How To Financially Prepare for Entrepreneurship

Everyone wants to be their own boss, make the rules, stop living under the proverbial “man,” but it can be a scary plunge to take.  Owning your own business requires financial responsibility and risk that many people aren’t willing to take on, but if you are up for the challenge and are going to chase down that elusive American dream then there are a few ways to keep things from coming to a screeching halt before they even start.  The transition into the life of owning your own business can be an expensively slow and rocky road, but there are some things you can do put yourself on the right path, from the start.  Before you venture on this journey, here’s what you need to do prepare for the ride.

1.       Payoff all your credit cards.  If you can’t pay off the balances on your credit cards now, you certainly won’t be able to once you start your business.  You will also find yourself tempted to use those cards to cover the expenses of your business.  Use these as your last resort.  Paying off those cards now will give you some room to use them later, but relying on them for too many things in the startup process can quickly shut everything down.

2.       Find your monthly budget, and then reduce it.  You need to keep track of your basic expenses for the month: rent, food, insurance, gas and so on.  When you do this think about how this will change when you start your small business.  Will you save money on gas with a shorter commute?  Will you eat out more when you have less time?  Once you have a number in front of you that highlights your current expenses, try to make that number smaller.  This isn’t anyone’s favorite part, but you will appreciate the savings later.  Do you need the run the air conditioning at home, or can you open the windows?  Do you need the super fancy touch screen phone?  Do “Fruity O’s” really taste that different from the real thing? It’s cutting back on little things that can send money your way from places you never thought about before.  Also, it’s smart to make the transition to these saving habits months before you make your move into entrepreneurship to reduce the shock you may experience when you lose those extra 30 channels during hockey season.

3.       Fill your piggy bank.  Before you take a single step towards your new business, you need to have a stock of money saved up.  You should take the cost of your monthly expenses determined earlier, multiply that by six months, and set the bar there.  You should have at least six months of your expenses saved up before you begin.  With this, you need to make sure that you are realistic about how often you will be cracking into that piggy bank.  A lot of people get the “do-it-yourself-bug” when they start their own projects.  They think that they will do it all by themselves to save money.  Know what you can do, and what you will need others to do.  Will you hire an accountant? Will you need a handyman for small changes to your business space?  Think about these future expenses when you are saving for your plunge.

4.       Understand the benefits that you will lose.  One of the biggest changes that small business owners incur is the cost of individual health insurance.  Think about how to reduce this cost, for example switching your insurance plan before prior to your next birthday before they can increase the premiums based on age.  Look at your retirement plans and understand how your investments will change when you don’t have a 401(k) matching plan to double your contributions.  These changes don’t have to be life altering, but they are simple things that, if planned for in advance will remain simple.

5.       Don’t get hasty and quit your job.  You need to give yourself time to startup your small business, and keeping your source of income can be a huge help during this time.  There is a long list of expenses you need to pay before you can even think of opening up your doors, and it’s smart to keep your current job until you have those taken care of.

Entrepreneurs are some of the hardest working, committed individuals in the workforce.  It can be the most frustrating and rewarding experience at the same time, but taking the time to plan before you plunge can save you some of that frustration and bring forth more of the rewards.

Photo courtesy of:

Enhanced by Zemanta

State Pension Debate: Black, White & A Whole Lot of Grey

It comes as almost no surprise that states governments are getting hit in their pocketbooks throughout the recession just as everyone else is.  The difference is, state governments often have a lot more people that they need to write checks to.  One of these checks that has been given a lot of attention lately is the retirement plans for government workers, and it’s no secret that state and local governments are looking for ways to reduce the number the write in the dollar amount section.


According to statistics from The National Conference of State Legislatures, 43 states have changed their retirement plans since 2009 in hopes of finding that ever elusive balance for their budget.  Many states have taken different approaches to that task, implementing plans that increase the amount of money that workers contribute to their retirement, increasing the age in which benefits can be reaped and more.  These changes have put a bad taste in the mouths of most public employees who have stood behind the shield of laws that protect their pensions as these battles continue to fill our courtrooms with various appeals and challenges.


It’s a messy issue that is causing upheaval in nearly every state, flooding local news outlets with protests, sit ins and even a Governor’s recall election or two.  Like any heavily involved controversy, it isn’t black and white.  The shades of grey hovering over this issue are more numerous than many people realize, or want to try wrap their heads around.

