Emboldening Business Owners Through Innovative Risk Management with Van Carlson, Founder at SRA 831(b) Admin
In this episode of Exploring Growth, host Lee Murray talks with Van Carlson, founder of SRA 831(b)Admin, about the critical role of risk management for business owners. With nearly 30 years of experience, Van emphasizes strategic planning and the benefits of the 831 B tax code. They discuss proactive risk management, brand protection, and the evolving insurance landscape, offering valuable insights for long-term business success.
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Van - https://www.linkedin.com/in/vancarlson/
Van Carlson
00:00:00
One of the things we're telling business owners today, and one of the reasons why we've grown exponentially over the last couple of years, is this concept of having your own plan. And that's literally what they are going to be, allows you to do. You know, if you're going to have a profitable year. And I tell business owners, business owners all this all the time, if you have a profitable year, taking a little bit off the top, parking it off to the side is not only great risk management, but it's just good business.
Lee Murray
00:00:26
Most of the CEOs I talked to don't mind taking risks to grow their business, but they're always looking for ways to be smarter about those risks that are necessary for growth. And today, we're talking about some of the ways CEOs can manage those inherent risks so that they can be more bold in their growth plan. And my guest today is Van Carlson, founder of SRE. 831 B admin. And the tagline for his company is emboldening business owners through innovative risk.
Lee Murray
00:00:57
And I love that tagline. Welcome to the show, van.
Van Carlson
00:00:59
Thanks. Thanks for having me on, Lee.
Lee Murray
00:01:02
So, like, I ask all my, my guests. tell us about what you do. Kind of. you know, how did you come up? And so we have a little bit of background.
Van Carlson
00:01:09
Yeah. No problem. I'm. I'm in the exciting world of risk management. so, you know, but, you know, it is a, aspect of business owners. You know, in the beginning, any business, when you start, you don't really think about risk too much. But as you grow, your business risk becomes paramount. Right. And so, yeah, we've I've been in risk management for going on almost 30 years now. So in a traditional insurances, working with business owners, not only in my state of Idaho where, where I live and work, but also around the country. And so, you know, I love it. Honestly. I love what we do.
Van Carlson
00:01:43
It's, you know, I love working with entrepreneurs. I love working with businesses that take on risk. And how do we help mitigate some of those risks is what I really, that's what I function in. And it's very rewarding, honestly. you're not just selling a policy and representing an insurance company. You're bringing real solutions to real business owners that do take a lot of risk to do what they do every day. So it's a rewarding profession, and it's a growing profession. Obviously, when you know, more and more companies are looking at having complete departments have risk management strategies because that's what they need today in order to survive. And like you said in the beginning, to grow for that matter. So that's how I, you know, cut my teeth. And doing what we're doing today is, is a little different. you know, obviously we're going to get into that, but it's really a risk management background. And like I said, it's a very rewarding career.
Lee Murray
00:02:33
Yeah, thanks for that.
Lee Murray
00:02:34
And I you know, when we talked, I hadn't ever talked to someone in the risk management business who thinks about risk like you do, or at least comes at it from this perspective. Mostly what I hear is. Let me quote you on a policy. And to me, that's not risk management. when I was earlier on in my career, even I would, you know, talk to my friends or peers and, and, you know, what kind of business are you in? And it's at risk management. And I think, oh, that sounds like sexy like that. That sounds, you know, great. Like I want to know more about that. Basically then they would just say, well, yeah, I'm just I write insurance policies and I'm like, so you insure risk, you're not really in risk management like this. You know, that didn't that didn't really coordinate in my mind. But you're doing something different. And I think that of course, if a risk needs to be insured, of course, that there's insurance there.
Lee Murray
00:03:28
But what you're doing is you're coming alongside owners and saying, look, there's a more strategic approach here that can actually support you rather than just add more policies to your book. So if you would just sort of outline what you do, and then we'll get into our conversation because I'd like to kind of talk about a couple different categories that you, you, you work with.
Van Carlson
00:03:50
Yeah. No problem. So, you know, again, man, when it comes to risk management, it's a complicated world. So, you know, one of the things that we do, what we specialize in. And the reason why I even got started in this was really the Great Recession in oh eight hit, you know, leading up to that. What I, what you just described is what I was doing. I would go meet with business owners. I would, you know, I had one policy typically. And here's and it's a package policy. And, you know, they were worried about price more than likely, you know, most all the time.
