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Where Do Entrepreneurs Come From?

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During my studies and research I have read numerous times that our economy and all economies are driven by small business or entrepreneurs. These entrepreneurs develop new products…new methods… new innovative approaches to old businesses. These small business owners hire new workers at a faster pace than the established, blue chip companies. Entrepreneurs are continually looking for new and more efficient ways of doing business. In order to survive the next payroll they must control costs and find better ways.

Image representing Steve Jobs as depicted in C...
Image via CrunchBase

All the technology that we enjoy today, including smart phones, laptops, tablets, HDTV, cars that practically drive themselves and the list goes on and on. These new technologies were started in most cases by entrepreneurs in their garages. Steve Jobs is a great example of this. These entrepreneurs are the back bone of your economy as well as the global economy. New ideas are born every day. What we don’t see is the failed tries of these innovators. Each experiment was often followed by failure only to get up and try again.

These entrepreneurs had a vision of the next new method or product and kept moving forward after each failed attempt. It appears to many outsiders that these small business owners were actually only lucky to ‘fall’ into their success. In some cases this is true when the owner inherited their business and did nothing but maintain the status quo.

But most successful small businesses were built from new ideas and taking chances.

But where did these entrepreneurs come from? What was the training necessary for this level of success?

This past weekend I helped out at a snowmobile radar run. Each participant would pay a small fee and run his/her snowmobile/ATV down the track to determine how fast they were going at the ‘finish’ line. After a short time there I began to wonder why would anyone do this? It was cold, we were standing on a frozen river. The High Falls Flowage, boat landing three. Anyway it was really cold. And what was the end result?

Then it dawned on me as I watched the participants tinkering with their sleds. After each run they would open the hood and try to improve the performance. If they failed they tried again and again. At the end of the day some won trophies. However I believe each participant went back and tried to improve their chances of repeating their success or becoming successful.

This was entrepreneurs in training. This is an example of those who have good ideas and the courage to implement them despite any failures along the way.

This innovative thinking and doing is the future of our economy and the markets.

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40 Percent of Small Business Owners Have No Retirement Savings

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Relying on the sale of your business to fund your retirement is a very risky strategy. Diverisification is the prudent strategy for everyone when saving for a long term goal.

English: Findlay, Ohio, September 20, 2007 -- ...
English: Findlay, Ohio, September 20, 2007 — Gilbert Yingling, a representative with Small Business Administration (SBA) makes calls to local business owners from a local chamber of commerce business directory as part of an SBA outreach program. He then follows up with person to person meetings with the business owners. John Ficara/FEMA (Photo credit: Wikipedia)

A full 40% of small-business owners have no retirement savings or pension plan in place, the survey found. Additionally, 75% have no written plan on how they intend to fund their retirement.“Business value can fluctuate significantly over the years, so it’s important to have personal retirement savings outside of your business,” says Dave Maraman, president of M&I, a division of BMO Financial Group. “Additionally, should the unexpected arise, such as a major health issue or needing to sell the business sooner than expected, having a retirement nest egg is important.”

Financial advisers can help small-business owners set up a Simplified Employee Pension Individual Retirement Account (SEP IRA) and establish other savings portfolios, says Tina DiVito, head of the BMO Retirement Institute. Advisers who specialize in small business could have great success working with this target market by aligning with an accountant, a tax specialist and a lawyer, DiVIto says. They key is to make small-business owners realize that professional financial advice is critical to build a retirement savings portfolio independent of a small business.

“A financial professional can also help develop a detailed financial retirement plan that outlines your goals and progress,” she says.

Since small-business owners and entrepreneurs are so single-mindedly focused on their businesses, DiVito suggests that financial advisers tell these clients that saving for their retirement is like investing in themselves. “Although it’s tempting to concentrate solely on investing in their business, small-business owners owe it to themselves and their family to have personal retirement savings to help ensure a comfortable retirement,” DiVito says.

via planadviser.com

Many successful business owners do not have a qualified retirement plan for their employees and themselves. This puts them at a disadvantage in attracting and retaining top talented employees.

Please comment or call to discuss this vital issue.

Posted via email from Curated 401k Plan Content

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Why this is the year to start your small business 401(k) before the September deadline

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Accelerate your retirement savings now or risk being left behind. No one knows what changes are coming in the tax code.

