Internal Agency Perpetuation

Transcription

1 Internal Agency Perpetuation Instructor: Al Diamond LEADERSHIP AND TRUST IIAI ANNUAL CONVENTION PRAIRIE MEADOWS CONVENTION CENTER SEPTEMBER 14, 2017

2 AGENCY INTERNAL SUCCESSION AND PERPETUATION Presented By: Al Diamond Agency Consulting Group, Inc. Lucius Annaeus Seneca ~Roman philosopher Doc: Perpetuation Planning How and Why Succession Perpetuation Continuing your agency from the inside Continuing your agency from the outside Doc: Succession or Perpetuation 1

3 Methods of Perpetuation Internal Modified Internal External Doc: Inter generational Transfers of Insurance Agencies Doc: Ruminations on the Succession Plan and Sale of My Agency Internal Perpetuation Buy the Agency over time using it s Cashflow Internal Perpetuation Buy the Agency with Cash or a Loan 2

4 Internal Perpetuation Bequeath the Agency at Owner s Death Internal Perpetuation Innovations Lifetime annuity Discounted Buy In New Agency Servicing Old Agency Doc: Strategies to Avoid (not evade) Taxation in Agency Perpetuation Confucius ~Chinese philosopher 3

5 Al Diamond ~Updated philosophy If you are planning for a year, cultivate your objectives. If you are planning for a decade, cultivate your strategies. If you are planning for a century, cultivate your people. Doc: Succession Planning Perpetuation and Succession Hit by a Truck Syndrome Contingency Buy/Sell Agreements What Happens if I Die? What Happens if I Don t Die? 4

6 Hit by a Truck Syndrome Death Internal Buy Sell Owners/Successors Internal Buy Sell Owners from Different Agencies Funded by Key man Insurance Doc: The Trouble With Generations Doc: The Contingency Buy Sell Agreement Hit by a Truck Syndrome Disabled Buy Out through Salary Continuation Salary vs. Gross Profitability Prepare Staff Through Succession Planning Doc: The Contingency Buy Sell Contingency Buy/Sell Agreements 4 Primary Templates Tailored to specific needs of agreement Unilateral Internal Stock Sale External Stock Sale External Asset Sale Bilateral 5

7 Planning for Retirement Contingency Buy/Sell Agreement Don t Be Indispensable Pick and Prepare your Successors Don t R.I.P. Doc: What to do When an Owner Retires Doc: When it s Time to Say Goodbye Succession/Perpetuation Planning Succession Planning Identify Prepare Implement Plan Transparency 6

8 Identifying Successors Preparing Successors Preparing Successors 7

9 Preparing Successors Turn Over Some Functions Provide Management Training Seamless Transition Validating Successors Goals Objectives Implementing Succession Traditional Purchase You buy and pay with after tax dollars I sell and pay Capital Gains Tax Corporate Purchase You are already a Stockholder I sell my stock to the agency which goes into Treasury Stock I pay Capital Gains Tax Corp uses after tax dollars 8

10 Implementing Succession Non Traditional Transaction NewCo MyCo Doc: The Dangers of Perpetual Succession Planning Section 338 H 10 Election Tax beneficial to buyers of 80% or more of an S corp. (Some C corps may qualify) Allows a corporate purchase to be treated like an acquisition of 100% of the corporation s assets Increases the tax basis of the target s assets for tax purposes reducing future taxable income (amortization) guide to section 338h10 elections Other Forms of Transition 9

11 What if I Don t Have a Successor? No Successors in Agency OR AND Hiring Your Replacement Family Member Experience from Another Field Newbie with Promise Insurance Vet who Cannot OWN Their Current Agency Like minded agent young enough for Perpetuation 10

12 Finding Successors Insurance Companies Associations Other Talent Pools Planning for Succession Prepare and Test Contract No Fault Divorce Win/Win Contracts for Perpetuation OBLIGATIONS COMPENSATION NON COMPETE NON PIRACY TIMELINE 11

13 Living Together Ownership Transition Termination of Association Continued Testing No Fault Divorce Win/Win or Don t Play 12