First of all, many of the changes (or proposed changes) do not have any effect on current workers who have spent their lives in a job planning for the benefits to come after retirement.  Most people accepted government jobs, many times with lower pay than the private sector, because of the shining light of their pensions at the end of the long tunnel of employment.  Of course, there are a few states, such as Louisiana and Florida, which are asking (or in other words, are attempting to make a state law requiring) current employees to contribute more to their retirement funds but these laws are facing the most stiff defense from labor groups and unions.  With the exception of a few cases, the changes in pension policies will affect only those who are hired after the legislation passes.

Something else that most private sector employees don’t take into account in these battles is the soft little pillow we like to call Social Security.  Many employees who are covered by a public retirement pension program, a program that they are now at risk of losing, are not covered by Social Security.  When the Social Security system was created it didn’t include any public sector employees.  This changed after many states made what are called “Section 218 agreements” with the Social Security Administration to give their employees some coverage under the federal program.  Later, a 1991 federal law gave Social Security coverage to any public employee that weren’t involved in the Section 218 agreements or didn’t have pension programs through their agency.  So although times have changed, many employees rely on their pension programs to fill in for their lack of Social Security benefits.  They don’t have the safety net waiting to catch them in the end, because they have spent their lives in a system that was supposed to replace that.


One aspect of this controversy that seems to be the most transparent, but most obvious shade of grey is the simple fact that state governments are, at their roots, a business.  When private sector businesses can’t cover the expense of their employees, they cut costs, lay people off, or in the worst cases, go out of business.  Well state governments can’t shut down, for obvious reasons.  They can’t fire all their workers, again, for obvious reasons.  Their only choice is to cut costs.  Like any business, state and local governments have a balance sheet, with liabilities and assets, and there are new accounting rules which will change how those will be calculated.  With many states lacking the assets needed to cover their employee retirement programs, some missing over 70% of the necessary funds, they are not looking very valuable to Mr. Moody and his ratings for investors.  If states can’t find a way to cut their deficit, many investors will begin to expect a higher yield to make up for the higher risk and lower ratings, which will add further costs to the government.  With all of the emotions involved in the fiery battles around the nation, the bottom line for many states is simply, “It’s not personal, it’s business.”


Overall, the battle over state pensions involves both the worker’s money and their future and there are few things life that people fight harder to protect than that.  The problem is that the states are fighting for the same two things.  This dispute over worker pensions is a sea of grey in a dizzying world of passionate black and white.  Round and round with the issues we go, where we will stop, nobody knows.

Photo courtesy of:

Enhanced by Zemanta

“As Goes Small Business, So Goes The Nation”

Small businesses are a staple in our society.  “They are the heart of America.” “They are the epitome of the American dream.” So on and so forth… Well for the past few years they have had a rough go of it.  Small businesses have been in the spotlight throughout the recession, and it’s no secret that it has been a long, hard road, but that road may be getting a little smoother. A recent report from the National Federation of Independent Business shows that the confidence of small business is rising to its highest levels in over a year.  The Small Business Optimism Index from the NFIB showed a 2 percentage point rise up to 94.5%.


So to most of us, that number doesn’t mean a whole lot.  You’re probably thinking, “94.5%, that would earn you a solid “A” back in your grammar school days.”  But there is a lot to examine inside of that number before we start putting “Superb” stickers on this test.   That number is the wizard, but we want to see what’s behind the curtain.  Here’s a quick breakdown of the numbers behind that 94.5% and what it means to you.


One large factor in the increase was in the net earnings of the companies.  The subindex in this category jumped 11 points, giving it the highest numbers we have seen since 2007.  This increase can claim half of that total increase for the overall optimism.  So the good news is that the 11 point jump was due mostly in part to increased sales, which means people are beginning to open their wallets back up as we approach what some hope to be a steep climb out of our recession.


But there’s bad news… the small businesses aren’t jumping on the recovery bandwagon as they continue to be slow to hire.   The net change in employment for the small businesses per firm remained at a dismal .10 for the third straight month.  Now that .10 maybe slightly misleading, but it essentially means that every small business in America hired one tenth of a person in April. It doesn’t seem very impressive, but we can take a quote out of President Obama’s book of wisdom “If you’re walking down the right path and you’re willing to keep walking, eventually you’ll make progress.”  As long as small business owners don’t get tired, they seem to be moving slowing in the right direction.


