Business owners have a lot to be accountable for: the success of the business, the well-being of their employees, the relationships with clients, the list could go on for pages. But one of the most stressful areas of being a business owner is ensuring that you’re making the most money possible while still looking after your employees and ensuring that the product is quality. It seems like they’re always looking for ways to increase their capital, but you’d be surprised about how many business owners don’t know where to look within their own companies to find more investable cash — like their 401(k) plan. Many businesses offer these plans, but many of them aren’t fully funding them or think that they are unable to also fund an IRA. However, many businesses, particularly small ones, can have what is called a defined benefit plan or, more common today, a cash balance plan.
Let’s look at two companies we’ve worked with. Both had about twenty employees and the owners only had 401(k)s. When we examined their plans, we suggested that a cash balance pension plan would be a better option. In the long run, this option would save $200,000 each ($400,000 total) in their pension plan, which in their tax bracket (between federal and state was almost 50 percent) saved almost $200,000 (50 percent x $400,000 = $200,000) in income taxes. These tax savings paid for half of the $400,000 they put away in the pension plan. Let’s break that down: the government helped them fund their own pensions. Plus, by now knowing this was an option, they could provide their employees with information about that, an additional benefit to the employees that cost the employers nothing.
Another area that’s always good to evaluate for extra cash is the operating costs of the building. It’s also important to examine you operating costs. Many companies have policies in place for late invoices, but is your company actually collecting these? Or is your accounting department letting payment deadlines slip and having to pay late fees on them? By auditing your own accounting policies, you could easily find ways to increase your money in while decreasing unnecessary expenditures. When was the last time you evaluated what you were charging clients? As your company grows and gains new skills and experience, your service gain value. It might be time to raise your fees. We understand that increasing the cost of your services can be jarring. However, your time and energy should be compensated accordingly. If you’re apprehensive about losing clients, you can always try to test it out on a new potential client.
By examining your current financial situation, you may be able to new cash to invest or divest that money to increase your net worth. For more tips on how to find new cash within your current financial situation, visit tswealth.com.
