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How Getting a Raise Can Cost You blog post image

How Getting a Raise Can Cost You

How Getting a Raise Can Cost You blog post image

Getting a raise at work should be all good. But many people fall into a trap and end up in worse shape financially. Discover how to stay out of the trap.

We discuss the trap that comes from getting a raise on The BIGG Success Show today. Here’s a summary of that discussion.

This show was inspired by our latest free resource. It helps you quickly discover how your finances compare to an average American in five key areas. (You can sign up below to get your free copy.)

Do you think a pay raise is a good thing? Of course, it is. Right? But only IF you understand the inherent problem that comes with it. That’s what we want to discuss with you today.
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I Need Money! Should I Cash Out My Retirement Plan?

frustrationThe financial news seems to be all gloom and doom these days. The reports are that we’re not in a recession, but times are tough for a lot of people.

No matter how tight things get, we still have bills to pay. People are responding to this very intelligently. They’re turning to public transportation, eating out less, seeking cheaper forms of entertainment, and cutting back on unneeded items.

But what do you do if that isn’t enough?

Tapping your retirement plan …

It’s tempting to pull money out of your retirement plan, like a 401(k), especially if you change jobs. In fact, about 40 percent of job changers in their twenties and thirties have done just that, according to a recent report by the Financial Industry Regulatory Authority (FINRA).

… could cost you $130,000 …

If you’re under 59½, it’s usually not a good idea to cash out your retirement plan. Let’s look at the example that FINRA used:

You’re 30-years old with $20,000 in your 401(k). If you earn just 6% on that money until you retire at 62, you’ll have nearly $130,000 in your account, without making any additional contributions.

… and then some!

Of course, you can start over. But you lose the power of money compounding on top of money on top of more money, all accumulating tax free until you take it out. So it’s like taking at least two steps backward.

But that’s not all. Here are 4 other steps back:

  • You’ll have to pay income taxes out of this money, since it was invested pre-tax.
  • There’s also a 10 percent penalty for early withdrawal (unless you’re over 59½)
  • Your employer is required to withhold 20 percent toward income taxes.
  • If you owe money, your creditors can’t touch your 401(k) unless you cash it out.

By the time you get a check, that $20,000 will probably be more like $14,000 net of everything. So cashing out of your retirement plan is a short-term solution with long-term consequences. 

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7 Tips to Sell Your Business for Top Dollar

By Bigg Success Staff
03-12-08

Bigg Success in Business

You’ve reached the point where you’re considering selling your business at some point. How do you get the maximum value from this asset into which you’ve poured your heart and soul?

Ideally, you have about three years to get your business ready. If you’re thinking sooner than that, don’t despair! You may be fine. Rate your business against these tips to know if you’re ready. If not, get to work quickly to align your business with these seven tips.

#1 – Think turn-key operation
Could you hand the “keys” to your business over to someone without the business skipping a beat? Look critically at your operation. If the business practically runs itself, you’re ready to sell. If not, identify what needs to be done to get there.

#2 – Develop a succession plan
This is closely related to Tip #1, but at the highest level. Who is in charge when you’re not there? Do they have the skills to do your job permanently? If not, identify what it will take to get them to that point or find someone, inside or outside the company, who can be trained to take over.

#3 – Refine your customer base
Is your customer base growing? That assures your buyer that revenues are likely to keep increasing.  

What portion of your business is from repeat customers? If you have a lot of repeat customers, your buyer knows that revenue is stable.

Finally, what portion of sales comes from your top customer? The more diverse your customer base is the less risk your buyer will see in your business.

#4 – Maximize your operating profit

Operating profit is what’s left over after you subtract all your costs, except interest expense and income taxes on your business, from your sales. This is sometimes referred to as EBIT (earnings before interest and taxes) or EBITDA (earnings before interest, taxes, depreciation and amortization).

Ultimately, your buyer is likely to base his or her price on your operating profit. Take a note from public company executives and think shorter-term. Your horizon is whenever you plan to bring the business to market. Your decisions should maximize your operating profit by that time.

#5 – Clean up your Balance Sheet
Ideally, when you bring your business to market, there is no long-term debt. This assures buyers that your business has sufficient cash flow to pay off debt and/or fund projects without it. It also gives you more flexibility in structuring a deal with your buyer.

#6 – Invest in good financials

Most buyers, especially sophisticated ones, will prefer to see financials that have been prepared by a CPA. There are three levels of financials:

  • Compilation – a CPA prepares your financials with information you provide.
  • Review – a CPA prepares your financials after investigating your internal procedures.
  • Audit – a CPA prepares your financials after significant internal and external checks.  

An audit will provide your buyer with the highest level of assurance. It is also the most expensive. So it may not be worth your investment, depending on the size of your business. Talk with your CPA to determine what’s best for you.

#7 – Invest in taxes

This goes against the grain for a lot of business owners. For years, you’ve done everything you legally could to minimize your taxes. Now you’re supposed to “invest” in them?

The answer is a resounding, “Yes!” You may be taking out some perks that you know aren’t necessary for your business. But do you expect a buyer to believe that? Would you? Show a higher income and pay more taxes. It’s highly likely you’ll make it up in what a buyer will pay for your business.

Getting your business ready to sell is as important as building your business in the first place. If you do it right, you’ll get the most for it because you’ve positioned it as a good investment for your buyer.

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