Unfortunately, there is another famous quote, this one from Dr. Martin Luther King, that is just as applicable. “All progress is precarious, and the solution of one problem brings us face to face with another problem.”  That other problem is inflation.  More and more small businesses are raising their prices to cover the increasing costs of labor and supplies.  The net percent of businesses raising selling prices jumped 2 points to 8% for the month of April. The Federal Reserve is depending on low inflation rates to support their policy for future years, but trends show that small businesses are fading away from price cutting and are being forced to push their prices higher and higher.  This inflation is something that will be of concern for small business owners in the coming months.


Speaking of those coming months, the portion of the study that measures the expected business conditions for the next six months increased 3 points, bringing that percentage up to only -5%.  It’s a step in the right direction, although many Americans are tired of steps and are looking for the giant leaps they have been waiting for.


What may be the most important factor stemming from these numbers is the effect that they will have on voters come November.  The economy has been, and will continue to be, the central issue around which the presidential election will revolve.  These numbers are extremely suggestive as to how small business owners, and people on Main Street in general, are feeling about the economy and the direction that they believe it is headed.


So, we return to the old adage, “As goes small business, so goes the nation!”  Small business owners are still on their long and arduous journey through our economic struggles but they continue to make moves toward success.  We aren’t quite ready to hand out that “Superb” sticker just yet, but a “Good Effort” or “Keep It Up” stamp would be well deserved.

Photo courtesy of:


Enhanced by Zemanta

Tax Organization Tips for Small Businesses

If tax season were like Christmas, you’d definitely file doing your taxes under “last-minute shopping.”  Not only is it time to prepare last year’s taxes, but it’s also important to get this year’s taxes rolling as well.  Compiling tax data last minute can be stressful and confusing.  And trying to throw together important information regarding the success of your business under pressure will surely lead to costly mistakes.  Here’s a list of helpful organization tools that can cut your tax preparation time in half:

  • Don’t store all your tax records in one file.  Keeping your tax records all in one place can lead to lost items and mismanagement.  Try purchasing organizational containers like plastic tubs and label them with the tax year.  Items like vendor files, appointment books, bank records Insurance policies, capital asset files, investment accounts, real estate and capital improvement files are important tax documents that need to be filed together under the same tax year.
  • Track your mileage.  If you use your vehicle or cell phone for business you’ll want to track your usage accordingly.  While cell phones can be easily archived through your bill, your vehicle is different.  The IRS asks for your total mileage on the tax return, so try keeping a notebook in your vehicle and tracking your mileage for each trip.
  • Collect all of last year’s tax documents.  If you haven’t done this yet, create income tax files for last year and this year – and make them stand out.  Throughout the year as taxable transactions occur, collect all documents in the file.  Filing documents like third-party reporting documents such as 1099s, K-1s, W2s, 1098s, etc., and receipts for tax deductable transactions immediately when you receive them will make data compilation much easier.  After archiving these throughout the year you can simply grab the file, a back up of your QuickBooks data, and head out to your tax pro.
  • Go green!  Welcome to the 21st century!  Now welcome your bookkeeping system as well, and purchase up-to-date digital accounting software.  Most accounting software programs are easy enough for the non-accounting professional to use.  Now tax return preparation, financial and tax planning are simplified because of the comprehensive reports generated by a decent accounting program.  Imagine not having to peruse through your filing cabinet for hours at a time, and simply pulling it up on your computer instead.  Furthermore, these digital files are easily transferable and take up less space.  Although, beware of the caveat – computer crashes are not uncommon, and losing all your important files in a “virtual fire” can ruin you and your business.  Be sure to implement a routine backup plan where the files can be stored outside of your hard drive.

There are myriad tips that can help you and your business organize your taxes throughout the year, making last-minute tax preparation less of a headache.  If you have tips of your own that you’d like to share please let us know!

Photo courtesy of:
Enhanced by Zemanta

401(k) Outsourcing: The Next Big Thing

Outsourcing (Photo credit: Hangout Lifestyle)

There are an abundance of benefits to outsourcing the fiduciary risks and responsibilities of your company sponsored qualified retirement plan. Given the increased regulations and scrutiny by Capitol Hill, outsourcing makes sense for most small to mid sized businesses. Most business owners do not have the time to manage their retirement plan with the attention it deserves and demands. One question must be ask, if you could go back 6 years and prevent ObamaCare would you? Now is the time to do something about the qualifed retirement plan you provide.

