Have you contributed many years of effort for little or no pay, breathing life into your company at the expense of your other dreams, your kids’ college savings, or time with your family?
We know the feeling, and so do most dedicated entrepreneurs. That’s the tough reality most of us face. The good news is that you need not write off your contributions – your company will owe you a debt for them. You are entitled to recover it.
Your contributions to your company, both in money and in effort – “sweat equity” – have had value, even if your company is not yet profitable. That value should be recorded on your company’s books as equity and/or as money you are due.
When your company becomes profitable, you can begin to recoup those contributions. You may be able to recoup some of the value due you as dividends, which are taxed at a lower rate than ordinary income is at top marginal rates. (Consult your CPA for individual recommendations).
Even if your company may never be profitable, you may protect your family from loss of your investment through “key man” (or woman) life insurance. Your company can take out life insurance on your life to make sure that it can pay back to your family, upon your death, the value of your contributions to the business, so that they are not lost forever.