A $20.9 Million Cash Increase for an Already Profitable Texas Business Owner

A Texas business owner with multiple established companies was generating approximately $80.9 million in annual revenue and $11.3 million in taxable business profits. Operating in intensely competitive markets, the businesses maintained a 14 percent pretax profit margin and paid approximately $3.4 million annually in business income taxes.

The owner believed the competitive environment limited opportunities to increase profitability. ASC Partners recognized a substantial opportunity to improve the businesses’ cash flow by reducing taxes on the profits they were already earning.

ASC Partners implemented Strategic Capital Architecture™, using a capital structure its principals had employed in more than 280 transactions. Grounded in ERISA and federal tax rules governing ESOP-owned S corporations, the restructuring enabled the Texas businesses to recapture approximately 70 percent of their annual income taxes on an ongoing basis, while the owner retained full ownership and control of the operating companies.

In the first year alone, the businesses retained $1.8 million in additional after-tax cash, net of taxes and fees.

The additional cash gave the businesses more money for working capital, equipment purchases, expansion, acquisitions, and other strategic objectives.

By the end of year eight, cumulative after-tax business cash reached $96.8 million with ASC Partners, compared with $78.3 million without ASC Partners. The difference represented $18.5 million in additional after-tax business cash, approximately 24 percent more over the eight-year period.

The restructuring also provided employees with $2.4 million in additional retirement benefits, without requiring them to contribute any of their own money. This brought the total combined economic benefit to $20.9 million over eight years.