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Tag Archives: risk management

How to Reduce Self Employment Taxes & Increase Retirement Savings as an Independent Contractor Physician

As an independent contractor physician, you have spent countless hours in the classroom and clinical training, and have finally reached the point at which you are finally reaping the financial rewards for all of your hard work, only to find out that you have to give more than half of everything you make to the government via income and self employment taxes. Read on to learn how to reduce your tax bill, and pay yourself first.

Physician Corporation – Make sure you Incorporate properly, and file the correct forms in a timely manner. Mostdocument filing services will file and charge you for the forms you request. What you really want is someone who willtell you the correct forms for your circumstances, assist you in completing them, and file them in a timely, cost effective manner. This is definitely a case of getting what you pay for, but you also do not get what you do not pay for.Unfortunately, not filing a correct form in a timely manner could cost you tens of thousands of dollars annually.

• Physician Self Employment Taxes – Set up your payroll and pay business expenses on a regular schedule. By having your business expenses and monthly payroll done on a regular schedule, you will reduce the chance that something gets overlooked, which could result in late charges and unnecessary penalties. In addition, paying yourself a fixed monthly salary will put you in the habit of saving more, and make the actual running of your business more streamlined.

• Physician Retirement Accounts – Use all possible retirement plan vehicles to their maximum benefit. While the most common retirement accounts include IRA’s and Roth IRA’s, as a corporation, the options are expanded significantly, allowing you to not only save a significant amount toward your retirement, you can also shelter these funds from taxes and judgments as well.

• Physician Investment Advisor – Hire a professional to manage your assets based upon your personal goals and objectives. You are a professional, which has taken many years of education and training. Hire a professional to manage your assets, as this will decrease the likelihood of the pitfalls met by many a part time investor, but when hiring a professional, hire someone who gets paid over time, not paid by what you invest in. Only use a Registered Investment Advisor, and never pay a sales commission.

• Physician Corporation Compliance – Keep your corporation filings current to maintain these and many other advantages that are open to you. In order to have the advantages of being a corporate entity, you must behave like a corporate entity, which includes the filing of monthly reports and holding board meetings. Failure to complete these will open you up to personal judgment and potentially hefty IRS penalties. You have worked hard to get where you are. Take the necessary steps to protect yourself from paying tens of thousands of dollars in additional taxes. While technically, you can do it all yourself, it is highly recommended that you hire a professional and do it right the first time.


For a limited time, receive FREE Incorporation when you use our Accounting and Payroll services!


My Professional CFO, LLC, is a professional services firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians and Entrepreneurs. We specialize in Corporation filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts.

We are not simply a document filing service, we are here to help you the with the part of the business that you have to do, so you can focus on what you love to do.

Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients.

Email us with any questions, or call us at: 1 (800) 517-0CFO, 1 (800) 517-0236

Urgent! Why Business Owners Should Act Now.

2015 CAPTIVE COUNT-DOWN
There are 12 Days remaining to start the process to form a captive and pay tax-deductible premiums in 2015!

Life is full of costs, and it seems like they are always going up. If you’re like me, you probably don’t like to think about costs. Sometimes, it’s easy to think, “I’ll worry about that later,” or “I’ll pay that later.” But, it’s early November, and there is a substantial cost that is urgent and looming. Successful business owners and their advisors have only a few weeks to address this very important cost: The Cost Of Waiting To Set-Up Their Own Captive Insurance Company (CIC) – (CLICK HERE to read What Is A CIC). This cost is usually in the hundreds of thousands of dollars and can total as much as $600,000 in lost tax savings.

This year, we have written about the many benefits of owning one or more captive insurance companies. Businesses with a captive insurance company are better positioned for long term survival (CLICK HERE to read more). Businesses that own a captive insurance company benefit from a vastly improved risk management posture. And, a captive insurance company forms the backbone or chassis for small / mid-size business Enterprise Risk Management (ERM). Captives also facilitate significant wealth accumulation by business owners (CLICK HERE to read more).

Why Is It Important Now?

It takes 6 weeks to form a captive insurance company. Businesses with a calendar year fiscal ending on 12-31 still have time to form a CIC and pay tax deductible premiums to their CIC in 2015. The deadline to start the process is November 15!

What Is The Cost Of Waiting?

The cost of waiting to form a CIC in 2015 is hundreds of thousands of dollars. Assuming a combined federal and state income tax rate of 50%, the cost of waiting can be as high as $600,000. A small captive insurance company can make an 831(b) tax election. Its underwriting profits are taxed at a rate of 0% (zero percent). To qualify as a small insurance company, the CIC must receive premiums of less than $1.2 million. Taxes paid to the IRS are gone forever, leaving businesses and their owners poorer, weaker and less prepared for risk and uncertainty.


My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Attorneys and Information Technology Professionals. We specialize in Corporation and LLC filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts. We are not simply a document filing service, we are here to help you with the part of the business that you have to do, so you can focus on what you love to do. For more information visit our website www.myprofessionalcfo.com Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients. Email us with any questions. Call us at: 1 (800) 517-0CFO 1 or (800) 517-0236 Captive services powered by: image

The Most Efficient Approach For Businesses To Build Liquid Reserves

One of the greatest challenges that small and mid-market businesses face is building up sufficient liquid reserves. It has often been said that, “Cash Is King,” and liquid assets are key to the long term health and survival of an enterprise. Being in a strong cash position is particularly important if an unforeseen calamity strikes. Also, liquidity enables businesses to quickly adapt or pivot to address changes in the marketplace.

I recently talked with an insurance agent in the Mid-West who explained why many farmers were land and equipment rich but cash poor. During good years, many farms are quite profitable, creating strong cash flow. However, to avoid high taxes many farmers purchase brand new equipment, even if their current equipment is fairly new and in good working order.