Companies outsource many services, including payroll, auditing, marketing, legal defense, building maintenance, HR services and advertising, to name but a few. The reasons for outsourcing generally include:

  1. Cost savings
  2. Better outcomeCost savings
  3. Increased productivity
  4. Allows employees to do the things that they do best

Numerous business experts and consultants tout the benefits of outsourcing. “Do what you do best and outsource the rest,” says Tom Peters, management consultant extraordinaire.  Former HUD Secretary Alphonso Jackson once stated, “When work can be done outside better than it can be done inside, we should do it.”

There is now a growing trend to outsource 401(k) services for many of the same reasons, but also because there are additional benefits in so doing, such as:

  1. Reduced liability
  2. Increased objectivity
  3. Fewer conflicts of interest
  4. Increased service level

There are numerous benefits to outsourcing the fiduciary functions of your qualified retirement plan. You are far too busy running your company to properly manage a quality retirement plan for your employees and yourself. Your broker in most cases cannot or will not accept the fiduciary risks and responsibilities of managing your company retirement plan. They are more than happy to recommend investment choices, however, you retain all risks and responsibilities.

Please comment or call to discuss to determine if outsourcing is right for your company.

  • The Difference an Adviser Can Make (
  • Benchmarking: The Key to a 401k Plan Sponsor’s Fiduciary Compliance Review (
  • New Survey Reveals How 401k Plan Sponsors Rank 8 Hot Topics (
Enhanced by Zemanta

Should Your Company Hire an ERISA 3(38) Investment Manager for The 401(k) Plan?

The 401(k) plan has attracted substantial attention, some wanted, some unwanted, in an effort to improve the quality of retirement plans for American workers. New regulations are being added or considered every day. For instance the new 408(b)2 fee disclosure regulations become effective later this year. These regulations are expected to change the ways plans are sold and by whom. These regulations are a real game changer.

Rewarding Eco-Friendly Farmers Can Help Combat...Because of these changes and the increased acknowledgement of fiduciary risks for plan sponsors, many sponsors are considering hiring an ERISA 3(38) Investment manager. By hiring this manager plan sponsors transfer the fiduciary responsibilities and risks to the investment manager.

The ERISA 3(38) Investment manager will follow the fiduciary process by:

  1. Developing an Investment Policy Statement (IPS)
  2. Select and Monitor Investment Options
  3. Offer Investment Education

The ERISA 3(38) Investment Manager will minimize their fiduciary liability by choosing index or structured funds.

Who can serve as an ERISA 3(38) Investment Manager?

  1. A bank
  2. An Insurance company
  3. A Registered Investment Advisor (RIA) subject ot the Investment Advisors Act of 1940.

Special note: stock brokers and broker-dealers can never be a 3(38).

Although the plan sponsor (employer) transfers all investment fiduciary risks and responsibilities to the ERISA 3(38) Investment Manager the plan sponsor must monitor the manager. This fiduciary responsibility cannot be delegated away. This entails meeting with the investment manager at least annually and review the process.

Is this for all plan sponsors?

No, however this fits well for small to mid-sized businesses who are too busy running their company to manage a retirement plan. When it fits it works very well. Not only will the plan sponsor outsource a very vital task, the plan participants will benefit from a prudently managed retirement. Ultimately, the goal is a successful retirement for the plan participants including the business owner.

  • 401k Sponsors Increasing Focus on Investments (
  • Retirement Plan Sponsors’ 401(k) Perceptions vs. Reality (
  • What ‘Fee Disclosure’ Rules Really Mean for Plan Sponsors (
Enhanced by Zemanta

American Workers Seek More Security in Retirement and Health Plans

With the decline in pension plans expected to continue. Companies that seek to remain competitive for talented employees must provide excellent employee benefits. This includes a 401(k) plan that looks more like a pension plan but without all the risk for the employer. MOst plan participnats realize that they cannot beat the market. These employees are looking for guidance from their employers. Those employers providing the proper guidance will be rewarded with talented and loyal employees.

English: In the United States, Social Security...
Image via Wikipedia

Retirement security has become more important to many employees

The economic and financial crises over the last three years unveiled a retirement savings crisis long in the making. While Social Security’s shortfalls are a perennial worry, recent steep declines in 401(k) accounts — in some cases combined with inadequate savings over a longer period — and falling housing prices have forced many workers to shelve their dreams of a comfortable retirement, at least temporarily.