IRS building on Constitution Avenue in Washing...
IRS building on Constitution Avenue in Washington, D.C.. (Photo credit: Wikipedia)

Most small business owners that start a 401(k) plan opt for a special design called a Safe Harbor 401(k).  The Safe Harbor enables small-business owners and any highly compensated employees to make the maximum contribution ($17,000 for those under 50 years of age; $22,500 if 50+) either tax-deferred or after tax in the Roth 401(k) regardless of income in 2012 and on-going.This can be a big personal tax break for owners and employees that choose to participate alike.  An owner in the 25% tax bracket who contributes the $17,000 max tax-deferred would save $4,250 in taxes for 2012 – four to eight times more than what the plan costs to setup.

And there is more good news.  Businesses with less than 100 employees who are starting their first 401(k) qualify for up to a $500 tax credit each year for the first three years the plan is in place.  This helps offset administrative costs from providers that typically run between $1,000 and $2,000 a year.  Also, employee matching is tax deductible for the business.

To take advantage of these generous tax incentives, the safe harbor does require employers to provide a nominal match to employees.  The match satisfies the safe harbor and automatically satisfies IRS non-discrimination testing so any employee can max out contributions.  While there are 401(k) options that do not require a match, restrictions on contributions may apply.

via forbes.com

Many small business owners are afraid to invest in the equity markets, given the past volatility and uncertainty. This is a mistake and explains why many people lose money in the equity markets. In a retirement plan you must think long term.

Please comment or call to discuss how you business can benefit from a 401(k) plan.

Posted via email from Curated 401k Plan Content

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Business owners … keep an eye on your 401(k) administrator

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Many plan sponsors of small to mid sized plans do ont realize the fiduciary risks and responsibilities they assume. They may even believe their service provider protects them. This is far from the truth. As a plan sponsor you typically stand alone with your fiduciary risks and responsibilities. We live in a very litigious society and you should not assume any unnecessary risks.

The seal of the United States Department of Labor
The seal of the United States Department of Labor (Photo credit: Wikipedia)

Many small business owners give little thought to their company’s 401(k) plans. Often, employers use third party administrators to administer the plan, and once it is in place, they forget about it. This can be a costly mistake.Here are five of the most common mistakes small business owners should consider:

1. Failure to deposit contributions on time.

This mistake has the potential to be a double whammy, because the employer will hear from both the IRS and the Department of Labor. Employers must deposit amounts withheld from an employee “as soon as it’s administratively possible to segregate the funds.” For most, this is a matter of days. Correcting this failure will include paying interest on the late contribution.

2. Failure to properly include employees as participants.

The plan spells out when employees become eligible to participate, but entry dates can be confusing and employers need to review them for new employees to ensure they are able to participate in a timely manner. The employer will be required to make up contributions the employee was unable to make because they weren’t properly included.

3. Failure to properly follow an employee’s deferral election form.

With a 401(k) plan, employers must allow employees to make an election to defer a portion of their income into the plan. If this election is not timely made or, if it is not correctly followed, the employer is responsible for making up missed deferrals.

4. Failure to obtain spousal consent of plan distributions.

Some plans require that the distribution be in the form of a Qualified Joint and Survivor Annuity (QJSA) unless the participant’s spouse consents to an alternative form of distribution. This requirement can be overlooked if the participant is single but subsequently marries. Failure to obtain necessary consent can result in the employer being required to pay benefits twice.

5. Loan provision mistakes.

Many 401(k) plans allow participants to borrow from the amounts they deferred into the plan. Rules regarding plan loans are precise as to how much can be borrowed and the length of time a loan can be outstanding. Employers often run into problems when participants request multiple loans. Correction of this mistake may require the participant to take a premature distribution thereby incurring a penalty.

via post-gazette.com

Most plan sponsors believe that their service providers are responsible for the management of their 401(k) plan. You and you alone are responsible and liable, as a fiduciary. In most contracts, the service provider takes direction from the plan sponsor.

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

Posted via email from Curated 401k Plan Content

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Forty-Three Percent of Small Business Owners Don’t Plan on Retiring

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Most small business do not plan for retirement. Most believe when the time comes they will sell the business and use the proceeds to retire. This is a very risky strategy.

Small Business Administration Awards Luncheon
Small Business Administration Awards Luncheon (Photo credit: MDGovpics)

Change is really the theme of this quarter’s Economic Pulse study as the small business market continues to ride the post-recession roller coaster of confidence, but there is one area where little change is expected: who the person is making the financial decisions for small businesses.”We will continue to see the same people as small business owners in the foreseeable future,” says Bernie Kuechler, Project Director, Barlow Research.As reported in Barlow Research’s Economic Pulse Survey for the 3rd quarter of 2012, 43% of owners of small businesses with sales $100,000 to $10 million do not intend to retire and of those who do intend to retire, the average age is now approximately 67 years old.