Our experience in business has revealed two time-proven destroyers of liquid reserves:

Destroyer #1 – Uninsured Losses

Destroyer #2 – Taxes and/or Tax Incentives

As an example, consider taxes on “excess” retained earnings, known as the Accumulated Earnings Tax. This tax is deliberately designed to discourage business wealth and liquidity.The Accumulated Earnings Tax (AET) is a penalty tax, imposed on C corporations perceived as trying to avoid or defer shareholder income tax through an “unnecessary” accumulation of earnings. The AET threat is intended to encourage corporations to make timely payments of dividends, thus triggering the double taxation of C corporation earnings. Once an IRS agent asserts that there is an excess accumulation of earnings, the burden of proof shifts to the taxpayer to substantiate that the accumulations were for anticipated needs and were reasonable in nature.

Can Liquidity Destroyers 1 & 2 Be Meaningfully Addressed?

The great news for business owners is that Destroyers 1 and 2 outlined above can be addressed by one game-changing, risk management and financial strategy – Enterprise Risk Management (ERM) with a Captive Insurance Company (CIC). The chart below that visually depicts the powerful benefits of implementing an ERM approach with one or more CICs. Indeed, we know of no other risk management and financial vehicle that affords its owners the array and magnitude of benefits that captive insurance companies do. By choosing to own their own insurance company, a business owner or CFO is able to simultaneously have more insurance protection and more money.

The chart below compares the status quo on the left with ERM implementation and captive ownership on the right. This illustration covers a 10 year period and assumes a 4% rate of investment return for both scenarios. Both businesses have third party insurance coverage in place to insure core risks.

The business on the right which implemented ERM with a captive insurance company has more insurance coverage and more money. In fact, over a ten year period, the business on the right has almost 80% more wealth (or liquid reserves) than the business on the left.

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Understanding Liquidity Destroyer 1

Today, small and mid-size business owners face far greater challenges than their predecessors faced. In fact, they are far more likely to face existential threats that can drain their limited cash reserves or completely wipe out their operations. For instance, cyber risk is a growing and wildly unpredictable threat. Terrorism and impact from international conflicts are very real threats to businesses and their operations (Even if a business isn’t directly targeted, how long can cash reserves last without power…without infrastructure…without key suppliers…without key customers?).

Spending a little time on Ready.Gov, the U.S. Department of Homeland Security’s business preparedness web-site, puts the threats listed above into perspective. The threats are real and their impact can be catastrophic.

Ready.Gov notes that “40% of businesses affected by a natural or human-caused disaster never reopen.”

The government site recognizes that low-frequency and high-impact risks are the ones that pose the greatest threats to small and mid-size businesses, largely because they can wipe out liquidity. Addressing small business disaster preparedness, Ready.Gov notes that:

* “Businesses can do much to prepare for the impact of the many hazards they face…including natural hazards like floods, hurricanes, tornadoes, earthquakes, and widespread serious illness such as the H1N1 flu virus pandemic.
* Human-caused hazards include accidents, acts of violence by people and acts of terrorism.
* Examples of technology-related hazards are the failure or malfunction of systems, equipment or software.”

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Illustration From Ready.Gov On Threats Facing Small Businesses

Consider “Human-caused hazards [like] terrorism.” Ready.Gov makes it clear that any business, large or small, in the U.S. could be impacted by terrorism. Businesses should have business interruption insurance for lost revenue caused by terrorism including chemical, biological or nuclear attack.

Businesses should also be insured for business interruption caused by failure of the power grid (due to natural disaster, terror attack or a solar storm). Also, businesses should have robust business interruption insurance to cover lost revenue in the event of a pandemic disease in the U.S. It is not inconceivable that the government would confine all non-essential workers to their homes for 30, 60 or 90 days to stem a national emergency.

In addition to the existential threats covered above which can quickly empty business coffers, small and mid-size business owners face risks posed by their own governments – local, state and federal. Government regulators wield more power than in bygone days. Overzealous government regulators often “shoot first and ask questions later.” They often have the power to shut down a business until a dispute can be resolved by the courts.

Finally, litigation is an ever-increasing threat to business owners and liquidity, and the dangers come from inside and outside of their businesses. Business owners and their staffs must navigate a complex maze of employment laws, healthcare laws, worker’s compensation laws, environmental laws, tax laws and many other laws that can result in costly lawsuits. Also, many commercial insurance liability policies will cover damages, but do not cover punitive damages awarded in a lawsuit. In many cases, punitive damages awarded to plaintiffs are 3 to 10 times higher than compensatory damages.

ERM with a CIC can address the liquidity threats outlined above by supplementing commercial insurance coverage with insurance coverage provided by the CIC.

Addressing Destroyer 1 – Enterprise Risk Management – Blending Third Party Insurance With Formal Self-Insurance

For many, a far more powerful approach to risk management is Enterprise Risk Management that results in a layered or blended approach. By combining third party insurance with a captive insurance company, a business owner can establish a far more comprehensive and thorough risk management approach. ERM is also a better forward looking approach, because the captive insurance company will accumulate additional reserves in years with low claims. These ERM reserves can provide more robust insurance coverage in the future and, when necessary, can be accessed by the owner (or CFO) as a war chest to address contingencies or unanticipated risks.

What Is A Captive Insurance Company?

Simply put, a captive insurance company is a closely-held insurance company that insures primarily thought not exclusively your business. It is a C corporation and is licensed and domiciled like any large insurance company. Captives also have their own reserves, policies, policyholders, and claims. Insurance policies are issued by the captive to its parent or related companies and are actuarially priced. Owning a captive insurance company is a sophisticated way to self-insure, and captives are generally formed to insure the risks of a business, group of businesses and related or affiliated third parties. A captive (or captives) form the chassis of a small / mid-size business ERM strategy.

Why Is ERM With A CIC A Powerful Approach To Address Destroyer 1

A CIC is one of the most powerful risk management and wealth accumulation tools that a business can access. When properly employed, there is nothing else that can do what a captive insurance company does. By operating their own insurance company as part of ERM, business owners and CFOs can:

Fill Third Party Gaps
A captive insurance company can issue insurance policies that address gaps not covered by third party insurers. Captives can also insure third party insurance deductibles, enabling the parent company to raise its deductible and lower its third party insurance costs. Also, a business can enjoy more broad business interruption coverage with ERM and a CIC when an adverse event occurs, particularly events where third party insurance doesn’t cover all damages or peripheral damages.

