Business Owner and Executive Solutions

Kelly M. Bennett, CLU, ChFC, CLFRegional Vice President – BOESPrincipal Financial Group

Become a Pro at Opening Business Cases…and Triple Your Closing Ratio

General business market facts

Market Sizing:• 5.7 million business owners with employees in

the U.S.1

• 25% are affluent of which 12% are super affluent2

• 84% of business owners say they know they need to do succession and/or retirement planning

1 U.S. Census Bureau, 2007 Survey of Business Owners2 LIMRA Small Business Owner: 2009 study

For producer and advisor information and education only. Not for use in sales situations.

Closely-held business market facts

• Family-controlled companies account for 78% of the nation’s job creation, 60% of its employment, and over 50% of its gross domestic product.

• By 2030 (now 15 years), $4.8 trillion of net worth will be transferred and $10.4 trillion by 2040.1

• The U.S. Small Business Administration estimates that at any given time, 40% of businesses are facing the issue of transfer of ownership and control.

1 Family Firm Institute, 2009

Family business market facts

• Succession Planning– Only 36% of family businesses survive to second

generation and 19% of those to the third generation.1

– Nearly half (47%) of the firms surveyed (of 1,600 companies) don’t have a succession plan in place.1

• Wealth Transfer– Only 61% of respondents think they have sufficient

resources to divide assets fairly among family members.1

• Business Protection– 62% haven’t made provisions for dealing with a shareholder

or key employee who gets seriously sick or dies.1

1 PwC Family Business Survey 2010/2011

Needs for Owners and Executives

• Retirement funds – Do I have enough?• Healthcare – How will I pay for it when I retire?• Survivor needs –What if I die too soon? • Will I have financial security in today’s economy?• Specific business owner issues:

– When can I exit my business?– Will my kids be able to take over?– Will it sell for what it’s worth?– How can I avoid huge taxes?– Can it survive without me?

The challenge

• Business owners are top clients• Business solutions may not be your specialty• How can you provide the resources and

solutions without totally disrupting your current business? (stay tuned…and I will show you the easiest way to open business cases that you have ever seen!)

For producer and advisor information and education only. Not for use in sales situations.

The opportunity

• Meet clients’ needs• Deepen relationships• Sales opportunities

10% vs 10x

For producer and advisor information and education only. Not for use in sales situations.

Service before, during and after the sale

Before During After

• Broker Sales Ideas

• Client Marketing Materials

• Priorities Checklist

• Complimentary Informal Business Valuation

• Complimentary Buy-Sell Review

• Access to Advanced Solutions staff for technical support

• Point of sale assistance

• More than 30 unique plan designs

• Customized proposals showing multiple financing options

• Products and underwriting for the business market (including GI/SI on all permanent products)

• Business Markets Administration - comprehensive plan-level services

• Annual employee and employer reporting

• Online access • Economic benefit &

101j reporting• Over 30 plan

types, 12,000 plans on the books, serving more than 36,000 participants

For producer and advisor information and education only. Not for use in sales situations.

Need for Business Planning

Knowing the value of the business, along with a properly structured buy-sell plan, and proper funding/protection can help:• Create a market for the business when an owner

exits• Ensure retirement income is in place• Minimize discord among owners• Prevent unwanted transfers• Fix the value of the business interest for estate tax

purposes (formal valuations)• Provide the family with liquidity to maintain their

standard of living

For producer and advisor information and education only. Not for use in sales situations.

Opening Business Cases

The Business Planning Fact Finder (RFP)

Business ValuationsBuy-Sell Reviews

Business Continuation ProposalsBusiness Priorities

For producer and advisor information and education only. Not for use in sales situations.

Why use ourBusiness Planning Services?

• A way to open a case with a Business Owner• Potential Outputs

– An Informal Business Valuation– A Review of Major Provisions of the Buy-Sell/Funding– A Business Continuation Proposal

• A Starting Point for discussions with tax and legal advisors– To identify issues or – Confirm the agreement meets current objectives

• Opens door to other planning opportunities (as may also be uncovered by the Business Priorities Checklist)

Business Planning Fact-Finder

For producer and advisor information and education only. Not for use in sales situations.

Informal Business Valuation Services• The business is generally the owner’s most

valuable asset.

