The case of the Million Dollar Bonus
Jun 7-25
Playa Caracol, Panama
“Can you imagine buying a business, then discovering a hidden asset of $1 million inside it? It’s like receiving a $1 million rebate after purchase! When does that happen?”
(Can’t read the full email – click here for the online version.)
Greetings from Middle Earth! We are back at our southern abode, along the 7 miles of beach that is Playa Caracol, 90 minutes west of the capital. Today is a national surfing competition and the place is busy. It is a sunny day too, which is great, considering this is officially the rainy season.
But more on this and other central American stories later this month. Due to travel, the celebration of my parents’ 70 wedding anniversary and no wi-fi at our condo, I haven’t had time to prepare the usual weekly broadcast for you. In its place, I’ve included a note I wrote last year, at this time.
Enjoy! – Hugh
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Jun 9, 2024
I have a client who has over 50 years experience in the wealth management and insurance industries. He likes to quip; “Because I know stuff….”; for the reason folks rely on him for insurance and investment matters.
He recently told me a story that involved the purchase of a business that has significance to all of you who: own or manage businesses; or consult and advise business owners. CPAs and business coaches, pay attention.
After the conclusion of the purchase, which was several million dollars, the new owners were looking for ways to generate more cash from the business. Makes sense, after you’ve spent millions in acquisition, the first thing you’d want to do is work on recouping your investment, as quickly as possible.
In this case, they engaged their accountant to re-examine the financials to determine if there were any “hidden” assets that they could convert into cash. Sell, in other words.
The accountant came back with one interesting and overlooked item.
Buried in the statements was an item listing some insurance on one of the former principals of the company. Such “key-man” insurance is quite common, designed to protect the company and surviving principals of a firm, should a key executive die unexpectedly.
The new owners then proceeded to determine whether there was any value in this policy and here is where things get interesting.
Unbeknownst to most people, many policies can be sold to third parties before the lapse of the policy, for more than the cash surrender value, offered by the carrier of the policy.
It turned out that this policy was able to be sold for $1 million dollars in this market. An incredible bonus that I am sure the new owners did not expect.
The lessons for you should be obvious:
If you do not pay attention to your numbers, you are most certainly leaving money on the table. This can be from poor pricing, cost overruns, to under-leveraged assets.
For CPAs and consultants, there is a tremendous opportunity to help clients increase cash flow, by simply going through their financials. So too, is there a potential liability to you, if you do not. Imagine if you were the CPA or advisor to the sellers and this came out after the fact!
This is one reason why I am including our Financial Training for Business Owners, $397 value, for free, when you join my online Business Academy. Use code JUN90 and get 90% off, available for a those who act quickly.
Until next week,
Stay healthy and focus on profit!
- Hugh
The “Profit Accelerator” Expert