Since the economic crisis, nearly two-thirds of survey respondents have been paying closer attention to their retirement readiness. This is particularly true of older workers, DB plan participants and higher-income workers. Over the last three years, retirement security has taken on greater priority for nearly nine in 10 older workers

Business owners/managers will need to focus more on the quality of the retirement plan they offer to employees to attract and retain talented people. A great way to address this is to hire an independent fiduciary to a manage their company retirement plan. This will improve results and reduce anxiety.

Please comment or call to discuss how this affects you and your company.

  • In Retirement Planning, Knowledge Trumps Confidence (
  • Small Business Owners: Workers financially unprepared for retirement at crisis level. (
  • Benchmarking: The Key to a 401k Plan Sponsor’s Fiduciary Compliance Review (
Enhanced by Zemanta

What’s your retirement number?

The secret to proper retirement planning is to start as early as possible. Just like you mortgage the longer the time to save the less per month you have to save. You are the one who must decide how you want to live after you are no longer able to work.

Save Money
Save Money (Photo credit: 401K)

— Inflation assumption: 4.5 percent (higher than where we are today, but most economists believe that inflation is headed up in the coming years).– Rate of investment return both before and after retirement: Consider your risk tolerance and err on the side of being conservative. If you’re stuck, use 4-5 percent. Obviously, if you use a higher rate of return, the calculator will ultimately determine that you have to save a smaller amount. After our Great Recessionand financial crash, I probably don’t have to tell you that higher return assumptions may not always work out as planned.– Life Expectancy — if you are younger than 50, use 95; if you’re older than 50, use 90. If you want a closer estimate, go to and use their Life Expectancy Calculator.

Saving for retirement is just the opposite of paying your mortgage, The longer the mortgage the lower the payment, obvious right? When saving for retirement the longer the savings time the lower the required savings rate. Many saving for retirement delay the start of their savings plan and then try to make up for it by taking additional risk. It might work but it’s doubtful.

Please comment or call to discuss how this affects you and your employees.

Enhanced by Zemanta

New retirement reality, longer life expectancy cause many to rethink planning for later years

WASHINGTON, DC - APRIL 13:  U.S. Sen. Rand Pau...
Image by Getty Images via @daylife

Most Americans rely on the 401(k) plan as their sole source of retirement. Unfortunately the plans today are assembled like the 401(k0 was a supplement to a pension plan. This must change for Americans to prepare financially to reach age 100.

According to findings from a new survey from Merrill Lynch, 58% of affluent Americans have a positive view of the prospect of living to be 100. However, three out of four would approach their money managementdifferently if they knew today that they were going to live that long. A few things they’d consider are continuing to work part-time during retirement (39%), investing in an annuity (32%), contributing more to a savings vehicle (32%) and retiring closer to 85 rather than 65 (25%).In light of longer life expectancies, the majority of respondents (59%) also believe that the age at which Americans are eligible to collect Social Security should be raised.

The budget crisis at the state level has required many states to off load some of the retirement benefit costs to employees. This crisis will affect what private sector employees think about their own retirement goals. They will require a plan which more resembles a pension plan rather than the current model.

Please comment or call to discuss how this will affect you and your employees.

Enhanced by Zemanta

Workers would trade pay for better retirement benefits

The plan sponsors that recognize the desires of the employees will attract top talent. As retirement crisis reach a boiling point at the states level employees are viewing a good retirement plan as a true benefit. When an employer offers a plan that looks more like a pension plan,

Employment Exhibition
Employment Exhibition (Photo credit: Modern_Language_Center)

top talent will be attracted to these companies. Sometimes by sacrificing higher pay.

Bill Daniels, a senior retirement consultant with Towers Watson, said the overall gist of the survey indicates that despite their fears, employees—especially younger employees, who still have miles to go in pre-loading their 401(k)accounts—are at least willing to confront the retirement challenges they face. That means a good opportunity for employers to do more worksite education about retirement planning.“The biggest thrust we get from the data is that benefits people need to boost, urge, push and nudge people to make those decisions,” he says. “We advocate the idea of gathering all the data on an employee’s financial independence target age, their possible Social Security benefits, their 401(k), etc., and doing the actuarial math, but making it all a little more conversational.”

In the newly released data, the retirement survey confirms that nearly two-thirds of employees are indeed paying more attention to their retirement readiness, especially older workers, higher-income workers and those still part of a DB plan.

This survey confirms employees desire and need to save for retirement. Employers offering their employees a pension fund like plan will attract and retain top employees. This can be easily attained by a simple change in plan design.

Please comment or call to discuss how this affects you and your employees.

Enhanced by Zemanta