Van Carlson
00:04:18
And unfortunately zero eight when zero eight hit, the financial risk business owners took, became pretty glaring. And that's when I thought there had to be a smarter, better way to run a business. And I had already known about a tax code called 831 B that really recognized back in the 1980s, business owners that were self insuring risk and Congress getting together and creating an incentive to say, okay, if you're going to have this risk and it comes down to risk financing and all these things that we talk with business owners about, you know, when you talk about risk financing your business, you typically, if I if I want to own a commercial real estate portfolio, I'm going to have commercial insurance policies. They're going to cover me for fire, theft, vandalism and hell and all those things. Yeah, and that's true a lot about through a lot of businesses, right? I mean, you're going to transfer that's how you a form of risk financing is paying a premium. You either paid annually, monthly or quarterly.
Van Carlson
00:05:10
And they've and you've transferred that risk. And that's a form of risk financing. And then there's risk that you just keep on the books that you cannot transfer through normal channels. And unfortunately, when you go back in 1986, it was really the farmers that were self insuring crop insurance because private sector was getting out of it. And of course now it's it's really backstopped by the federal government. The crop insurance program is it's a heavily subsidized program, very, very similar to FEMA or terrorism and these other types of things that's gone on in the last couple of several decades now, because it's just it's just too catastrophic a loss for private sector to want to do it. And these are for profit companies, right. So, so Congress got together, created an incentive. Now you fast forward almost now we're going almost 40 years on this code. And a lot of business owners are not even aware of it and haven't heard of it, for that's one of the reasons why, you know, we love being on your platform just to get the word out and education on this code.
Van Carlson
00:05:59
But the 831 B allows you to to use tax deferred dollars. So when we talk about risk financing and to try to keep it simply as simple as we can, sure is. You know, if you have this risk, how do you want to risk finance it? Do you want to use pre tax dollars or after tax dollars. And that's all this is. It allows you to use pre tax dollars meaning that we can still create an expense at your operating company level. Expense those dollars out and then dump it into. Now the box has to look and feel like an insurance company. We are an administrator of 831 B plans no different than the. For one administrator. You hired administrator for one. Gotcha. You're out of trouble. Make sure the you receive rules are being followed and keeps those dollars tax deferred, either through a Roth chassis or through a traditional IRA chassis. Right. So that's their job. Our job is the same on the 831 B, and it really has there's a four part test to it.
Van Carlson
00:06:51
There's there's a lot of there's some regulations to it obviously and all that good stuff. And that's where we. We specialize in that. We are the largest manager of 831 B plans in the country. And we're very proud of that. And we do it. We probably we do it very well obviously. I think our volume speaks to that. But aside of all that and of course I got biased on that, but.
Lee Murray
00:07:11
Sure.
Van Carlson
00:07:12
Sure. But you know, if you're hearing about this for the first time, you know, obviously it's another tool in the tool chest for business owners, and you owe it to yourself to always explore all types of tools. Yeah. When it comes to tax mitigation, at the same time, utilizing risk, you know, so that's really what we're doing, utilizing tax deferred. And here's the thing about after tax dollars, all that is, is your K one retained earnings, your operating capital, all of those things. And of course, all of a sudden you start having expenses come in that you weren't budgeted for.
Van Carlson
00:07:41
You're drawing down the, the, the operating capital, Covid 19. The best example I give on that, unfortunately, today is traditional insurance companies will never carry that cover that business interruption trigger, and, they can't afford to, it's too obviously, it's too catastrophic when everybody has the claim at the same time. Insurance companies cannot afford to offer those types of coverage. Only the government can truly back that up, unfortunately. Yeah. And I say unfortunately, because we still don't know all the pros and cons of what went on during Covid with what with the between the Pptp and the IRC programs and all those lovely things. Yeah, yeah. You know, one of the things we're telling business owners today, and one of the reasons why we've grown exponentially over the last couple of years, is this concept of having your own PGP plan, and that's literally what they are going to be, allows you to do, you know, if you're going to have a profitable year. And I tell businesses, business owners all this all the time, if you're a profitable year, taking a little bit off the top, parking it off to the side, it's not only great risk management, but it's just good business.
