Risk Management Strategies to Protect Your Business and Legacy From Unexpected Risks

Protect Your Business and Legacy From Unexpected Risks

Building a successful business is much like nurturing an orange tree. With time, care, and effort, your business grows and bears fruit—providing financial security, personal opportunities, and the foundation for a lasting legacy. But just as a storm can destroy a thriving tree, unforeseen risks can disrupt a business if it's not properly prepared.

While most business owners focus on common challenges—like market volatility, rising costs, or employee management—many overlook less obvious threats, such as natural disasters. Recent wildfires in California, for example, have left countless businesses grappling with losses that weren’t fully covered by traditional insurance policies. Risks like these can undermine years of hard work and careful planning.

 
The Limits of Traditional Insurance

Standard insurance policies often fail to cover all the risks businesses face today:

• Gaps in coverage for natural disasters such as wildfires or floods

• Exclusions for business interruptions or supply chain disruptions

• Rising premiums and increasingly restrictive terms

These limitations leave business owners exposed to unexpected financial challenges.

 
Proactive Strategies for Risk Management

To address these gaps, Collective VFO works through our virtual family office experts to help business owners and CPAs identify risks and implement strategies that align with their specific needs. These include tools like:

1. Captive Insurance Companies

Captive insurance companies are designed to address risks traditional insurance may exclude. In addition to offering customized risk coverage, captives provide a unique financial advantage: the ability to shift assets from the business into the captive through premium payments.

• Build Reserves Tax-Efficiently:

Premiums paid to the captive are deductible as a business expense (when structured properly), allowing you to build reserves within the captive over time. These reserves can be used to cover claims or retained for future risk management needs.

• Tailored Risk Coverage:

Captives can cover wildfire-related costs, environmental cleanup, business interruptions, or other risks not typically addressed by standard policies.

• Greater Financial Control:

By managing reserves internally, captives offer more flexibility and cost efficiency than relying solely on commercial insurers.

2. 831(b) Captives

For smaller businesses, 831(b) micro-captives provide a tax-efficient way to manage risk. They allow:

• Deductible premium contributions of up to $2.85M annually (2025 limit)

• Reserves to address risks like supply chain disruptions, lawsuits, or natural disasters

• An opportunity to retain funds within the business ecosystem while protecting against unexpected events

This structure enables business owners to manage risks while improving their financial positioning over time.

 
Shifting Assets Strategically

One of the lesser-known benefits of these advanced strategies is the ability to move assets from the business to the captive while maintaining control and flexibility. By paying premiums to the captive, business owners effectively create a pool of assets outside the operating business that can grow in a tax-advantaged way. These reserves can:

• Provide financial stability in times of crisis

• Support long-term risk management strategies

• Potentially be distributed back to the business or owners if unused, depending on the captive’s structure

This approach not only mitigates risk but also creates an opportunity to build reserves strategically, aligning with broader financial and legacy planning goals.

 
Why It’s Important Now

Natural disasters are becoming more frequent and severe, making proactive risk management critical. The recent wildfires have shown how businesses can suffer long-term damage when gaps in their coverage go unnoticed.

By working with a virtual family office of experts, business owners can identify potential vulnerabilities and explore strategies to address them in a way that fits their unique circumstances.

Derek Spitzer, Managing Director of Captive Insurance at Higginbotham said, "In 2025, business owners are increasingly turning to captive insurance as a strategic tool to gain greater control over their risk management, reduce reliance on traditional insurers, and capitalize on potential tax and financial benefits. With rising commercial insurance premiums, tightening underwriting standards, and evolving risks—such as cybersecurity threats and supply chain disruptions—captives provide a flexible, cost-effective alternative that allows businesses to tailor coverage to their unique exposures while retaining underwriting profits and improving cash flow."

 
Take Action Today

Your business is a vital part of your financial future and the legacy you’re building. Protecting it requires thoughtful planning and a proactive approach to risk management.

At Collective VFO, we collaborate with specialists to help business owners and CPAs explore tailored strategies, including tools like captive insurance, 831(b) plans, and private reinsurance. These tools not only provide critical coverage for unique risks but also create opportunities to build reserves in a tax-efficient manner, offering greater financial stability and control.

Now is the time to evaluate your current approach to risk management. Let’s work together to prepare your business for the challenges ahead and help you safeguard the future you’ve worked so hard to build.