Case Study: Online Advertising Company

Core Financial PartnersBusiness Owners, Case Studies

Annual Revenue: $22 million
Net Income: $1.8 million
Number of Employees: 40
Owners: Two Partners both married in their 30’s
Founded: 2003
Corporate Structure: C Corporation

Their Story:

The owners of XYZ Company were in the midst of selling their company when they were first introduced to Core Financial. Referred by another client, they were looking for help reducing their tax liability and managing their personal assets. When their sale fell through–due to the failure of the other party to pay the final installment–the partners re-acquired their company. At that point, they hired us to help with their corporate planning and in less than one year, they have substantially increased revenue and net income, reduced their taxes and are well on their way to achieving their personal financial goals.

Challenge… Limited Cash Flow:

XYZ Company buys and sells digital ad space. When we met them their business was booming, but they were running into some liquidity issues. Since they purchased their ad space 60-90 days before it was actually paid for by their customers, net income figures were high—showing significant profitability—but there was limited cash on the balance sheet. For a company attempting to grow at a rapid pace, cash was a key component in their continued success.

Solution… $2.5 Million Dollar Line of Credit:

With the credit markets practically frozen in late 2010, banks were not readily lending money even to thriving companies. XYZ Company had previously attempted to secure a credit line on their own but had not succeeded. Using our expertise, we worked diligently to position their company and package their financials in order to present an attractive proposition to potential lenders. We then introduced them to a bank in our extensive network and were able to secure them a $2.5 million dollar line of credit. With this new surge in cash flow they have since been able to grow their business at a much faster rate than before—substantially increasing revenue and net income.

Challenge… Significant Tax Liability

With 1.8 million dollars in net income the business owners had considerable tax obligations and no real plan in place.

Solution… Created a $850k + Tax Deduction

We advised the partners to use a portion of their credit line to creatively fund a set of new accounts. That enabled them to borrow funds at a rate of below 4% and benefit from a very substantial tax deduction. In 2010, they saved over $387,000 in income taxes alone. However, the REAL savings comes from the fact that they took the deduction at their ordinary income tax rate of 35% and will pay only 15% capital gains tax on all future distributions.

Challenge… Lack of Personal Planning

Prior to working with Core, neither partner had worked with a financial planner to maximize their personal wealth or strategically manage their assets. With installments coming in from their planned sale they needed guidance. One partner was looking to buy a home and the other was in the midst of building a new home.

Solution: Comprehensive Plans Solve Partners’ Unique Needs, Protecting Future Estates

We negotiated a real estate loan on one partner’s behalf helping him determine how much he could afford to spend on a home purchase. The other partner was facing a slightly different challenge. Counting on the payments from the company’s immaterialized sale, he had exhausted his funds in the process of trying to construct his new home. We worked to convince a bank of his credit-worthiness and enabling him to obtain a construction loan to complete his home. In addition, we have helped both partners put an estate plan in place to protect their personal assets and their families for the long-term.

Looking Forward:

We are currently working with XYZ Company to help them design a buy/sell agreement. Again, we set up a sophisticated strategy, which allows them to take advantage of their corporate structure to save money. In order to purchase the insurance they need to fund the buy/sell agreement, they will borrow money from their C corporation (the C Corp is taxed at a rate of only 15%) and use those funds to purchase the insurance instead of using their own after-tax dollars. The buy/sell agreement will protect the future of their business and they will have created it using dollars taxed at the lowest rate.