Van Carlson
00:08:41
And, you know, unfortunately, most business owners today, they know the 179 accelerated depreciation, they know how to spend money in order to take deductions, which is somewhat of a form of insanity. Right. That's one of the reasons why I got a lot of people in trouble in oh a week, quite honestly, was my clients, which were home builders typically, or commercial builders, general contractors and subcontractors. you know, fourth quarter coming around. They met with their accountant for tax planning and the the accountant says, hey, all this much money in taxes. they'd call me up and say, hey, what's it going to cost for another skid steer and two more trucks? Now, they may need that equipment. Maybe not any of that equipment or the equipment they had was perfectly fine, I don't know, but all they did was bet next year was going to be better than this year. And unfortunately, it got caught up in a lot of people and they found themselves being, you know, loans, governance and and loans started to mean things and banks started to foreclose and, you know, and all those good things.
Van Carlson
00:09:35
And that's that's really when there had to be a smarter and better way. That's when I really became a believer in the program. And now you fast forward through all the trials and tribulations business owners have today when it comes to this risk itself. I mean, back in 1986, when the code was being formed, it was for really traditional insurances. Now you fast forward to things. We're going to talk about today is like brand protection, dispute resolution, supply chain risk, the cyber exposure business owners have today. And unfortunately, more and more insurance companies are they'll write a cyber policy, but it basically covers credit. Watch for the people that were compromised. It really doesn't do anything for the benefit of your company. It doesn't hire the forensic team to come in and find out what happened. I mean, there's just a lot of unfortunately, cyber is becoming a and we've known it for a while. And then you fast forward to Covid where, you know, can we really expect the government to step in if you need a Covid, if you need a PGP to keep your business afloat, what are you doing differently today than you were prior to that? Because, you know, any entrepreneur out there doesn't want to rely on the government to keep them afloat, you know? But you had to do what you had to do.
Van Carlson
00:10:38
I mean, and unfortunately, you know, it's funny. It's not funny. Every day now I'm reading about businesses going out of business and I'm thinking, well, it's been a decent economy. What's, what's going. And I think it's I think it's some of this stuff is still lingering from Covid, unfortunately. I mean, the government programs weren't, you know, the consumers changed or they you know, they you know, something something's gone on within that business that has fundamentally changed after Covid 19 and the revenues weren't there. And now they're just shutting their doors. And I and I really see that across the country. I've been kind of shocked by it. And some of them are big companies that we all know. And it's kind of been surprising to see because the economy's not been horribly bad. But why are these companies now going out of business? I find that interesting. But yeah. Anyway, yeah.
Lee Murray
00:11:22
Well, before we get into the the individual categories, I wanted to, you know, just quickly because we have a lot of different kind of companies listening.
Lee Murray
00:11:31
what kind of company is this? 831 B kind of strategy most appropriate for.
Van Carlson
00:11:39
You know, honestly, we're across the board in gamuts of industries. So, you know, I think of any, any, any successful enterprise ought to be looking at tools like this today. So there is no industry or any, now there's some income levels where, you know, obviously there's fees involved and everything else. You know, we tell people if you're not doing more than $1 million in gross revenue, it's probably isn't. Your your timing's not now. Eventually, you know, as you grow, the everybody becomes starts to look at these tools. But so from that standpoint we're not we're like I said, I, I'm always, you know, the fun thing about what I'm in now is, is I find out how people are making a living. And I think, oh my gosh, why didn't I think of that? I mean, I almost say that daily with people, you know, it's just it's a fun it's.
Lee Murray
00:12:21
There's so many opportunities out there.
Van Carlson
00:12:23
Oh my gosh. Yeah. And it's so awesome to see somebody. And I say it all the time, man. I mean, you took an idea, you ran with it and you turn it to a profitable company. That's not easy to do. By no means. And now and now, how do you handle the risk on the back side? Right. And that's where we come in. So there's no industry out there that I would say. I think the biggest thing for me is, is, is when it comes to, the driver today is really what's going on in the traditional insurance, very similar to why the code came out back in In 1986. We're dealing with business owners all over the country right now being canceled. You know that. You know, I was talking about how the unique way people make money in our country, what kind of businesses they work. You know, the more unique business you have, the more gaps and exclusions you probably have on your policy.
