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King & King Business Advisors ® Presents: Business Brokers Merger & Acquisition Advisors Management Buyout Consultants King & Kings Professional Practice.

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Presentation on theme: "King & King Business Advisors ® Presents: Business Brokers Merger & Acquisition Advisors Management Buyout Consultants King & Kings Professional Practice."— Presentation transcript:

1 King & King Business Advisors ® Presents: Business Brokers Merger & Acquisition Advisors Management Buyout Consultants King & Kings Professional Practice Transaction Group In partnership with : LWBJ, LLP 4200 University Avenue, Suite 410 West Des Moines, IA First American Bank University Avenue Clive, Iowa EquityAccess Solutions Presented by: James M. King, CBI, President Leo Vidal, JD, CPA, Director PPTG

2 King & King Business Advisors ® 2 ®

3 ® 3 Equity Access Equity Access is a unique financial program designed to address four problems facing successful business owners wishing to plan their retirement. Access to financing business ownership transitions without limiting the new owners ability to finance ongoing working capital needs Secure assets for retirement and estate planning Economic inefficiencies in transitioning business ownership Limited financing and tax options for acquiring a business

4 King & King Business Advisors ® 4 CASE STUDY

5 King & King Business Advisors ® 5 UNDERSTANDING RISK There are many challenges facing successful business owners in meeting their long-term planning objectives. Business succession planning becomes an essential part of the process to assure future continued growth. 50% of all successful business owners are over the age of % of all U.S. businesses are facing a transfer of ownership issue and many business owners are depending on the value of their business to fund their retirement 2 Only 26% of small business owners have a type of succession plan in place 3 1, 2 National Small Business Association 3 LIMRA International, Small Business Owners 2005 Report

6 King & King Business Advisors ® 6 PROGRAM BENEFITS * Please consult your tax advisor regarding deductibility of loan interest for your situation. ** Please consult with your legal advisor to determine if life insurance and/or annuity is an exempt asset under your state law. Lowers the tax cost to an owner transitioning out of the business Provides necessary financing to fund owners post-retirement needs Supplements retirement planning on a tax-preferential basis Provides business owners with tax-free death benefits for their family Loan proceeds paid into life insurance or annuities may grow tax deferred In certain circumstances, interest payments on loan may be tax deductible * Life insurance purchased with loan proceeds may be an exempt asset under state law **

7 King & King Business Advisors ® 7 EXECUTIVE SUMMARY Business Assumptions Name of Business: Tax Structure of Entity: State(s) in Which Business is Located: Value of Business: Access Consulting LLC IA $5,600,000 Business Owner Assumptions Owners Name: Age: Percentage Interest in Business: Value of Owners Interest: Age at Sale of Business: Expected Retirement Age: Term of Post-Retirement Income (yrs): Charles Smith 50 25% $1,400, Traditional Exit Strategy Lump Sum Assumptions Alternative Investment Rate of Return (pre-tax): Alternative Investment Rate of Return (after-tax): Term of Post-Retirement Income: Annual Retirement Distribution: Total Distributions: 7.00% 4.55% 21 $101,778 $2,137,332 Traditional Exit Strategy Installment Assumptions Term of Installments (yrs): Installment Note Interest Rate: Alternative Investment Rate of Return (pre-tax): Alternative Investment Rate of Return (after-tax): Cash Provided Year 1: Cash Installments Years 2-6: Installment Note amount: Annual Retirement Distribution: Total Distributions: % 7.00% 4.55% $100,000 $60,000 $1,000,000 $122,329 $2,568,908 Equity Access Assumptions Insurance Premium Financed: Loan Interest Rate: # of Years Interest Only: Term of P&I Payments (yrs): Hypothetical Investment Rate of Return: Deposit Account Crediting Rate: Pre-Retirement Death Benefit: Post Retirement Death Benefit: Annual Retirement Distribution: Total Distributions: $1,000, % % 3.00% $3,250,000 $359,968 $241,716 $5,076,030 $2,137,332 $2,568,908 $5,076,030 Tax Assumptions Ordinary Income tax rate: Capital Gain Rate: 35% 15%

8 King & King Business Advisors ® 8 TRADITIONAL EXIT STRATEGY Lump Sum Ordinary Income Tax Rate Value of Interest Less: Taxes Net 35% $ 1,400,000 $ (490,000) $ 910,000

