Cashing Out -- Your Hidden Business Assets
By Rhona Sacks, JD, MBA, CLU

Your successful laundry company is more than just your most valuable capital asset—it represents the realization of your dream.  Unfortunately, too many exiting/retiring 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.

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. 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.
 
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 US 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.
 
An Entrepreneurial Tale
Three business partners, ages 66, 68 and 70, were the principals of a successful company. To fund a cross-purchase buy/sell agreement, each partner owned two $3,000,000 term policies (no cash surrender value) on the lives of the other partners. Seeking to sell their firm, these entrepreneurs received no offers that they felt were adequate for achieving their retirement and legacy goals. Unfortunately, their legal, financial and business advisors were unaware of the enormous value hidden within these business term policies, believing that they were worthless due to having -0- cash redemption value.