Van Carlson
00:13:06
And the reason for that is insurance companies will write a chassis policy and it pretty much will. It's the one glove fits all kind of mentality. And of course they do that to scale. They got to get state approval on these coverages. Sure. So you know to go out and if if that market isn't big enough, they're just going to find something that's already on the shelf and hand it to you. Right, right. And that's really where risk managers come in and say, okay, you have a unique risk. You have things that you don't. That's not normal. Even though they might classify you as a as a manufacturer and you got covered under your traditional manufacturer of risk, but you've got some really unique risk in here that we need to be able to find out that any come back again. Risk financing. Do you want to use pre tax or after tax. So that's another fun part of our business is just diving into these things and saying. But I think the biggest driver of today is, is and I think most CEOs would tell you this today and the biggest five years ago, property, property casualty insurance was an afterthought when it comes to cost.
Van Carlson
00:14:06
Do we have coverages. Should we turn this claim in. Those those were not you know but today it is a it is a front and center topic with business with with because you know that it goes right into your bottom line. You know, if all of a sudden you take a substantial 20 or 30% increase on your policy, you paid for last year and you're getting less coverage, where are those dollars going to come from? And you got a budget that you're running on. You you may have a board you ought to answer to. I mean, all the other things that CEOs have to deal with today. and profit is becoming constrained. You know, it's because of this I'm worried about honestly, I'm worried about what's going on in the insurance industry because I was just in Miami not a couple of weeks ago, and I was talking to business owners down there, and they're even having a hard time. They had a qualified buyer and the buyer had to go finance it, but they couldn't get the appropriate insurance.
Van Carlson
00:14:58
For the for the finance or to to accept the risk. And so this is like ACV on commercial building roads. Right. Actual cash value minus depreciation on roofs. Yeah. you're going to mortgage that building. And the best you can do is ACV on the roof, which means you're pretty much self ensuring that roof, if it blows off or due to a hurricane, you're on the hook. So the banks aren't thrilled about it. And, it could cause a, it could cause a, a clog in our economy. I'm, I'm hoping Congress pays attention a little bit because, you know, interest rates are one thing, but the velocity of money is really huge in our country, and it requires turning and selling and buying. Yes. And if we're getting clogged because we can't buy the appropriate insurance, that's going to slow down. And that, that, that who knows where that can go. And it's slightly it's concerning and I, and I bring it up in spaces like this, because I think people that think a lot need to be thinking about that, because it's a it's an unknown factor.
Van Carlson
00:15:58
I being 30 years in this business, I would never have predicted then the kinds of things I'm seeing in the traditional markets, the exclusions and the substantial rate increases that are occurring. Yeah, it's been surprising to me.
Lee Murray
00:16:11
Yeah, it's been pretty crazy. well, let's get into the categories now. So one of the first ones that you mentioned was brand protection. Now this is probably going to apply to a bigger company. It's got a brand. And they're actually they care about their their brand. tell tell us about how they can protect that.
Van Carlson
00:16:27
Yeah. So you know, again it's a huge unfunded liability in your books today. It's, you know, again, back in 1986, I don't think anybody cared about the brand. I mean, they cared about their brand. I mean, but it was more of a the national companies, right, where, you know, you had good consumer confidence in that brand. Sure. and I would argue today, the smaller businesses today have more exposure than the big ones.
Van Carlson
00:16:46
Target got hit with a massive cyber attack. hit their PR a little bit. I mean, hit there, you know, the brand protection, their brand a little bit, but, you know, no target's closed because of it. Right. You know, the smaller the business are and realistically, to most businesses, you know, that's the intangible asset that you have, right? Is your brand, your the consumer confidence, the contracts, intellectual property you might have all those types of things will drive your brand. You're spending a substantial amount of money in content today in order to bring you, you know, it's like it's like trying to find the front page of the phone book now, right? You got to pay a little bit more to get in that front page on the internet. You're spending a lot of money and unfortunately it doesn't. You know, it takes years to build up and it takes literally seconds to destroy. And I've built I've dealt with clients that have had these situations happen.
Van Carlson
00:17:33
I've had it with, restaurateurs where, you know, they had foodborne illnesses. that made the local news, you know, where those dollars are going to come from. Now, they might have foodborne illness coverage for loss of income, but where's the PR stuff? You know, you got to got to hire a PR firm. You got to start putting off editors out. You got to start increasing your content, your your your digital ads because you got to build you got to build your push back up with the. That's right. And it's across the board industries. I mean, I've had it with CPA firms where they've gotten cyber breached. I've had it where unfortunately, you know, somebody did something that they weren't supposed to do. It was a legal act, but they were the leader of the company and it tarnished their tarnished their brand. I mean, it happens all the time. Unfortunately, I can we all know national stories, but the local stories are just it goes on every day, unfortunately.