• The Principal Financial Group offers complimentary informal business valuations

• This can help start the planning process and open multiple sales opportunities for you

Business Valuation: The Process

• Collect Documents • Review the Customized

Report• Discuss and Review

Highlights and Recommendations with: – The Business Owner– Tax and Legal Advisors

COLLECT from owner and PROVIDE to BGA:

• A COMPLETE Business Planning Fact-finder – and Key Employee census if applicable

• Most recent three years of FINANCIALS (tax returns or company balance sheet)

• 5-7 day turnaround

For producer and advisor information and education only. Not for use in sales situations.

Valuation Output

For producer and advisor information and education only. Not for use in sales situations.

Business Planning Fact-Finder

For producer and advisor information and education only. Not for use in sales situations.

Buy-Sell Agreements

• Accomplish an orderly transfer of a business interest• Common triggering events:

– Death– Disability– Bankruptcy/Insolvency– Divorce– Termination of Employment (voluntary and involuntary)– Retirement

• Principal offers complimentary Sample Agreements and a proposal for how to get one implemented

Business Continuation Proposal

For producer and advisor information and education only. Not for use in sales situations.

Business Planning Fact-Finder

For producer and advisor information and education only. Not for use in sales situations.

Buy-Sell Review: The Process

• Collect Documents • Review the Customized

Report• Discuss and Review

Highlights and Recommendations with: – The Business Owner– Tax and Legal Advisors

COLLECT AND PROVIDE:• COMPLETED Business

Planning Fact-finder – including ENTITY TYPE & OWNER/Key Employee info

• Existing AGREEMENT(s)• Existing INSURANCE• 15-20 day turnaround

For producer and advisor information and education only. Not for use in sales situations.

Reports and Proposals

For producer and advisor information and education only. Not for use in sales situations.

What Happens as a Result of this Simple Process?

• OK…so my client needs a buy-sell agreement, and maybe some term insurance to make sure it’s funded…(yawn)

• WAIT A MINUTE…there is so much more at stake!– “My business wasn’t worth what I thought it might be…”

• The over-valued business• The under-valued business

For producer and advisor information and education only. Not for use in sales situations.

When the Owner OVER-values the Business

• Remember that the business typically represents the owner’s most significant retirement resource

• What needs persist if they wake up and learn their retirement account is worth half what they thought it was worth?– Put more in my 401(k)?– Add another “retirement plan”?– How can I play catch-up, but discriminate/provide for only

me/us (owners)?

For producer and advisor information and education only. Not for use in sales situations.

When the Owner UNDER-values the Business

• Will my partner or family members be short-changed?

• How do I make sure that the business STAYS worth the amount I underestimated?– Key people are often responsible for amounts higher than

“book value”– I must provide them incentive to stay…at least until the

time I am ready to sell– Are there better alternatives to cash in today’s

environment?

For producer and advisor information and education only. Not for use in sales situations.

Case Study

For producer and advisor information and education only. Not for use in sales situations.

Business Planning Fact-Finder

Principal Financial GroupBOES Customer Summary

• Industry classification is concentrated in:– Professional, Scientific, & Technical Services – Construction – Manufacturing

• The most prevalent entity type is C-Corporation• The majority of plans are sold to companies with more than

11 years in business• Most companies that buy these plans have between 11-99

employees• Sales typically fall within the $1-$5 million in annual gross

revenue

Concept Decision Grids

Concept Blueprints

Putting it All Together…

• Valuation or Priorities Checklist indicates need in key planning area(s)– Business Protection (Key Person)– Supplemental Retirement– Business Continuation/Exit Planning

• Decision Grid for key areas can be used to arrive at the MOST appropriate concept solution within that category

• Resulting Concept Blueprint can be used for sale/implementation from A to Z

Q & A ?

For producer and advisor information and education only. Not for use in sales situations.

Thank you

Disclosures

While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not

be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or

accounting obligations and requirements.

Insurance products from the Principal Financial Group® (The Principal®) are issued by and plan administrative services are provided by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Company. Securities offered through

Princor Financial Services Corporation, 800/247-1737, member SIPC. Principal National, Principal Life and Princor® are members of the Principal Financial Group, Des Moines, IA

50392.

No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information

storage and retrieval system, without prior written permission from the Principal Financial Group.

Copyright ©2011 Principal Financial Services, Inc.BB10361 I t10122901mh For producer and advisor information and education only. Not for use in sales

situations.