9 King & King Business Advisors ® 9 EXECUTIVE SUMMARY Business Assumptions Name of Business: Tax Structure of Entity: State(s) in Which Business is Located: Value of Business: Access Consulting LLC IA $5,600,000 Business Owner Assumptions Owners Name: Age: Percentage Interest in Business: Value of Owners Interest: Age at Sale of Business: Expected Retirement Age: Term of Post-Retirement Income (yrs): Charles Smith 50 25% $1,400, Traditional Exit Strategy Lump Sum Assumptions Alternative Investment Rate of Return (pre-tax): Alternative Investment Rate of Return (after-tax): Term of Post-Retirement Income: Annual Retirement Distribution: Total Distributions: 7.00% 4.55% 21 $101,778 $2,137,332 Traditional Exit Strategy Installment Assumptions Term of Installments (yrs): Installment Note Interest Rate: Alternative Investment Rate of Return (pre-tax): Alternative Investment Rate of Return (after-tax): Cash Provided Year 1: Cash Installments Years 2-6: Installment Note amount: Annual Retirement Distribution: Total Distributions: % 7.00% 4.55% $100,000 $60,000 $1,000,000 $122,329 $2,568,908 Equity Access Assumptions Insurance Premium Financed: Loan Interest Rate: # of Years Interest Only: Term of P&I Payments (yrs): Hypothetical Investment Rate of Return: Deposit Account Crediting Rate: Pre-Retirement Death Benefit: Post Retirement Death Benefit: Annual Retirement Distribution: Total Distributions: $1,000, % % 3.00% $3,250,000 $359,968 $241,716 $5,076,030 $2,137,332 $2,568,908 $5,076,030 Tax Assumptions Ordinary Income tax rate: Capital Gain Rate: 35% 15%

10 King & King Business Advisors ® 10 TRADITIONAL EXIT STRATEGY Installments Owner receives cash 1 st yr$ 100,000 Owner receives consulting payment 2 nd yr $ 60,000 Owner receives consulting payment 3 rd yr $ 60,000 Owner receives consulting payment 4 th yr $ 60,000 Owner receives consulting payment 5 th yr $ 60,000 Owner receives consulting payment 6 th yr $ 60,000 Owner receives 5-yr installment note $1,000,000 $$ Value of Your Interest$1,400,000 Owners installment note$1,000,000 Installment note interest rate 8.25% Installments with interest$ 252,109

11 King & King Business Advisors ® 11 EXECUTIVE SUMMARY Business Assumptions Name of Business: Tax Structure of Entity: State(s) in Which Business is Located: Value of Business: Access Consulting LLC IA $5,600,000 Business Owner Assumptions Owners Name: Age: Percentage Interest in Business: Value of Owners Interest: Age at Sale of Business: Expected Retirement Age: Term of Post-Retirement Income (yrs): Charles Smith 50 25% $1,400, Traditional Exit Strategy Lump Sum Assumptions Alternative Investment Rate of Return (pre-tax): Alternative Investment Rate of Return (after-tax): Term of Post-Retirement Income: Annual Retirement Distribution: Total Distributions: 7.00% 4.55% 21 $101,778 $2,137,332 Traditional Exit Strategy Installment Assumptions Term of Installments (yrs): Installment Note Interest Rate: Alternative Investment Rate of Return (pre-tax): Alternative Investment Rate of Return (after-tax): Cash Provided Year 1: Cash Installments Years 2-6: Installment Note amount: Annual Retirement Distribution: Total Distributions: % 7.00% 4.55% $100,000 $60,000 $1,000,000 $122,329 $2,568,908 Equity Access Assumptions Insurance Premium Financed: Loan Interest Rate: # of Years Interest Only: Term of P&I Payments (yrs): Hypothetical Investment Rate of Return: Deposit Account Crediting Rate: Pre-Retirement Death Benefit: Post Retirement Death Benefit: Annual Retirement Distribution: Total Distributions: $1,000, % % 3.00% $3,250,000 $359,968 $241,716 $5,076,030 $2,137,332 $2,568,908 $5,076,030 Tax Assumptions Ordinary Income tax rate: Capital Gain Rate: 35% 15%

12 King & King Business Advisors ® 12 EQUITY ACCESS Owner receives cash 5th yr$ 100,000 Owner receives payment 6th yr $ 60,000 Owner receives payment 7th yr$ 60,000 Owner receives payment 8th yr$ 60,000 Owner receives payment 9th yr$ 60,000 Owner receives payment 10th yr$ 60,000 Downpayment$ 400,000 $400,000 taxed as goodwill so capital gain CSV life insurance considered property so no taxation

13 King & King Business Advisors ® 13 Buyer Summary – Net Cash Flow Traditional Lump Sum:$1,371,500 Traditional Installments:$1,347,480 Equity Access:$1,485, The payments of principal are treated as guaranteed payments made in liquidation of a partners interest and are taxable as ordinary income to the recipient and are deductible by the Partnership. 2. The buyer in the Equity Access Solution will receive a step-up in basis in the remaining partnership property provided that a §754 election is in effect. Depending on the type of property within the partnership, the buyer may be allowed to deduct this stepped-up basis through additional depreciation or amortization. BUYER ANALYSIS

14 King & King Business Advisors ® 14 Transaction at a glance… Lender Loan STEP - 1: Lender loans money to business against business assets. STEP - 2: Business puts money into life insurance policy and lender files UCC-1 lien against policy. STEP - 3: Policy is distributed from business to owner in tax preferred manner. STEP - 4: Business makes payments on loan until repaid. Insurance Policy Owners Business


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