have multiple businesses or multiple assets that you could sell down the road, as you age and diversify, we can extinguish that loan
00:31:39
Speaker
fill that pot back up and you have the benefit like that money was there the whole time because it's now compounding, it's tax protected, you have a death benefit and it's indexed to the stock market so it can go up significantly for you. It's a way to kind of seed your retirement or that business sale or asset sale or overall just diversification
00:32:01
Speaker
as you build wealth and start that process now. The thing that's interesting about this that we really want to make sure that the person that we're talking about this is ready for is it doesn't produce a lot of cash flow upfront, but it's like a slow cooker.
00:32:17
Speaker
you know, like a crock pot. As soon as we, if we do this right, at the end of the rainbow, you're going to have a lot of tax-free cashflow coming out of it. So here's the example, because I want to just put numbers to the example you just gave. If you could go buy a rental property for $400,000, all you had to do is pay the interest of $2.75 currently, that's what it is. That's $11,000 a year.
00:32:41
Speaker
So you're telling me I can get the $400,000 asset for $11,000 a year. Yep. And you're borrowing it with a bank and they've all do this kind of turnkey thing. Next year, they're going to put another $400,000 in that policy for you. And you would now owe $22,000 because now you have to double your interest that you owe. Now that interest goes up, but every time that interest goes up, you're compounding on more and more cash.
00:33:03
Speaker
that they are putting in. Eventually, you could see how this tables will turn where that $400,000 that the bank has been putting in for the last X number of years, let's say seven, but that interest is now a pretty big figure for you. You could be compounding on $2.8 million, all you have to do is pay the interest.
00:33:23
Speaker
So it's something that I think you have to walk through with advisors that understand your personal situation, but one that can be really powerful. And at the end of it, let's say your business is worth around 2.8 million or 3 million or 5 million or 7 million. That's a place to then take the proceeds from that business sale and then plug it back in the hole. Now you're compounding on all the growth that the market helped you with, as well as all the money that that bank put in. And now you're just riding off to the sunset.
00:33:53
Speaker
So, it is a really cool way. Once you do take cash flow out of this thing, your tax rate is zero. There is no taxes involved and they can be upwards of hundreds, thousands of dollars every year if done right. So, that's why I get excited about it is because the business owner can just focus on what they're good at and it's their business. We meet with a lot of people and the feedback in various ways, and we're kind of in this right now.
00:34:18
Speaker
I think as entrepreneurs and as you look at residual income, there's a lot of stuff out there like single family rentals or duplexes or apartments, whatever. But when you're really leading a successful business that's generating cash, you don't want to go get a single family home rental to make $400 or $600 extra a month. Stop the madness.
00:34:37
Speaker
It's not even worth your time. And so what a lot of our business owner entrepreneurs were seeing is like they were doing that to get a foundation started, but now they're cooking with gas and it's like they're sitting on so much excess cash. It's like, what do we do with it? They don't want to go buy another business or not another business that isn't worth their time.
00:34:57
Speaker
There it is. And so it's like premium financing is kind of like just stay good at what you're at. Just keep doing what you're doing. You might go acquire another business that's in your sweet spot and you're generating even more cash. And now you have a whole another asset that lends to diversification later. And so premium finance is kind of for that business owner that's just killing it.
00:35:17
Speaker
wants to stay in their lane, has tried other things, and they're just like, I just want a big pot at the end of the rainbow that I don't really have to do much for throughout the year other than just manage my business and tend to my family and win. And so that's kind of how we're seeing it fit. There's obviously several different ways to utilize the concept, but as it relates to this, if you have a lot of excess cashflow, this could be a strategy to look at.
00:35:44
Speaker
Absolutely. And so I would just echo that. A lot of our business owners are starting to really get traction. And now they're thinking, what else am I going to do? What else? And we're like, what if it's not anything else? What if it's just being more efficient at what you're doing currently?
00:36:00
Speaker
and staying focused because that's what you've known and that's what you've been successful at. I think a lot of times, especially residual income, you look at other people and say, well, that will work for me. And it could, but does that take your focus of what you're good at? Yeah. And so you just have to kind of weigh those different decisions
00:36:16
Speaker
and probably get challenged by some people that have seen people do this and diversify too quickly or diversify and it doesn't actually really help
Evolving Role of CFOs
00:36:26
Speaker
them. It actually just puts bandwidth away from their center of what they're doing. That I think is interesting, but I do like the premium financing case for the right people in the right stage and then also walking through those benefits and risks.
00:36:42
Speaker
So I want to kind of wrap up because you can take some of this stuff and just run with it yourself. If you want our help with it, we kind of said this is an offering that we have. We're trying to make it more formalized and clear what you're getting, what we're doing, all those different things. The two things I would say is like a lot of companies
00:36:58
Speaker
You know hire cfo's to do a lot of the stuff we're talking about you know cfo's in the past to do bond ladders invest the cash and treasuries all the different stuff and. Like now i mean we can do most of the stuff for you and you don't really need to hire anybody and we're not on your payroll or anything like that.
00:37:17
Speaker
We're charging a fee to do it and there's fees involved with the different things. And if you do these different things, we're upfront about what that cost is. But the ability to get us on your team or any other advisor on your team is easier now than ever and to actually help you implement this stuff for you. So it's not like you got to go back and do all this stuff and understand all the knowledge. You just need to understand how it works and we can help you execute.
00:37:44
Speaker
Right? And our job is to educate you. Here's your options. You're pretty smart. You'll be able to make the right decisions. And then we get to talk through all of that and we can help you as much as we can. I love this even more than a CFO because you get to be the driver of this. You get to be the control. You get to be the one that gets to go yes or no. And you get to understand as much as you want to understand and let us do the rest.
00:38:05
Speaker
And the other thing is, is like a CFO is great at managing your company, but they typically have a more limited expertise or focus. Like we're working with dozens of businesses across different industries. So we see a lot of different stuff and we know what's out there. We know what we've tried in the past that didn't work. And so I think we can help you save a lot of headache of trying some of these things because they sound sexy, but you're not thinking through what, what the cons are, what could go wrong. The stupid tax.
00:38:34
Speaker
I would also say too for the CFO, not only are they really good at what they do in their business and your business, but are they good at helping you in your personal? And I'd be like, no. And that's where Brian and I have seen the void. That's our big blue ocean where we not only play in the corporate side of things, but as an individual, you did this to make money. How's this going to affect you and your family? That's powerful.
Conclusion & Call to Action
00:38:56
Speaker
So that's what it is. Corporate Treasury, what do you do? E-book goes along with it. Again, you can go to www.uncommonwealth.com backslash gift. That's right. And then that is where you can get all that. There's a lot of other ones there too. Yeah, and the last thing I'd say is this is like, we love this. We've been working on this, I'd say, informally for eight years.
00:39:18
Speaker
doing this in lots of different parts for a lot of business owners. So for us, this is one of our most exciting parts of our job and can't wait to, if you have questions or whatever, please reach out uncommonwealth.com. You can contact us for free call and we'd love to hear from you. You've been listening to the Uncommon Life Project. I've been your host, Phillip Ramsey. And I am Brian Dewhurst. Until next time, go be in common. Thank you, everyone. Goodbye.
00:39:43
Speaker
That's all for this episode of the Uncommon Life Project, brought to you by Uncommon Wealth Partners. Be sure to visit uncommonwealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.