Start Your Own Business Without Quitting Your Day Job

One of the businesses that I started was a home-based business. I started this business while I was still working in the corporate world and I’m glad that I did. Let me explain.

When starting any business, it’s hard to beat having a predictable income while in the start-up phase. It takes some of the pressure off. So, I always recommend keeping your day job while planning, launching and even during the early stages of growth of your small business. Of course, this assumes that you presently have a job.

Assuming that you do have a job, depending on your finances, this time at the beginning stages of planning your business might enable you to save some money to be used for certain expenses of your new venture, maybe even to finance equipment purchases.

Don’t think that staying employed is going to make starting a business easy, because I can assure that it is not. It is a two-edged sword. It will take off some of the financial pressure, but it will also require you to be organized and extremely focused. In essence, you will be working two full-time jobs. You will work your “day job” by day and your business at night and weekends. Working 9 or 10 hours during the day and then coming home and working 5-6 or more hours on your business is typical. At least for awhile.

Obviously, in order to work these kinds of hours will require you to give something up. One of the first things will probably be television. But, this is not necessarily a bad thing. Besides, there is nothing quite like the energy and enthusiasm that you will have while working on getting your own business up and running. Of course, television won’t be the only thing that will go on the backburner. Activities with friends and relatives, or even a Sunday drive in the country may have to be put off at least until your new business is under control.

This is a good place for a word of advice and caution. While it is totally appropriate and necessary to put in the hours in the early stages of launching your new business, it is easy to fall into the trap of leaving everything else in your life behind; particularly your family. This article is supposed to dispense my advice and experience as a help to you in this area of starting and owning a small business.  Please, please, please don’t allow the balance in your life to slip away to the point that you have a business, but you don’t have a life.

I mentioned earlier that you will have to be organized and focused. The time you put in at working your day job should be quality time devoted to your employer. After all, you are being paid so keep thoughts pertaining to your new business captive while at work. When I say “at work”, I mean while actually on the clock. Your break time and lunch time is new business time. You will be amazed at what you can accomplish in terms of advancing your new business by utilizing those extra moments during the day.

After hours is an entirely different matter. You need to be very organized and very focused so as to keep your new business venture on track.One of the ways to do this is to be definite in the time you are willing to allocate.

Whatever you decide, it is important to stick to the schedule and set goals or benchmarks of achievement of certain tasks or stages.

Another way of staying organized is to have a plan. Right now, you may have a plan in your head, but it needs to be in writing. Just make notes and turn the notes into some form of written outline. If you do this on the computer, you can just throw thoughts on paper (on the screen) for now, and later cut & paste to prioritize what you have written. As you think of more things to be done, throw those into your plan outline. Eventually, you can take this outline and develop it into a full-on Business Plan. But for now, just put your thoughts on paper in outline form as if it were a roadmap getting you from A to B and beyond.

Using Captive Insurance Companies for Savings

Small companies have been copying a method to control insurance costs and reduce taxes that used to be the domain of large businesses: setting up their own insurance companies to provide coverage when they think that outside insurers are charging too much.

Often, they are starting what is called a “captive insurance company” – an insurer founded to write coverage for the company, companies or founders.

Here’s how captive insurers work.

The parent business (your company) creates a captive so that it has a self-funded option for buying insurance, whereby the parent provides the reserves to back the policies. The captive then either retains that risk or pays re-insures to take it. The price for coverage is set by the parent business; reinsurance costs, if any, are a factor.

In the event of a loss, the business pays claims from its captive, or the re-insurer pays the captive.

Captives are overseen by corporate boards and, to keep costs low, are often based in places where there is favorable tax treatment and less onerous regulation – such as Bermuda and the Cayman Islands, or U.S states like Vermont and South Carolina.

Captives have become very popular risk financing tools that provide maximum flexibility to any risk financing program. And the additional possibility of adding several types of employee benefits is of further strategic value to the owners of captives.

While the employee benefit aspects have not emerged as quickly as had been predicted, there is little doubt that widespread use of captives for employee benefits is just a matter of time. While coverage’s like long term disability and term life insurance typically require Department of Labor approval, other benefit-related coverage’s such as medical stop loss can utilize a captive without the department’s approval.

Additionally, some mid-sized corporate owners also view a captive as an integral part of their asset protection and wealth accumulation plans. The opportunities offered by a captive play a critical role in the strategic planning of many corporations.

A captive insurance company would be an insurance subsidiary that is owned by its parent business (es). There are now nearly 5,000 captive insurers worldwide. Over 80 percent of Fortune 500 Companies take advantage of some sort of captive insurance company arrangement. Now small companies can also.

By sharing a large captive, participants are insured under group policies, which provide for insurance coverage that recognizes superior claims experience in the form of experience-rated refunds of premiums, and other profit-sharing options made available to the insured.