Lee Murray
00:18:24
Yeah. If you hit the leader then that, you know, tarnishes the whole brand of the company.
Van Carlson
00:18:27
Yeah. And the brand and the brand is everything that most business owners value their brand over their tangible assets, their buildings, their vehicles. Because why it took them so many. I mean, the consumers have a favorable. Yeah.
Lee Murray
00:18:40
It's consumer confidence is what it is.
Van Carlson
00:18:42
Yeah. Absolute consumer confidence. Exactly. So those are things that, you know again and I call it a double negative. So if that happens, you got less people coming through the door now and your expenses are going up.
Lee Murray
00:18:55
Right.
Van Carlson
00:18:56
That's not the best time to go run to a bank and get a bigger operating loan. Right. Exactly. Now, where are you going to get those dollars from? And that's that's where an 831 B really comes in. And that's risk strategies. You know SRA stands for strategic risk Alternatives. And that's really what we're doing at that point. We're taking a we're taking a strategy.
Van Carlson
00:19:16
And we're we're making it not so much of a unknown. You know the nice thing about when we start going down this road, we become real risk managers for our clients, because now we're talking about risks that we can start to put build dollars aside. But more importantly is like, how are you going to respond? How do you how are you going to have a you know, I've helped I've helped clients that are, like in hurricane areas. You know, they got to have a response plan in place. They got to find out where their employees are going to go, when they're going to all of this stuff. So we start talking about that with brand New, by the way.
Lee Murray
00:19:48
Yeah. It's much more customized.
Van Carlson
00:19:50
Yeah, very much more. And those are things that we can bring to the table for business owners to say, okay, you know, have, you know, what is a sample press release you would want to have if you, if you got a cyber breach, for example.
Van Carlson
00:20:02
Sure. All of these other things we can start to really bring in some strategies for business owners that they're just not shooting from the hip anymore, but they really have a plan in place and they have the dollars set aside over, you know, previous years of profitable years to be able to go to, you know, we we call it a rainy day fund or a war chest. And it could be either one of those. Right? Right, right. I gotta go to war now because, you know, I'm being attacked. I've had situations where I've had disgruntled employees go out and make up 20 different emails and start hitting people on Yelp, and all of a sudden we went from a four and a half down to a one, and he couldn't figure out. And people.
Lee Murray
00:20:36
Yeah.
Van Carlson
00:20:37
Bigger cities, people live and breathe that by that scoring and you couldn't understand. And it literally it was a person that was a disgruntled employee.
Lee Murray
00:20:45
Yeah.
Van Carlson
00:20:46
I can go on and on about the nightmare. You know, you're out there.
Lee Murray
00:20:49
I like it because it's it's much more personalized, of an approach to managing risk than, you know, just a blanket insurance policy, like you said before, because it's not all about just insuring or intensifying the risk. It's it's really more about what are you going to do once this happens? you know, yeah, hopefully you'll get some you'll get some coverage. But as we know and you know, a lot of these coverages, you're not even going to turn the claim in. so what are you going to do as a company? So having those plans in place and, and even testing or stress testing those is probably more important than just covering your risk with a, with a policy, you know.
Van Carlson
00:21:27
Well, it puts it in your hands. Right? Right. More control. When I, when I look at when I look at professional liability insurance, you know, unfortunately, it's a math problem for insurance companies. Yeah. Meaning, you know, how much is it going to cost to fight whether you whether the person was wrong or right? It comes down to a math problem for insurance for insurance companies.
Van Carlson
00:21:47
How much is it going to cost to defend? What's their likely chance of winning it? Or can we just settle now? Yeah. Well, you know, I've had situations where lawyers, doctors, architectural firms, consulting companies, they were in the right, but it came down to a math problem. And the problem is, you know, if you're if you're in a highly competitive world, your competitor is going to use that against you, that, hey, this guy got sued and his and they had to pay out. You know, even though, you know, in the eyes of the public, it looks like you're guilty, obviously. Yeah. But it became a math problem. And so, you know, that's another thing I talk about business owners all the time. It's like, again, getting back to your reputation, do you want to have that controlled by an insurance company or do you want to have control by you? And I'm not saying to walk away from your professional liability insurance, but I would say to you, I would tell a client, go as high as deductible as you can.
