Cashing Out of Business

Your successful self-storage company is more than just your most valuable capital asset: It represents the realization of a dream. During the startup 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 underused business assets.

As baby boomers face retirement age, our economy is at the precipice of the largest business transition in history, with millions of entrepreneurs seeking to monetize business equity. According to recent reports by Deloitte & Touche, a provider of audit, consulting, financial advisory, risk-management and tax services, “Seventy-one percent of small and mid-sized enterprise owners plan to exit their businesses within the next 10 years.”

Research by the Small Business Administration indicates only 30 percent of family businesses survive to the second generation and just 15 percent survive to the third. Most companies are sold or, 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.

Throughout the business cycle, companies purchase numerous business-life insurance policies for the purposes of risk management, employee benefits and investment. Examples include:

• Policies funding buy/sell agreements 
• Key-person policies 
• Split-dollar policies 
• Policies securing business loans 
• Policies funding retirement and employee-benefit plans 
• Estate-liquidity and equalization policies 

Traditionally considered inflexible assets with little liquidity, these 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.