Utilize Customizable Coverage
Captive insurance companies can write customizable coverage for the businesses they insure. Many businesses face unique risks that may not be addressed by commercial insurers. Unique coverages can also be very expensive when covered by commercial insurers. This feature enables business owners and CFOs to say, “this has gone wrong in the past, let’s insure against it in the future,” or “other companies have experienced this adverse event, we can insure this via our captive.” The flexibility afforded by a ERM with a captive is extremely beneficial in a complex world.

Benefit From Few Or No Policy Exclusions
Captives can provide broad coverage without the exclusions that riddle typical commercial insurance policies. Insurance coverage is worthless if an exclusion prevents the insured from receiving a claims payment when it needs it most.

Avoid Sunk Cost Of Third Party Insurance
Premiums paid to a captive insurance company remain the property of the captive owners (usually the business or business owners). One of the reasons that most businesses are underinsured is that purchasing insurance is a bit like purchasing a lottery ticket. If you don’t win (or in the case of insurance, experience an adverse event resulting in a claim), your money is gone with nothing to show for it. With a captive, this simply isn’t the case. Profits in the captive, defined as premiums collected less claims paid, belong to the captive owners.

Addressing Liquidity Destroyer 2 – Taxes

Over time, businesses, owners and CFOs can build up a substantial war chest with ERM and a captive insurance company. This war chest is available to pay insurance claims the business may have. And, it can also be accessed should the owner or the business require liquid funds. Assets accumulated in a captive almost always outpace retained earnings or a business’ “rainy day fund.” Because the captive is a formal form of self-insurance, it benefits from insurance law and favorable tax treatment. Hence, it is able to accelerate asset accumulation for two main reasons.

First, premiums paid to the captive receive favorable tax treatment. Premiums paid to the captive are an expense to the parent company. This lowers the parent company’s taxable income. As, the captive takes in premiums, it is taxed as an insurance company on its underwriting profits (typically defined as premiums less reserves to pay future claims). For large insurance companies, underwriting profit is actuarially determined. However, small insurance companies can make an 831 (b) tax election, resulting in a tax rate of 0% (that’s zero percent) on their underwriting profit. A small insurance company is defined as receiving premiums of $1.2 million or less per year.

Second, the captive is able to invest and grow larger pool of assets. Large commercial insurers have entire staffs whose sole purpose is to invest reserves (that have not been taxed).
For these reasons, ERM with a well-run captive insurance company will typically double liquid capital. And, the same claims that would be paid by the captive would have to be covered out of retained earnings anyway if the captive weren’t in place.

The Long Term Benefit Of Defeating Destroyers 1 & 2

When business owners are ready to sell their business or retire, they keep the war chest. A successful captive amasses wealth for its owners that can be accessed and enjoyed in the future. This unique ability to improve risk management and simultaneously stockpile wealth makes ERM with a CIC The Most Efficient Approach For Businesses To Build Liquid Reserves.


My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Attorneys and Information Technology Professionals. We specialize in Corporation and LLC filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts. We are not simply a document filing service, we are here to help you with the part of the business that you have to do, so you can focus on what you love to do. For more information visit our website www.myprofessionalcfo.com Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients. Email us with any questions. Call us at: 1 (800) 517-0CFO 1 or (800) 517-0236 Captive services powered by: image

Game Changing Business Strategy That Turns Sunk Costs Into Sunk Profits

2015 CAPTIVE COUNT-DOWN:

There are 31 Days remaining to start the process to form a captive and pay tax-deductible premiums in 2015!


 

Today’s economic climate is challenging and earning (and holding onto) profits is not easy, making wealth accumulation and long term business survivability more daunting tasks. For this reason, business owners, CFOs and advisors including CPAs, Property & Casualty Brokers, Wealth Managers and Attorneys owe it to themselves to be vigilant in pursuing strategies that will safeguard the viability and wealth of the business and its owners. The sort of vigilance in view often requires rethinking business paradigms to look for “both – and” versus “either – or” solutions. “Both – and” thinking seeks to avoid trade-offs, equivalent to “having your cake and eating it too.”

For example, an old paradigm in the automobile market was the assumption that large, heavier cars were inherently safer. Hence, moves to improve fuel efficiency would likely come at the expense (or trade-off) of safety. The automobile industry has rejected “either-or” thinking and produced innovative vehicles that make great strides in both safety and fuel efficiency. The development of lower weight, energy absorbing auto bodies, aerodynamic designs, air bags, computer controlled engines and hybrid electric engines have combined to produce “both-and” results.

“Both-And” Thinking For Mid-Size And Small Businesses

For small and medium sized business owners in a challenging economy, a particular area the demands “both-and” thinking is insurance. Insurance is often viewed through an “either-or” lens. A well- conceived risk management and insurance strategy is a necessity. However, insurance is almost always a sunk cost. It is certainly a necessity and often critical to the survival of a business, but it remains a sunk cost. Each year, precious dollars spent on insurance premiums are gone. It is a mere cost of doing business. And, while most businesses would benefit from purchasing a broader range of insurance coverages, many don’t, because more insurance coverage means less money in the business and less wealth at the disposal of the business owner or CFO.

The Power of “Both-And” Thinking = More Insurance Protection and Significantly More Wealth

The paradigm shift required to overcome this “either-or” scenario is for business owners to make the choice to own their own insurance company. Specifically, a business can set-up and operate what is known as a captive insurance company. Large corporations have been utilizing captive insurance companies for decades, and recent laws favoring “small” captives and competition among domiciles have made captive ownership a powerful and accessible risk management tool and financial vehicle for a growing number of small and mid-size businesses. Such a decision propels a business from “either-or” to “both-and” thinking because a business that owns its own insurance company can benefit from both more insurance coverage and more wealth at its disposal simultaneously.

“Both-And” Benefit: More Insurance Coverage

Most businesses are under-insured. If a business owner, CFO or risk manager were to take an hour or so and write down every threat to the business, it is likely the list would fill up several pages. And in most cases, businesses purchase third party commercial insurance for a fraction of the risks they face. The reality is that it’s not practical or remotely affordable to purchase third party insurance for many of the threats a business faces. However, by choosing to formally self-insure many of the risks facing a business through a captive insurance company, a business owner is able to provide a much broader umbrella of insurance coverage. This improved risk management approach does not require the business to replace existing third party commercial insurance policies, although a captive can be used to replace third party coverage if it is prudent and expedient to do so. For small and mid-size businesses, the best risk management approach is usually achieved by blending third party commercial insurance with broad lines of insurance coverage afforded by one or more captive insurance companies.