Van Carlson
00:22:38
We'll fund for the gap between that first dollar and before your insurance kicks in. But you're going to have you're going to be on the on the hook for those first 25, 50, 150, $250,000 in losses. But it's going to be your control. You're not, because the math is anyway. That's a whole nother conversation. We weren't going to get into necessary, but I wanted to bring that up as an example of what's going on in the professional world to is is substantially and I say it all the time, you're paying more today and getting less coverage. Yep. That's what's happening.
Lee Murray
00:23:09
Yeah. I think everybody's feeling that, you mentioned earlier about, you know, disruptions from storms, like we just had Helene come through, and, I don't remember. Ian. I guess it was, this this is a good bridge to supply supply chain risk, because I know we've talked, you know, storm disruption disrupts operations. And so maybe speak to that a little bit. I think that's a very important piece.
Van Carlson
00:23:35
Yeah. Supply chain risk. We really see it's always spent spent up on that after Covid. Right. it was just less product out there, less way to pivot. And so, you know, the problem about supply chain. And because we're such a global economy again, going back to the 1980s, we were just probably in the, in the, in the infancy of becoming a global economy. And of course, the 90s and 2000 we spun up. But, you know, today, the supply chain risk, I mean, small business to major businesses are, you know, they're all in the they're all dependent on this global economy now. And, you know, if you have any kind of disruption along the way, if you've got a pivot all of a sudden and we've had that, we witnessed it in Covid 19 where, you know, some of these guys are on contracts and they got to deliver. And there was no exceptions to that delivery, like, oh, hey, the government, we shut down for a month and a half, two months, whatever it was, you know, that wasn't that wasn't in the get out of the jail.
Van Carlson
00:24:22
You know, I shouldn't say get out jail, but it wasn't out of exclusions, out of the contract that you didn't have to deliver still. Yeah. So some of these guys were paying substantially higher for their products just to, just to honor the contracts they had in place. Yeah. So if you're if you're locked into a pricing and now all of a sudden whatever that product cost to buy today to fulfill that contract obligation And you got to pivot or you got to go somewhere else to go get that. And now there's a delta between what you thought you were going to buy for and what you're going to pay for. Now, again, where's those dollars going to come from? Now, you may have enough profit margin in there to make that gap, but that's not good. You're going to you're going to rely on that profit to run your company. Right. So sure, that's really the glaring issue of supply chain today. And then fortunately we hear it all the time. I mean, I remember a couple of years ago Ford couldn't make F-150 because they didn't have a chip.
Van Carlson
00:25:10
Well, can you imagine if you're a small business and you can't make your primary product, the number one selling product in your business for a month, two months, two weeks? What's that going to do? You know, and so those are just really concerns that business owners, unfortunately until you experience something like that, you're like, oh geez, I didn't know I had that risk. Yeah. And then it becomes and it'll slap you upside the face. And again, this is where risk managers come in and say, hey, here's what here's some prevention issues. You know, here's here's some gaps I see here's some things I think you should fill in for. And again all we are is a fill in for the ability to use tax deferred dollars after tax dollars. And that's that's really what we're doing. And I don't want it to sound complicated, and I sure the hell don't want to scare the heck out of any business owners out there. Because you know what? We all know if you run a business, it's not easy.
Van Carlson
00:25:56
You know, and again, you know, one of the things that, and I and I say this because I, one of the greatest compliments is the risk manager. We get honestly, and I didn't expect this, but it's been said to me several times now over the years, man, I just sleep easier at night knowing I, I've done your program. And, you know, from a professional standpoint, honestly, there can't be any better compliment than that because yeah, for sure, business owners, we don't sleep very good to begin with. So.
Lee Murray
00:26:22
That's right. Yeah. You know, that's a good point. I think as you're building a business, you you don't sleep at night because you're wondering if you're gonna, you know, make payroll because you need sales. And I think once you grow past that hump, the these other bigger monsters sort of come out lurking and you don't realize that they've been there the whole time. Now they just become more prominent. and and so that's why this is a good conversation.
