Captivating Thinking

It’s April 15, and business owners across America are mailing checks to the IRS.  One way to look at mailing a large check to the IRS is, “it’s a good thing because it means we made money.”  Another way to look at mailing a large check to the IRS is, “what tax avoidance vehicles would enable us to better serve our business and hold on to hard earned profits for the future?”  To what lengths should business owners and professionals go to reduce their taxes

A wise man (Stephen Covey) said “Seek first to understand, then to be understood.” It seems that the Captive Insurance Association (CICA) doesn’t understand small businesses and small business owners.  This myopia is not hard to understand.  Many members of CICA’s board are associated with large captives and large corporations.  The great danger is that misunderstanding can lead to misrepresentation.  Because they don’t understand the unique challenges and risks that small businesses face, it is easy to misunderstand and misrepresent small businesses

Entrepreneurial thinking and enterprises have created tremendous wealth in the United States, fueled upward mobility, expanded the middle class and provided a standard of living that would have been unimaginable to America’s founders.  This same entrepreneurial spirit gave rise to captive insurance companies as enterprising businesses looked for a better approach to manage risk.  In their early days, captives were primarily used to control insurance costs and ideally return a portion of premiums paid for insurance back to the parent company.

Beginning in the mid-80s, many businesses continued down an entrepreneurial path and shifted their mindset from risk management simply as a form of cost containment to risk management as a profit center.  Indeed, a “grown up” approach to risk management can be quite creative and entrepreneurial.  Making a paradigm shift from viewing risk management purely as a cost center to viewing risk management as a profit center and strategic pillar of the business can be very rewarding from a financial standpoint.         

Many mature and successful businesses have an immature approach to risk management.  For many business owners and CFOs, risk management is not an enjoyable topic.  Also, taking steps to develop a mature risk management approach sounds like code for “spend more money.”  However, the opposite is the case.  Developing and executing a more mature risk management approach will almost always increase the total wealth of a business and its owners while better managing risks.