“Small business confidence has once again declined, but the negative effects have yet to reach the banking industry. If confidence remains negative, we need to be prepared for a further decline in loan demand. Business owners may not retire, but they will continue to retreat from risk,” says Mr. Kuechler.

Other important results from the third quarter Economic Pulse report:

  • Small business and middle market confidence in the U.S. economy fell in the third quarter of 2012.
  • Small business expectations for the financial condition of their company fell 14 points.
  • Small business expectations for employment and capital expenditures returned to negative territory.
  • Small businesses expect a lower need for additional credit going forward and fewer are planning to apply for additional credit than in the previous quarter.
  • Approximately one in ten small businesses have switched primary financial institutions.
  • Of small business owners who intend to retire, 72% plan to still work part-time after they retire.
via 401khelpcenter.com

Small business owners are looking to avoid risk at all costs. Is this good or bad?

Please comment or call to discuss.

Posted via email from Curated 401k Plan Content

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How To Financially Prepare for Entrepreneurship

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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: http://www.innovatrs.com

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“As Goes Small Business, So Goes The Nation”

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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: http://www.growmap.com
http://www.nfib.com/research-foundation/surveys/small-business-economic-trends

 

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Is the Recession Causing Small Retirement Plans to Skimp on Compliance Efforts?

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Internal Revenue Service
Internal Revenue Service (Photo credit: functoruser)

If small businesses do not properly manage their company retirement plan the government will. This government intervention will prove to be much more expensive and less flexible than their current plan. Many small business owners would be well advised to hire professional fiduciaries to assist them. This can prove to be less expensive than their current plan.

Have difficult economic times caused small retirement plans to cut back on compliance with the tax laws? According to the March 20 issue of the IRS electronic newsletter, Employee Plans News, 1 in 4 smaller retirement plans reviewed starting in 2007 under the IRS’s LESE (“Learn, Educate, Self-Correct, and Enforce”) project had engaged in at least one prohibited transaction. Under LESE, the IRS examined 49 plans with less than $5 million in assets that also had investments in real estate and either participant loans or a Form 5500 Schedule D, DFE/Participating Plan Information and found that 12 of those plans had engaged in prohibited transactions. Among the problems were failures to follow loan provisions, to document loans and loan payments, and to prohibit loans to the employer or related entities. During a separate LESE project involving defaulted loans and noncollectible leases, the IRS found 1 in 10 retirement plans had engaged in prohibited transactions. Both LESE projects revealed retirement plans with improperly valued assets and plan documents not properly amended for recent changes in the law.And, in a separate LESE project on compliance with top-heavy rules, the IRS found that about 14% of small §401(k) plans failed to comply with the top-heavy rules because, in many cases, the plan sponsors did not test for the top-heavy requirements and did not make required minimum contributions to the plans. The IRS also found instances of administrators not using a plan’s definition of compensation, which caused minimum contribution allocation errors under the top-heavy rules.The IRS acknowledges that issues like these arise in smaller plans because such plans typically have less oversight and weaker internal controls. Have these weaknesses been exacerbated by the economy?

via bna.com

Plan sponsors are required to seek professional fiduciary help if they lack this expertise, which most do. This can be done, in many cases at a lower cost than you are currently paying for your 401(k) Plan.

Please comment or call to discuss how this affect you organization.

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Tax Organization Tips for Small Businesses

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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: http://helpfreetheearth.com
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Small business owners are unprepared for retirement

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A disciplined savings and investing strategy is much easier than most small business owners believe. By installing a retirement plan for themselves and their employees they will save in taxes and help their employees. The benefit to employees will result in increased loyalty and satisfaction.

WASHINGTON - NOVEMBER 18: (L-R) Federal Depos...
Image by Getty Images via @daylife

“The lack of retirement planning by so many people is stunning, especially since business owners have no one else to rely on when it comes to putting their retirement plans in place,” says Mary Quist-Newins, director of the State Farm Center for Women and Financial Services at The American College. “When you consider that the mean age of our respondents is just over 50 you have to wonder, ‘What are these individuals waiting for?’ Retirement will be upon them before they know it. Small businessowners need to start preparing for retirement now.”Even for the small business owners who have calculated their retirement goals, most do not have a formal plan to achieve their financial objectives. Among the small business owners surveyed, 77% of the women and 74% of the men have no written plan for retirement.

via eba.benefitnews.com

Small business owners are far too busy running their business to take the time to properly plan and execute a strategy to successfully retire. Many wait until three years or less before retirement to plan. Others believe they will sell their business to fund their retirement. This lack of planning forces many to make decisions they would not ordinarily do.

Please comment or call to discuss what it takes to begin a retirement plan.

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