Lee Murray
00:26:48
And I want to have you on because I think it's good for people to hear about this before they have one of those monsters take a bite out of their, you know, their leg. and now they're facing that, and that's all they can. They can, you know, to look at. It's good for them to think about this proactively.
Van Carlson
00:27:04
absolutely. And unfortunately, because it's risk management, because it's insurance, you know, it's deemed as necessary evil. I get all that I do. But, man, I tell you what, we again, we've taken enough risk to get to that point that we, you know, anything along the way can mitigate. And I appreciate you bringing up the fact that, you know, by doing this, some of these proactive things, it does embolden business owners to take on more risk. That's right. Because they they have a they have a they have a plan. They have a back room, they have a stoplight, you know, they have a backstop somewhere.
Van Carlson
00:27:38
it it does embolden them to want to take on more risk. And you know what? I'm all about that because, I mean, unfortunately, I don't know if we're I don't know if we're making more risk takers. I mean, one of the challenges we're going to have in the future is who's going to take on all the small markets, who's going to buy the small to middle market business owners that drive not only our economy but our employment base? you know, we've gotta we gotta this transitioning of wealth coming up the between, you know, we've got, I want to say we have, what, 3 million businesses that are owned by people that are in their late 60s. Yep.
Lee Murray
00:28:09
It's already happening.
Van Carlson
00:28:10
Yeah. And over the next ten years, there's going to be have to be a transition on those, or they're just going to close up their doors and we can't afford that. We cannot afford that.
Lee Murray
00:28:19
Yup. It's true. I'm watching it happen, sort of, through some backchannel conversations with various people.
Lee Murray
00:28:24
And, and it's, it's very it's very intriguing to me. watching it happen and and and there's, there's, you know, there's all kinds of paths that can be taken.
Van Carlson
00:28:34
yeah, exactly.
Lee Murray
00:28:35
You know, these businesses that are needing to be sold and need to be taken over by someone that is of like mind. If they can't find that person, then that business gets bought by a conglomerate and, you know, becomes something completely different, which changes the economy, for, for better or worse, depending on the situation. So, yeah, that's just one example.
Van Carlson
00:28:56
Oh, no, I know, and I, we deal with it a lot. And so in our space when we when we help business owners with that transition, we'll, we'll do transactional risk. You know, a lot of these business owners will either carry the note they got rep and warranties. You know, part of the promise their reputation in the community I mean that's what they're selling. You know their their key key key client is buying 3,040% of their products from them.
Van Carlson
00:29:17
You know, we'll wrap a policy around that. So the new buyer coming in can feel a little bit more at ease that there's money there in case something does. So that we call them clawbacks and and.
Lee Murray
00:29:27
clawbacks.
Van Carlson
00:29:28
Yeah, yeah. Clawbacks. Yeah. And, how do you finance those? Clawbacks. Right. Well, you can defer some of the selling proceeds into an 830 and be today knowing those dollars are there and the buyer is more. We've actually seen it where the buyer, you know, said of getting a discount on the on the valuation of the business. You actually get a par because that that those dollars are set aside to recognize that, hey, you know what? I just bought your plumbing business or your HVAC business. You put out three, 4 or 5 year service contracts or warranties. I've got to honor those going forward. Well, one of the ways to handle that, because to get a devaluation is put some dollars aside into an 830. And so when those things happen, you're going to pull on those dollars.
Van Carlson
00:30:08
And the new owner doesn't have to bear that cost. And are the unknown costs going forward. So those are another advantages that the code can bring you that again, I think are substantial given given the right situation.
Lee Murray
00:30:21
Yeah. So just as an aside, with the 831 B, does all the money just go into one account? It's in one kitty. You can pull from that money for any risk that you're experiencing. Or does it have to be earmarked?
Van Carlson
00:30:35
No, it has to be earmarked. That's part of our job, right? That that's where we become come in underwrite. So there's got to be specific policies that, you know, there's you can't just, there's got to be a process and procedures to it. So one of the, one of the tests is are you acting in the principles of insurance? So we have we have a claims process. We have policies that are written for specific risk. So that that whole that whole mechanism is in place. That's part of our admin. but, you know, I should tell you the dollars are going to work too, by the way.