Captive insurance companies have the unique ability to write customizable insurance coverage. So, they can write policies that are specifically tailored for the specific needs and challenges faced by the parent company. It is often difficult and inefficient for third party commercial insurers to write customized policies. This reality often renders customizable coverage unaffordable or impossible to acquire. Another benefit of providing insurance coverage via a captive arrangement is that captive policies do not have to include the exclusions that characterize most commercial insurance policies. In this sense, policies issued by a captive can be “wide open,” which is particularly important when a business has a loss and needs the money. Also, claims approval and processing for captive claims is simpler, more timely and more certain. For these reasons, a captive insurance company is a powerful vehicle to:

– Provide blended insurance coverage with existing third party insurance coverage

– Fill gaps in existing third party insurance policies including covering exclusions

– Insure risks that were previously uninsured

“Both-And” Benefit: Significantly More Wealth

By choosing to own a captive insurance company, a business owner or CFO is also choosing to enjoy some of the benefits of insurance law and taxation. It’s no secret that most insurance companies are very profitable. The skylines of most major cities in America are dominated by stadiums, banks, and… you guessed it, insurance buildings. Large commercial insurance companies receive millions of dollars in premiums, and in return, issue policies promising to pay in the event an insured adverse event occurs. Large insurers use actuarial calculations to reserve a large portion of premiums collected for future obligations or claims. It is important to note that these reserves are not taxed. Insurance companies are taxed on their profits, essentially computed as premiums received plus investment income less reserves for future losses, less expenses. Expenses essentially include operational, administrative, marketing and sales costs of doing business. At their core, large insurers are a lot like banks. They have a large pool of untaxed assets to invest and grow.

Small captive insurance companies are quite similar to large insurance companies as described above. However, small captive insurance companies can benefit from an addition to the tax code that was added in 1986 by Congress and signed into law by President Reagan. Small captive insurance companies can make an 831 (b) tax election if they receive $1.2 million or less in annual premiums. When a small captive insurance company makes an 831(b) election, it is taxed at a rate of zero percent (0%) on its underwriting profits. Hence, premiums received less claims paid, less expenses result in underwriting profit which is taxed at zero percent. Similar to large insurance companies, small captives will almost always have a large pool of assets to invest and grow.

The parent company or companies deduct insurance premiums paid to the captive insurance company as a business expense. This lowers operating profit and reduces taxes paid by the parent company or business owner. Also, a captive insurance company may be owned by the business, the business owner, related parties, key employees or heirs. By complying with insurance law, a captive enables a business owner to achieve the “both-and” benefit of retaining and controlling more wealth.

Paradigm Shift: From Sunk Costs To Sunk Profits

“Both-and” thinking can transform a business’ total insurance portfolio from a “sunk cost” to a “sunk profit.” As an example, consider a profitable business that spends $250,000 per year on commercial insurance policies covering general liability, property and auto. In a year with no claims, the $250,000 spent on insurance premiums is a “sunk cost.” Now consider the same company with an improved risk management strategy and a captive insurance company in place. The business still pays $250,000 on commercial policies for general liability, property and auto.

However, the business also pays $1,000,000 in premiums to its captive insurance company to acquire a wide range of additional coverages including reputational risk, administrative actions, legal expenses, cyber breach and data loss, loss of key employee, loss of key account, supply chain, directors and officers, employment practices, terrorism and a large umbrella policy. Assuming a year with no claims, the business owner or business ends the year with $1,000,000 in his or her captive insurance company. The parent company deducted $1,000,000 in insurance premiums and reduced taxes paid by the owner by $500,000 assuming 50% combined state and federal income taxes. The $500,000 in tax savings less $250,000 in third party commercial insurance premiums nets $250,000 in additional wealth retained and controlled by the owner in the total insurance portfolio strategy for the business.

By choosing to own a captive insurance company and applying “both-and” thinking, a business owner can turn risk management into a profit center, transforming sunk costs of third party insurance into overall sunk profits in a captive owned and controlled by the business owner.


My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Attorneys and Information Technology Professionals. We specialize in Corporation and LLC filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts. We are not simply a document filing service, we are here to help you with the part of the business that you have to do, so you can focus on what you love to do. For more information visit our website www.myprofessionalcfo.com Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients. Email us with any questions. Call us at: 1 (800) 517-0CFO 1 (800) 517-0236 Captive services powered by:

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Did You Or Your Business Just Write A Large Check To The IRS?

2015 CAPTIVE COUNT-DOWN

There are 60 Days remaining to start the process to form a captive and pay tax-deductible premiums in 2015.

A better question might be, “Did you just weaken your business by sending a large check to the IRS?”

And, if you answered, “yes” to that question, would you instead like to strengthen your business by sending far smaller checks to the IRS?

If you can affirmatively say, “yes” to the following statement, “I want to make my business stronger and more survivable by sending smaller checks to the IRS,” then this article is for you.

At the outset I want to be very clear that I am not advocating tax evasion. CLICK HERE to read Tax Avoidance Is Perfectly Legal, But Tax Evasion Is Against The Law.

I am advocating one of the most responsible strategies that small and mid-sized business owners can implement to ensure the long-term survival of their enterprise. This strategy has legitimate business purpose, provides significant tax savings, and is encouraged by Congress. CLICK HERE to read Congress Wants You To Own A Captive Insurance Company.

What is this responsible strategy that is also a financial game-changer? Well, I partially tipped my hand in the link provided above. This wealth-preserving, business survival strategy is Enterprise Risk Management Utilizing A Small Captive Insurance Company.

BACKGROUND: Congress And Small Captive Insurance Companies

Over time, taxes can take a heavy toll on a business and its owners. Year after year, profits are stripped away to pay taxes often resulting in a business that is less prepared for the challenges and risks it may face in the future. Congress doesn’t want small and mid-size businesses and business owners to be hollowed out by excessive taxation either.