14 Perpetuation through Merger Tax Free Exchange Section 388 Internal Perpetuation through Merger How We Perpetuate Agencies 13

15 Liquidity Audit Working Capital Acid Test Tangible Net Worth Trust Account Docs: Guaranteeing the Payments to a Selling Owner Guaranteeing Payments for an Agency Sale The Liquidity Audit Assures Cash Flow Availability Should be Mandatory Formalizes Trust Relationship Formal through 3 rd Party or Informally by Agreement Between Parties The Liquidity Audit Monthly Test of Liquidity Ratio Requires Solution if Liquidity is Below Threshold Penalties if Liquidity is not Restored Low Cost Sleep Insurance for Sellers 14

16 Agency Consulting Group, Inc. Consultants to the Insurance Agency Industry (800)

17 AGENCY INTERNAL SUCCESSION AND PERPETUATION Al Diamond, President ;

18 What are the 3 types of agency perpetuation? What are the 3 main methods of Internal Perpetuation? What are some innovative methods of Internal Perpetuation? What are the 2 key elements for successful Perpetuation/Succession? 2 Questions to ask when considering Contingency Buy/Sell Agreements?

19 Page 11 What parties can be involved in a Contingency Buy Sell Agreement? How is the buyout funded in the event of Death? What are the buyout considerations in the event of permanent disability? What are the 4 elements in planning for retirement? Steps in Succession Planning

20 Page 12 What management roles are important when Identifying Successors? What considerations should be taken when a successor has been identified? When should you inform a successor of your plans? What steps should you take to prepare a successor? How can you validate a successor?

21 Page 13 What is the difference between a Traditional Purchase/Corporate Purchase? What are the tax benefits of Section 338 H-10 Elections? What are your choices if your agency has no qualified successors? Who might be available to hire as your replacement?

22 Page 14 What sources can you tap to find a successor? What are 4 elements in planning for succession? What should be contracted between the Agency and your successor? What actions may be contractually initiated during the transition period?

23 Page 15 What actions should occur if it doesn t work out? How can you create a Win-Win succession scenario? What defines a Merger (Modified Internal Perpetuation)? What is a Section 388 Election? Considerations when Perpetuating through a Merger Methods of perpetuation when Agency Value is not high enough How can Liquidity Audits help Guarantee Payments for an Agency Sale

24 Page 16 What are 8 Reasons a Liquidity Audit should be a part of every Sale Agreement?

25 Page 17 Turn this document in at the end of the session in order to be ed your selected documents. Name: Agency Name: Address: Phone #: DOCUMENTS LIST SUCCESSION AND PERPETUATION Check here if you want to receive all the documents below in this section. Guaranteeing The Payments to a Selling Owner Liquidity Testing How you or Agency Consulting Group, Inc. can audit a buyer s Balance Sheet to assure his ability to pay his debt to a seller. Guaranteeing The Payments For an Agency Sale Adding Liquidity Testing to Agency Sale Agreements to protect the seller. Perpetuation or Succession An example of when family members are not of equal capabilities and they are asked to assume ownership of an agency. The Contingency Buy Sell How to set up unilateral or bi-lateral Buy Sell Agreements internally or across agency lines. Perpetuation Planning How and Why How to coordinate Perpetuation and Succession Planning with business Strategic Planning and personal financial planning. Succession or Perpetuation For the Lone Rangers owners without family perpetuation. Protecting your Investment. Inter-Generational Transfers of Insurance Agencies Common Problems and Uncommon Solutions OJT or Silver Spoon Syndrome? Ruminations on the Succession Plan and Sale of My Agency real life experience of one small Minnesota agent Strategies to Avoid (not Evade) Taxation in the Perpetuation of an Agency Succession Planning Personnel Development not only for large agencies When It s Time To Say Good-Bye How to know when it s time to retire or to transition the agency to a new generation of owners. The Dangers of Perpetual Succession Planning Why limits are necessary on payouts The Trouble with Generations Moving agency ownership from the Older to Younger Generation Tax planning agency succession and perpetuation- The perpetuation of the independent insurance agency- What it means to have an internal succession plan- What to do when an owner retires-