Van Carlson
00:31:03
So this is no different than the 401 at that point where the financial advisor you have can manage the money, it can be self-directed, it can just sit in the bank at a money market account if you want. But, you know, but it would go in one account necessarily under that because this 831 B plan, it has its own tax return. It's a C corp. So you're going to have you know, you're going to be a shareholder of it. You can declare dividends down the road, if you sell your business and you don't have the risk exposure to it, and you can have a three year runoff, you can close it down, pay capital gains. And that's obviously the difference between ordinary income, you know, because if you didn't do our program and you were just going to say, hey, you know what? I'm going to pay my tax bill. Every dollar that comes in, I'm going to set $0.50. You know, I'm gonna pay my tax on that 50 cent set aside in my company.
Van Carlson
00:31:46
What you got to recognize is taxable income that year. Right. So with us you're deferring the taxes. But even when you bring it out on the back end because it's a C corp, you know, and right now the clients win because of what the tax rates are right now on dividends and long term capital gains. Who knows who the future holds for that. you know, we don't know. But right now it's it's obviously there's some tax arbitrage there. But, but that's the that's the long term gain. And again, it's no different than the HSA. Right. If I keep putting money in my HSA and don't use it, it becomes a retirement vehicle for me down the road. And hopefully, hopefully this does the same thing for business owners quite honestly.
Lee Murray
00:32:25
So there to kind of wrap this up, there was one last category one to look at and that was dispute resolution. Tell tell us about that.
Van Carlson
00:32:32
Yeah. So dispute is probably our most active coverage. it's for lawsuits. So, and disputes between partners and all that, you know, general liability policies today that are bought by business owners typically have a right to defend clause.
Van Carlson
00:32:48
been a surprise in the last couple of years where where insurance companies were able to get off some of those clauses, which typically has never been the case in the past. And there's just some things that are just simply excluded from that. and a lot of it has to do with disputes, the dispute between contractors, employees, business owners and you personally just being sued, your home owners may not trigger for right to defend on those things. So you've got these legal bills coming in, unexpected expenses. you know, and all we're doing is taking some of these dollars and putting them aside into a dispute resolution policy. So if they you do get served and there's no coverage anywhere, it falls down to those dollars. and that's, you know, again, those are hugely unexpected expenses. It was interesting last year, for the first time in many, many years, liability claims exceeded property losses in commercial and it just came out in business insurance review. that that happened. Now you could make the argument because of Covid, the courts were shut down.
Van Carlson
00:33:45
There was a probably a backlog in lawsuits that were paid out by insurance companies. That was in 2003. I'll be curious to see what 24 does. But typically liability is pretty fairly profitable for insurance companies. and that didn't happen in 23. And I don't know what 24 looks like. But, so those are the things that business owners. Hey, and by the way, I mean, the longer you're in business, it's a fact of life. You're going to get sued.
Lee Murray
00:34:09
I mean, that's right.
Van Carlson
00:34:11
You know, we own, we have I saw a serious statistic. We have, of all the borrowed attorneys in the world, we have 80% of them living in the United States.
Lee Murray
00:34:18
So, that doesn't shock me at all. It's a very litigious society we live in.
Van Carlson
00:34:28
Anyway.
Lee Murray
00:34:29
Well, this has been great. Thanks for this, conversation and kind of laying this out. I think this is such a great, you know, strategy. you know, how are people? Come up.
Lee Murray
00:34:38
Come, come about it. I think it's good for them to be thinking about their risk in a different way. So thanks. Thanks for that.
Van Carlson
00:34:45
Yeah. Thank you. I really appreciate it. And if you want to learn more about us, we own 831 b.com. We were fortunate enough to get our website domain.
Lee Murray
00:34:53
yeah that's great a31.com. And if they want to be connected to you send them to LinkedIn. LinkedIn.
Van Carlson
00:35:00
Yeah, absolutely. Our van at 831 v.com too. If you want to email me directly I'm here to. We're here to. We're in an education process. And if you're hearing about this for the first time, I always tell business owners, you know, to recognize their issue, to recognize the employees that are, you know, that are working for you. Help you grow your company. Tools like this you need at least be educated on. And, and that's all it is. It's a tool. It's not a silver bullet. It's not. It's a part of a solution.
Van Carlson
00:35:27
but I think you owe it to yourself and the business that you run to look at the types of tools like this.
Lee Murray
00:35:32
Agreed. Thanks again. Van.
Van Carlson
00:35:35
Thank you. Lee.