In the mid-1980s, Congress passed legislation creating the 831 (b) “small” insurance company tax election. A small insurance company is defined as an insurance company that collects $1.2 million or less in premiums. In most captive insurance company arrangements, premiums are paid by the parent company to the captive insurance company. In return, the captive provides insurance policies to the parent company. The 831(b) tax election allows small insurance companies to be taxed at a zero percent (0%) tax rate on underwriting profit. Underwriting profit is simply defined as premiums collected less claims paid. Hence, a small business could pay up to $1.2 million in premiums to its captive insurance company and the captive would pay no taxes. The captive can be owned by the business, the business owner, business owners, heirs or other related parties. Depending on claims, a captive can save up to $600,000 per year in taxes.

It’s worth noting that “small” captive insurance company legislation was a bi-partisan effort passed by a Democratic controlled Congress and signed into law by Republican President, Ronald Reagan. This issue united both sides of the political aisle in America because small captive insurance companies are good for small businesses, good for long term business sustainability and good for America.

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How Is Enterprise Risk Management With A Captive Insurance Company A Game Changer?

The illustration below shows why captive ownership is so often good for businesses and good for business owners. A captive can serve as the backbone or chassis of an Enterprise Risk Management (ERM) approach. ERM addresses risk holistically, expands insurance coverage to the business, takes a long-term approach to risk management, and simultaneously puts more wealth at the disposal of the business owner.

The illustration below compares the status quo on the left with ERM implementation and captive ownership on the right. This illustration covers a 10 year period and assumes a 4% rate of investment return for both scenarios. Both businesses have third party insurance coverage in place to insure core risks. The business on the right which implemented ERM with a captive insurance company has more insurance coverage and more money. In fact, over a ten year period, the business on the right has almost 80% more wealth than the business on the left.

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Clearly, the business that implemented ERM with a Captive Insurance Company is better prepared for the future. Remember, small insurance company legislation united both sides of the political aisle in America because small captive insurance companies are good for small businesses, good for long term business sustainability, good for employment, and good for America. Don’t just pay more taxes if your business would benefit from owning its own insurance company!

What Is Enterprise Risk Management (ERM)

ERM is the discipline by which an organization in any industry assesses, controls, exploits, finances and monitors risks from all sources for the purpose of increasing the organization’s short and long-term value to its stakeholders. Beginning in the mid-80s, many businesses continued down an entrepreneurial path and shifted their mindset from risk management simply as a form of cost containment to risk management as a profit center. Indeed, a more mature approach to risk management can be quite creative and entrepreneurial. Making a paradigm shift from viewing risk management purely as a cost center to viewing risk management as a profit center and strategic pillar of the business can be very rewarding from a financial standpoint.

ERM is the paradigm shift that transforms risk management from a cost center to a profit center. Large corporations have employed ERM for some time, and this mature approach to risk management can also be adopted by small and mid-size companies. The chassis of an ERM approach is a captive insurance company (or companies). Captive insurance companies give business owners or CFOs the ability to take an active versus a passive approach to risk management. ERM increases depth of coverage and is a forward-looking approach to risk management. Furthermore, as a company’s ERM strategy matures, risk management can transition from being a cost center to serving as an entrepreneurial profit center.

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Ownership of one or more captive insurance companies makes ERM possible, because a business is able to both:

– Increase depth of insurance coverage
– Increase the time horizon of its risk management approach

Increase Depth Of Insurance Coverage

When employing a mature ERM model, business owners can categorize risk as core risk, operational risk and strategic risk. Most businesses and individuals simply insure core risk and usually do so via third party commercial coverage. Utilizing an ERM approach, a captive insurance company, in its formative years, gives businesses depth of cover by addressing the second and third layers of risk management (operational risk and strategic risk). As the captive matures and amasses reserves, it can also play a role in addressing core risk. It’s worth noting that many non-core risks evolve into core risks. Examples include: cyber, supply-chain risk, extended warranties, administrative action, terrorism, receivables, key contracts, key employees and employment risk. Operational and strategic risks and the existential threat that can pose to small and mid-size business owners are outlined in detail at FEMA’s Ready.Gov web site (CLICK HERE to read more).

Increase The Time Horizon Of Risk Management

Another characteristic of a mature risk management approach is taking a forward looking stance. A short term approach to risk management typically buys insurance from year-to-year with the goal of keeping costs as low as possible. Each year, all premiums paid for third party commercial coverage are a “sunk cost.” At the end of the year, if there are no claims, the money is gone. Because a captive insurance company is owned by the business owner(s) or the parent company, premiums paid to the captive insurance company are retained after claims are paid. Wealth accumulates in the captive as insurance reserves and provides flexibility to the business in its risk management in future years. A captive facilitates an ERM strategy because it enables a multi-year approach to risk management.

Summary: Financial Impact Of ERM With A CIC

Adopting an ERM approach with a captive insurance company as the chassis can be a financial game changer for business owners. Because the business owner and/or company can reap additional profits from its captive insurance company, the organization will inevitably make risk management and risk mitigation a higher priority. Furthermore, as the CIC grows its reserves, it is in a position to help reduce total reliance on third party commercial cover for core risks. This can often be achieved by reinsuring deductibles and insuring additional potential losses not covered by commercial insurance (including losses above third party insurance policy limits). Finally, CIC ownership enables the business owner or owners to capitalize on the favorable tax treatment that insurance companies receive on their reserves set aside for future claims. As noted already, a well-structured ERM strategy with a CIC can save a business owner up to $600,000 per year in taxes.

Because a captive insurance company is owned by the business owner(s) or the parent company, premiums paid to the captive insurance company are retained after claims are paid. Wealth accumulates in the captive as insurance reserves and provides flexibility to the business in its risk management in future years. A captive facilitates an ERM strategy because it enables a multi-year approach to risk management.

