Your successful commercial construction company is more than just your most valuable capital asset - it represents the realization of your dream. During the start-up and growth stages, enhancing your firm's productivity was your primary goal. Now that you've decided to sell your company and retire, your primary goal is to extract maximum value from the business you've worked hard to build. Unfortunately, too many exiting entrepreneurs (as well as their legal, financial and business advisors) leave too much cash behind because they fail to recognize the enormous value hidden within one of their most overlooked and underutilized business assets.
"No gain is so certain as that which proceeds from the economical use of what you already have."
Increasing Competition to Sell
Due to the aging of the baby boomers, we are at the precipice of the largest business transition in history, with millions of entrepreneurs seeking to monetize business equity. Deloitte & Touche recently reported that, "71% of small and mid-sized enterprise owners plan to exit their businesses within the next ten years."1 Because only 30% of family businesses survive to the second generation and just 15% survive to the third2, most companies are sold, and if a sale isn't possible, closed. With so many companies up for sale at the same time, the increasing competition to sell demands innovative asset leveraging strategies to capture optimum value as well as create more cash with which to expedite a sale.
Your Hidden Business Assets
Throughout the business cycle, companies purchase numerous business life insurance policies for risk management, employee benefit and investment purposes. Examples include policies funding buy/sell agreements, key-person policies, split-dollar policies, policies securing business loans, policies funding retirement and employee benefit plans, and estate liquidity and equalization policies. Traditionally considered inflexible assets with little liquidity, they have long been viewed as necessary yet unrecoverable expenses.
When a company is up for sale, some of these life contracts may become obsolete because the reasons for their purchase are no longer relevant. And after a company is sold, additional business life policies may outlive their usefulness.
Historically, exiting entrepreneurs faced limited disposition options when their changing needs rendered their business life policies unnecessary: allowing the policy to lapse, thereby forfeiting the value of all premiums paid or surrendering the policy to the original insurance carrier for its cash surrender value, an amount which doesn't reflect its true value.
Today, there is another option. You can use an innovative asset optimization technique - a life settlement - to convert the hidden value in qualified business life insurance contracts to significant immediate cash, providing a much higher return on your investment.
What is a life settlement?
A life settlement is the sale of a life insurance policy to an institutional investor for a cash payment that is greater than the policy's cash surrender value. The platform for the life settlement industry was created in 1911 by virtue of Grigsby v. Russell3. In this seminal case, the U.S. Supreme Court declared insurance policies to be personal property and freely assignable, thereby granting a policyholder the right to transfer ownership to others.
With a life settlement, when your no longer needed term or cash value business life policies are sold for the highest quality institutional offer, you receive a lump-sum cash payment which can be used for any purpose, including facilitating the sale of your company for the desired price and on favorable terms.