A true captive insurance arrangement is where a parent company or some companies in the same economic family (related parties), pay a subsidiary or another member of the family, established as a licensed type of insurance company, premiums that cover the parent company.

In theory, underwriting profits from the subsidiary are retained by the parent. Single-parent captives allow an organization to cover any risk they wish to fund, and generally eliminate the commission-price component from the premiums. Jurisdictions in the U.S. and in certain parts of the world have adopted a series of laws and regulations that allow small non-life companies, taxed under IRC Section 831(b), or as 831(b) companies.

Try Sharing

There are a number of significant advantages that may be obtained through sharing a large captive with other companies. The most important is that you can significantly decrease the cost of insurance through this arrangement.

The second advantage is that sharing a captive does not require any capital commitment and has very low policy fees. The policy application process is similar to that of any commercial insurance company, is relatively straightforward, and aside from an independent actuarial and underwriting review, bears no additional charges.

By sharing a captive, you only pay a pro rate fee to cover all general and administrative expenses. The cost for administration is very low per insured (historically under 60 basis points annually). By sharing a large captive, loans to its insureds (your company) can be legally made. So you can make a tax deductible contribution, and then take back money tax free. Sharing a large captive requires little or no maintenance by the insured and can be implemented in a fraction of the time required for stand alone captives.

If done correctly, sharing a large captive can yield a small company significant tax and cost savings.

If done incorrectly, the results can be disastrous.

Buyer Beware

Stand alone captives are also likely to draw IRS attention. Another advantage of sharing a captive is that IRS problems are less likely if that path is followed, and they can be entirely eliminated as even a possibility by following the technique of renting a captive, which would involve no ownership interest in the captive on the part of the insured.

Independent Insurance Agent Vs Captive Insurance Agents

Hello fellow agents and prospective Insurance Agents! If you are currently in Insurance Sales or are considering a career in Insurance Sales, the following insights may be helpful in making sure you are on the right path for a long and rewarding insurance Career. It should also help you decide what type of contracts, Independent or Captive, you feel better fit your needs and objectives right now at this point and time in your career.

When I started in Insurance Sales 28 years ago, I was recruited by a Company that only offered Captive Sales Contracts. I did not know that Independent Contracts existed let alone the pros and con’s between them. I spent the first 9 years of my career selling, recruiting and training under a captive contract. I have sold, recruited and trained agents the last 18 years under Independent Sales Contracts.

One of the big concerns I experienced over time working under a captive contract with one company was not having enough product selection. There were several periods of time when certain products we offered were simply not competitive in the marketplace.

This severely limited our ability to provide solutions to many prospective customers. I have found over the years that most captive companies usually only have two or three competitive products at a time. They usually are focused on one or two niche markets. This limits your cross selling opportunities when you’re not allowed to pick up other contracts. As an Independent Agent you are free to contract with many different companies. This can be a problem though because many insurance agents that contract with to many companies at a time begin to lose focus. There will be times, however, when you may want to change markets or add another company that has a very competitive product. You will need to be an Independent Agent to do that.

The other big concern I had working under a Captive Contract was that I did not own my block of business. Another phrase for ownership of your block of business would be “having vesting rights on your block of business.” The company I worked for required you to be their 15 years before you had 100% vesting rights on your block of business!

When I left after 9 years I was only 40% vested. That means I did not receive 60% of my renewals on my in-force policies when I left and became an Independent Agent. Again, I did not know nor was I told that there were other opportunities to sell Insurance and have 100% vesting rights all your sales from day one! I learned the hard way. This is also why it took me a long time to get up the nerve to make the move because I knew I would lose a big chunk of my renewal income. There are a lot of agents that work for Independent Agencies that sell multiple companies that don’t offer vesting rights. So when the agent leaves the Agency still gets all the renewals on the business. This may not be all bad depending on the other support and services that Agency may be offering the Agent.

Generally speaking, another difference you will notice is that Independent Agents commission schedules are usually higher then that of Captive Insurance Agents. For example, when I sold as a Captive Agent I earned 20% commission our Health Insurance products and 55%-65% commission on our Life Insurance products. When I moved over to the Independent Agent Contracts I started earning 25% commission on my Health Insurance Sales and 90%-100% commission on my Life Insurance Sales.

Traditionally one of the advantages with Captive Companies was that they offered more training and support for a new agent entering the business. But nowadays there are many great MGA, NMO, IMO and FMO Agencies that offer all the training and support that traditional Captive Companies offer. Plus you still get top commission contracts, Immediate vesting rights, multiple company portfolios, Lead support systems, etc.

Well, once again we hope that this information has been helpful to you. My you not have to learn certain things the hard way as I had to early on in my Career. By not having first hand knowledge of the pros and cons of Independent vs Captive Contracts it cost me a lot of time and money. An Insurance Sales Career can be very rewarding and your journey to success can be much quicker if you are starting from a point of knowledge!