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ERM with a captive insurance company is particularly powerful, because this approach enables a business or business owner to capitalize on insurance law. Fortune 500 companies and other large company CFOs have been capitalizing on insurance law and tax treatment since the 1950s. The exact same strategies are available to small and mid-size companies. As part of its ERM, a business can purchase insurance from its captive insurance company (ies). Premiums paid to the captive are a tax deductible expense to the parent company. The captive insurance company receives the premiums in a tax-favored manner as a large portion are set aside as reserves for future claims.

Reserves are not taxed, hence the insurance company is able to invest and grow a large pool of money. Insurance companies amass wealth by investing large amounts of pre-tax reserves. As already covered, if the insurance company qualifies as a “small” insurance company (defined as receiving annual premiums of $1.2 million or less), it can make an 831 (b) tax election and be taxed at a 0% (zero percent) rate on its underwriting profits. Hence, a well-structured ERM strategy with a CIC can save a business owner up to $600,000 per year in taxes. Most importantly, rather than being weakened by taxation, the business is strengthened and better prepared for long term survival.


My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Attorneys and Information Technology Professionals. We specialize in Corporation and LLC filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts. We are not simply a document filing service, we are here to help you with the part of the business that you have to do, so you can focus on what you love to do. For more information visit our website www.myprofessionalcfo.com Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients. Email us with any questions. Call us at: 1 (800) 517-0CFO 1 (800) 517-0236 Captive services powered by: image

What type of Businesses Benefit from a Captive Insurance Company (“CIC”)?

What type of businesses could benefit from a captive insurance company (“CIC”)?

  • Businesses that are overpaying for third party insurance or with significant uninsured or underinsured risks

ExamplesContractors, developers, medical groups, family owned businesses, physicians, entertainers, professional athletes, high tech firms, professional service firms, real estate management companies, etc.  Upon reflection, almost every business has significant uninsured or underinsured risks.

  • Businesses with sufficient revenue and profits to afford the premium
    • – Over $1,000,000 in gross revenue.
    • – Over $200,000 in “excess” after-tax profits (i.e., money that doesn’t need to be directly reinvested into the business or paid out as compensation).

Tax savings versus informal self-insurance arrangements

Assuming that your captive insurance company (“CIC”) is a proper, licensed insurance company that writes appropriate, relevant insurance policies in exchange for independently-priced or market comparable premiums, then premiums paid to your CIC should be deductible to your business just as if they were paid to a third party insurer.   For instance, if you paid $1 million in premiums to your CIC this year for valid insurance, the resulting deduction would save you or your business $400,000 in taxes if you’re in a forty percent combined federal and state tax bracket.

In addition captive insurance companies receiving less than $1.2 million per year in premium income, can elect to have their underwriting profits taxed in a zero percent bracket under Code Section 831(b). For example a CIC which takes in premiums of less than $1.2 million per year with its premium income exceeding claims paid, may have those profits taxed in a zero percent bracket.  Assuming $1 million of CIC premiums and a forty percent tax bracket that represents $400,000/year of potential tax savings by formally self-insuring risks through a captive versus not insuring these risks at all as most businesses do.

Why do captives enjoy such a low tax bracket on underwriting profits?  Some hypothesize that Congress may have decided that third-party insurance arrangements should not be favored by the tax code over formal self-insurance arrangement like CICs.  Also, it seems that Congress may have intended to incentivize small businesses to begin setting aside reserves to insure risks they have failed to cover via third parties due to cost, lack of available coverages for certain risks, or other considerations.  Section 831(b) incentivizes small businesses to responsibly reserve for these risks through captive insurance arrangements.

Despite the obvious and frequently-noted tax advantages of a CIC, no business transaction should ever be completed simply or even primarily to achieve tax savings.  In some cases the IRS has authority to deny deductions that result from primarily tax-motivated transactions.   Thus, the decision to implement a CIC should be based upon the business owner’s careful considerations of the risks facing his/her business and the various means of mitigating them, and his/her decision-making process should be documented.  Unfortunately, it’s the rare business indeed that doesn’t have considerable exposure to innumerable uninsured risks, potentially bankrupting the business if left unaddressed, and which self-insuring via a captive can mitigate.  Your captive attorney and his or her insurance manager can assist you in recognizing and developing a plan to protect against such risks.

Why form a Captive Insurance Company (CIC)?

  • Reduce Insurance Costs: Conventional third party insurance policies insure a bundle of risks that may not be particularly relevant to you.  A standard package may include both relevant and comparatively irrelevant risks, and yet you pay for both.  In other words, you may be paying for coverage that you don’t need while “going naked” on coverage that you do.  Third party insurance premiums also include markups for things like marketing expenses and large underwriting departments, which may not benefit you at all.  These additional costs are reduced or eliminated with captive insurance.
  • Protect Your Business From Risk: The attorneys and insurance managers who assist you in forming your CIC are experts at identifying relevant but often over-looked risks.  Because CICs offer the ability to obtain tailor made insurance, your business should be better prepared to survive the unexpected
  • Improve Cash Flow: The potential savings realized by obtaining cheaper and more relevant types of insurance, combined with the tax savings that CIC’s provide, may result in significant improvements in your business’s after-tax cash flow.  There is also a decided advantage in being able to time the premium payments to the company’s natural cycle of cash flow.
  • Create Profit Center: Studies show that businesses which own a captive better manage their risk than 3rd party insurance companies, allowing CIC’s to have a much lower loss ratio. Captives are often therefore highly profitable. These profits can be invested in ways that which generate valuable investment income.  The result is often a new profit center for your business enterprises.
  • Increase Asset Protection: Properly formed and maintained, the profits of a captive are very well insulated from the creditors of both the business and the business owners.
  • Estate Planning: If your captive is owned by your children or a trust for the benefit of your children, then premiums paid to the captive each year are effectively removed from your taxable estate without gift taxes.

My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Attorneys and Information Technology Professionals. We specialize in Corporation and LLC filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts. We are not simply a document filing service, we are here to help you with the part of the business that you have to do, so you can focus on what you love to do. For more information visit our website www.myprofessionalcfo.com Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients. Email us with any questions. Call us at: 1 (800) 517-0CFO 1 (800) 517-0236 Captive services powered by: image

How To Turn Risk Management Into A True Profit Center

Here is a captivating question.  How can a small or medium-sized business turn its risk management into a true profit center?

