May 2009

12
May

2009 – A Market Change for Property Insurance

The days of expected low property and casualty rates for insureds is likely to come to an end.  As an agent, you’re on the front lines and this daily reminder is vivid yet the reasons are many.

Pick any news outlet and just hit the headlines to list your culprits for likely rising premiums this year.  The crashing housing market dove-tailed with the sub-prime lending which ushered over-rated collateralized-backed securities into almost every bank’s balance sheet is a big one.  How about Hurricane Ike?  We do know that re-insurers were hit hard by this storm.  Or just plain old disappointing ROI for insurance companies.  By the end of the third quarter last year, the best data available, investment gains totaled less than 50% than in 2007 according to the New York based Insurance Information Institute (III).  The only asset class to weather this last market free-fall is cash.  Yes, even money market accounts saw record redemptions.

But these headlines don’t tell the entire story.  Even with premiums possibly climbing this year, premium revenue is just not there.  Contributing factors to this are falling gross receipts, lay-offs, and businesses just closing their doors.  So what does this mean? It means we are entering a new cycle of premium adjustments.  Insurance Information Institute states, when premiums fall below average as they’ve been for the past few years, insurer’s profits decrease precipitously or disappear altogether, thus they can’t underwrite new business.  When the supply of insurance drops, underwriting appetites narrow and premiums accelerate.

Insureds know there are numerous factors affecting their premiums.  So educate your them on all of the dynamics that are affecting their yearly premiums.  Layout the possible landscape for the coming year and let them know you’ll offer them the best package you can put together.  Premiums may rise but from this is the opportunity of a lifetime to make clients for life!

I want to thank the Dallas Business Journal for information relating to this article.  Peace.  -villageChief

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05
May

Business Continuation – Planning for Success, Part II

Onward to Part 2 of our discussion on Business Continuation.  Randall Blinn is our author this week as he was for Part 1.  Randall is a professional financial consultant with Asset Strategies Group in Austin, TX.  Most insurance agencies are small to medium sized businesses and need to have an established plan for the new leadership taking the helm.  The tax, estate, and financial laws and rules can be confusing and complex.  You should seek counsel in each area.  Look at this like a chess match, you versus the governement.  Keep in mind that the government is betting that you are not going to take the proper steps to secure your estate and legacy for the next generation.  Because if you don’t, Uncle Sam gets more from you.  So please take the steps necessary to plan for specific scenarios before they happen.

Develop a Business Plan for the Future.  You should outline clear-cut short-, medium-, and long-term goals for your successor, along with an action plan for achieving them.  The business plan should include budgets and financial forecasts that can adapt to changing conditions in both the industry and the economy.

Choose a Transfer Strategy.  Depending on the type of business, its value, and your personal financial situation and goals, you’ll need to determine the best transfer strategy for your business.  There are a variety of ways to structure and fund buy-sell agreements.  For transfers to family members or charity, gifting may be a viable option.  Consult your tax and legal professionals for specific guidance.

Plan for Contingencies.  Regardless of your ultimate intentions for succession, it is wise to have an updated package of basic information on hand in case an emergency, such as death or disability, should occur before you have finalized your succession plan.  This should include the following:

  • A copy of your current business plan.
  • Updated job descriptions of all positions within the company, including details regarding areas of responsibility and delegation of duties.
  • A list of potential successors.
  • A plan to help ensure extensive hands-on training for your designated successor.
  • An estate plan to help ensure the availability of cash to help fulfill federal and state estate tax obligations.

Other Consideratations

 There are a number of financial, legal, and tax issues that a thorough succession plan will need to take into account.  For instance, how will a successor secure funds to buy out a retiring, deceased, or disabled owner’s share of the business?  What are the estate planning issue?  And, how can an owner minimize gift taxes resulting from the transfer of company stock to family members?  Answers to these and other questions can be addressed n a succession plan, which is often the result of a coordinated effort by qualified legal, tax, financial, and insurance professionals.

A Parting Thought

You owe it to yourself to ensure that you business will continue to flourish after your retirement, as well as in the event of death or disability.  Proper planning can help provide long-term security for your retirement, your company’s future, and your family.

Thank you Randall for the in-depth article on this deep and complex subject.  If you are interested in learning more, you may reach Mr. Blinn at rblinn@finsvcs.com.  Or you can stop by his online office at www.randallblinn.com.  – villageChief

 

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01
May

Business Continuation – Planning for Success, Part I

Having a fond friend stop by is usually a good time to catch up and to learn a few new things about what’s going on in their life. Recently, a friend of mine, Randall Blinn a successful financial planner in Austin, TX,  passed along to me a couple pieces of advice about business ownership transfer.

Successful business owners invest a great deal of time and effort in building their companies.  With the day-to-day demands, it is often difficult to imagine stepping down for retirement.  Yet, in order to help build financial security for retirement and ensure business continuation, it is important to plan ahead.  Business succession planning can establish retirement income for a retiring business owner, as well as smooth the transfer of operations and/or ownership to family or another entity.  In addition, a succession plan can also help provide structure for unforeseen events, such as death or disability.

Laying the Groundwork

It is never too early to begin planning for succession.  An early start can help you develop an appropriate exit strategy and allow you the time to choose the right person to eventually run your business.  It could take many years to groom a successor to manage the intricacies of your company.  With this in mind, here are some basic considerations to help lay the foundation for a successful plan:

1.  Valuate Your Business. A key aspect of planning for continuation is calculating the worth of your business.  There are a variety of techniques for business valuation.  A qualified professional can help you choose the appropriate strategies.

2.  Plan Your Exit Strategy. It is important for retiring business owners to thoroughly plot out their scheduled departures.  A sound plan can help ensure smooth operations during the time of transition, as well as facilitate the transfer of ownership.

3.  Meet with Potential Successors. If you wish to keep ownership and control of your business within your family, you will need to assess your family members’ interests and qualifications and how well they match the needs of the business.  Discuss with family members who will participate in the compnay and in what capacity.  Then, determine how working members will be compensated and what nonparticipating members will receive.

If you expect unrelated parties to carry on the business, you will need to meet with the key people involved for in-depth discussions about the company and its future.  If succession involves the sale of the business, be prepared to address such issues as what the purchase price will be, how it will be paid, and when the succession plan will be activated.

… Part 2 next Tues.!  – villageChief

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