It sounds impossible – turning risk management into a profit center.  Risk management pays insurance premiums, develops workplace safety guidelines and implements loss control programs.  How could it possibly be a profit center?

Furthermore, this is not simply a question about cost containment or even cost reduction.  To succeed, the business’ risk management strategy must give the business’ owners access to more money than they would have had otherwise, including completely offsetting the cost of commercial insurance and loss control programs. Clearly, a question this challenging requires some captivating thinking.

Consider the example below of a hypothetical small manufacturing business.  This is merely an example.  The captivating risk management approach I will outline could apply to many types of profitable small and mid-size businesses in a variety of circumstances.  As the first table below illustrates, risk management is a cost center, and the business pays $210,000 in annual commercial insurance premiums and $40,000 annually is loss control and safety programs.

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It’s time for some captivating thinking.  The table below illustrates the exact same business with an Enterprise Risk Management (ERM) strategy in place.  ERM is a discipline, whereby a business assesses all the threats it faces and develops a comprehensive risk management plan.  To read more about ERM for small and mid-size businesses, CLICK HERE.

As part of its ERM approach, the business implements steps to reduce risk and mitigate risk.  Keep in mind that insurance is a financial risk mitigation approach.  As part of its ERM strategy the business owners set-up, operate and own their own insurance company, known as a Captive Insurance Company (CIC).  The CIC forms the backbone of the ERM strategy.  The CIC significantly increases the business’ insurance coverage, addressing many of the risks identified in the comprehensive risk assessment.  To read more about Captive Insurance Companies, CLICK HERE.

The CIC is owned by the business’ owners. So the owners and the business effectively retain the profits in the captive insurance company.  Because this CIC takes in annual premiums of less than $1.2 million, it can make an 831(b) tax election and be taxed at a rate of zero percent (0%) on its underwriting profit.  In the illustration below, this results in $460,600 in annual tax savings.  This assumes a combined federal and state tax rate of 47%.

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Finally, the table below illustrates how ERM with a CIC turns risk management into a true profit center that – in effect – pays the business’ owners or increases the total wealth of the owners.  The ERM Program results in $460,600 in tax savings.  The tax savings generates an estimated $13,818 in investment income (assumes 5% return and 3% after tax return).  The CIC pays $75,000 to operate, renew its actuarial pricing of policies, issue policies, renew its insurance license, conduct an annual audit and purchase reinsurance for its policies.  As we have already established, the business spends $210,000 on commercial insurance.  As part of its ERM strategy, the business is investing $40,000 in loss control and safety programs.

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As can be seen, ERM with a CIC produces a dramatic result.  This business’ risk management strategy was a drain on the business, costing it $250,000 annually.  With ERM in place, the business’ risk management program created $149,418 incremental wealth to the business owners after offsetting: the cost to operate the CIC, the cost to reinsure the CIC, the total cost of commercial insurance, and the cost of implementing a loss control program.  Captivating Thinking enables successful business owners to convert risk management from a cost center into a powerful profit center.


My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Attorneys and Information Technology Professionals. We specialize in Corporation and LLC filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts. We are not simply a document filing service, we are here to help you with the part of the business that you have to do, so you can focus on what you love to do. For more information visit our website www.myprofessionalcfo.com

Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients.

Email us with any questions.

Call us at: 1 (800) 517-0CFO 1 (800) 517-0236

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How To Significantly Grow Wealth By Starting Another Business

As a business grows and matures, its owners may look for additional means to grow revenue and boost business wealth.  A common approach is to start or acquire an additional business that serves the core business.   This is often described as vertical integration, and it is often effective because a supplier or service provider is already making a profit serving the parent company.  Also, the parent company is “staying close to home,” and usually not straying too far from its core competencies.

As an example, a manufacturer may choose to purchases or start a business within its own supply chain.  Not only does this give the manufacturer greater control of its supply chain, it also enables the manufacturer to earn additional profits.  Another benefit is that the business owner may gain better control of his or her risks, including the risk of a key supplier folding or choosing to sell to a competitor.

Clearly, this business move is not without risk.  In some cases, the manufacturer may be ill-prepared to run another company.  The owners may not understand the pitfalls that their supplier has already overcome.  Their supplier may have expertise or sourcing advantages that the manufacturer is unable to replicate.  And, choosing to compete with a supplier may embolden them to “pull out all stops” to support a business’ competitor.  A lot can go wrong.

Is There A Low Risk AND Low Effort Way To Set Up Another Profitable Business?

Actually, there is.  A successful business can turn its risk management into a separate business.  Furthermore, a well-run risk management business can function as an additional profit center.  To achieve this break-through result, the business owner implements Enterprise Risk Management (ERM) and sets up and owns an insurance company, specifically, a captive insurance company (CIC).  Captive insurance companies are a separate company, and the form the backbone or chassis of ERM for small and mid-size businesses.

Low Risk

Implementing ERM with a CIC can be a low risk endeavor because the business can choose to keep existing third party insurance coverage intact and utilize the captive to cover gaps in its existing risk profile.  ERM for small and mid-size businesses is most effective when it blends third party commercial insurance coverage with insurance coverage provided by the CIC.  In this manner, a business owner is able to enjoy a comprehensive blanket of protection.

Low Effort

Also, by working with an experienced and proven captive manager, a business does not need expertise in operating its own insurance company.  The captive manager oversees and coordinates most all of the work.  The business owner is able to own his or her own risk management business, while capable hands carry-out set up and operations on the owner’s behalf.

What Is A Captive Insurance Company?

Simply put, a captive insurance company is an insurance company.  It is a C corporation and is licensed and domiciled like any large insurance company.  Captives also have their own reserves, policies, policyholders, and claims.  Owning a captive insurance company is a sophisticated way to self-insure, and captives are generally formed to insure the risks of a business, group of businesses and related or affiliated third parties.

What Are The Benefits Of Enterprise Risk Management With A Captive Insurance Company? 

First, the parent company is able to benefit from a far more robust, holistic approach to risk management.  Specifically, the parent company or companies can now formally insure risks that may have previously been uninsured or under-insured.  The parent company can also insure deductibles where it has third party commercial insurance in place.

Second, the overall (or aggregate) wealth of one or more businesses with ERM and a CIC in place is almost always higher – significantly higher– than the overall wealth of companies without ERM and a CIC.  This occurs for two primary reasons.  First, the parent company takes an expense as it pays its insurance premium to its captive.  This lowers the parent companies taxable income.  And, the captive can make an 831(b) election and be taxed at a zero percent (0%) rate on its underwriting profits, provided the premiums it receives are less than $1.2 million annually.  Second, the captive is able to earn a return on its reserve pool (or assets).  And, the captive’s asset pool has been amassed with pre-tax dollars, enabling asset growth on a larger starting base.

How Can Starting Another Business Significantly Grow Wealth? 

Adverse events are going to occur whether or not a business has ERM in place.  Businesses with a captive have a much larger pool of funds to address adverse events (typically 80% to 100% more) because captive assets are comprised of pre-tax dollars.  Hence, the captive effectively acts as a legal tax shelter for the premiums received from its insured.

Premiums are paid from the parent company to the captive with pre-tax dollars, and accumulate tax-free as reserves of the captive (up to $1.2 million annually).  Captive reserves can be translated into virtually any other type of asset (some domiciles have restrictions).  Hence premiums paid to the captive are in effect a “transfer of wealth” and are protected from the parent company’s creditors and lawsuits.  For this reason (tax savings and reserve accumulation), ERM with a CIC is quite often a successful and profitable “second business.”  Over time, ERM with a well- structured captive can often double the wealth accumulation of its owners.


My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Attorneys and Information Technology Professionals. We specialize in Corporation and LLC filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts. We are not simply a document filing service, we are here to help you with the part of the business that you have to do, so you can focus on what you love to do. For more information visit our website www.myprofessionalcfo.com

Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients.

Email us with any questions

Call us at: 1 (800) 517-0CFO 1 (800) 517-0236

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Captivating Thinking- Game Changing Financial Vehicle For Mid-Size And Small Business Owners

The term “game changer” has often been used to describe people or entities that break from the established or expected norms.  A “game changer” often defies existing paradigms or creates new paradigms.  In sports, a “game changer” is often an athlete that is far superior to his or her contemporaries, is very versatile or seems to always deliver in high impact situations.

The same can be said of “game changers” in business.  However, in business, “game changing” behavior is often a matter of discovery or invention, unlike sports where “game changing” behavior is almost always the result of raw talent and hard work.

Our passion is discovery and invention.  Since our inception, we have been in the business of helping clients invent a superior risk management strategy and discover their own game changing financial vehicle.  Our superior risk management approach is Enterprise Risk Management (ERM) adapted for mid-size and small businesses.  While implementing ERM, clients discover the powerful financial advantages afforded to them by owning their own insurance company.  An insurance company is a powerful financial vehicle that can provide tremendous added value to businesses and business owners.  In this case, we are describing what is known as a captive insurance company or small casualty insurance company under the Internal Revenue Code section 831 (b).

First and foremost, a captive insurance company can provide more effective risk management and casualty insurance protection to a parent company or companies.  It forms the backbone or chassis of ERM for mid-size and small businesses.  To read more about ERM, CLICK HERE.  Not surprisingly, improved risk management is the primary purpose for creating a captive insurance company.

However, a captive insurance company also affords many ancillary benefits to the business, its owners and its CFO.  Owning one or more captive insurance companies enables business owners to solve for many other financial needs and wants.  We know of no other financial vehicle that delivers such a wide range of benefits.

Owning a captive insurance company as part of an ERM strategy can enable business owners and professionals to more effectively address the following wants and needs:

It is important to keep in mind, that while all the above ancillary benefits have significant value, when forming a captive insurance company, one CANNOT choose to do so primarily for the ancillary reasons above. The captive must be formed for the primary reason of enhanced risk management, insurance protection, and asset protection. An experienced attorney and captive management firm can ensure captives are set up properly with an operating plan and procedures that meet the requirements necessary to function as a licensed insurance company.

What Is A Captive Insurance Company?

A captive is a unique but REAL casualty insurance company.  It includes its own corporation, insurance license, reserves, policies, policyholders, and claims.  In addition to forming the backbone of an ERM strategy, it is a formal way for business owners to self-insure, and captives are generally formed to insure the risks of owners and related or affiliated third parties.

There are many risks that all businesses regularly face and informally self-insure.  It’s worth noting that businesses informally self-insure with after tax dollars, meaning that a business’ “rainy day fund” is usually comprised of retained earnings that have already been taxed.  With ERM and a captive in place, businesses can formally insure risks not normally insured by third party insurers.

Premiums are paid from the parent company to the captive with tax deductible or pre-tax dollars, and can accumulate tax-free as reserves of the captive (up to $1.2 million annually).  Reserves can be transferred into virtually any other type of asset (some domiciles have restrictions).  Hence premiums paid are in effect a “transfer of wealth” and are protected from the parent company’s creditors and lawsuits.

While ERM with a captive don’t fit all business situations, countless business owners are missing out on the game changing benefits that ERM with a captive insurance company can provide them.  Discovery is the first step.


My Professional CFO, LLC, is a Business Management firm providing the highest level of service in three key areas of importance to Independent Contractor Physicians, Attorneys and Information Technology Professionals. We specialize in Corporation and LLC filings and ongoing Compliance, Accounting and Payroll, and Investment Management. Our professionals will assist you in forming the appropriate type of company for your situation and work with you to make sure your company remains compliant. We provide ongoing Accounting and Payroll services to make certain all bills are paid and necessary tax forms and withholding payments are made in a timely manner, as well as the set up and management of your retirement accounts. We are not simply a document filing service, we are here to help you with the part of the business that you have to do, so you can focus on what you love to do. For more information visit our website www.myprofessionalcfo.com

Alan Conner, MBA – President of My Professional CFO, LLC has nearly 2 decades of experience working with professionals and small business during both the start-up and ongoing management. He has written countless business plans and has managed assets for both institutions and high net worth clients.

Email us with any questions

Call us at: 1 (800) 517-0CFO 1 (800) 517-0236

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