Author Archives: Kim Clark

Business Strategy , , , 2 Comments

Seven Resolutions for 2011 Part 1 of 2

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Happy New Year!  You had to see this coming,  so here we go with the resolutions.  We’re at the top of the year and it’s a time-honored tradition to look forward and plan to succeed.  I hope the list that I’ve pulled together inspires you to get busy.

1.   Set financial goals  

Whether you’re 35 or 55,  financial goals are a must.  Establishing these goals as a Freelancer presents a  unique challenge,  because our incomes are often neither predictable nor secure.  A fickle revenue stream makes adequate planning even more of an imperative.  We must get our arms around the money thing and take as much control as possible.  Our ability to live a comfortable life throughout our lives depends on it.  The idea is to avoid going broke,  especially in the elder years.  Those with a  steadily employed spouse have a huge financial advantage,  while those who are single or married to a fellow Freelancer have more variables and hence  a more challenging mountain to climb.  Consider what you want your balance sheet to look like in five years and make an appointment to discuss your financial wish list with your accountant.

2.   Develop a budget  

You may be expert at monitoring and tracking expenses,  but developing a budget encourages one to anticipate the year’s fixed and variable financial obligations,  as well as revenue that is likely to be generated.  One budgeting objective can be to prepare for the inevitable peaks and valleys in a Freelancer’s revenue stream.  When do you typically bill the most hours and when the least?  Which annual conferences do you like to attend,  when and where are they held and what is the cost?  Where and when is it (or might it be) advantageous to advertise?  Have you been mulling over the idea of making upgrades in certain of your marketing materials?  What about your credit needs—do you need to apply for another card to help float strategic expenses,  or can you cancel one?  When can you make contributions to your retirement fund and what should that amount be?  Can you take a vacation this year,  when can you take it and how much can you spend?  The idea is to figure out how to pay for what you must do and also cover a couple of items from your wish list,  to reward yourself.

3.   Review business priorities  

Should you form a strategic partnership,  to give your business entrée to a new segment of your market?  Should you aim to sign more new clients,  or focus on obtaining repeat business from previous clients?  Or would it be wiser to try wringing more billable hours out of your current roster?  Which clients might be most amenable to which strategy?  Also,  should you do more teaching and/or speaking this year? Which institutions will benefit your reputation and client list the most?

I’ll be back to complete the list of resolutions next week. 

Thanks for reading,

Kim

Professional Development , , , 2 Comments

What if…You Change Your Mindset and Seize the Moment?

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For the umpteenth time,  we all know that business conditions are less than stellar and competition is fiercer than ever.  Everything is in flux (or seems to be),  the ground is unsteady and we all have to get comfortable with ambiguity.

But honestly,  none of this is new.  When has life not been ruled by the slings and arrows of outrageous fortune? When has life ever been safe and predictable? If you chose to get out of bed this morning,  then consider yourself a risk taker. 

Freelancers expect the earth to quake and shake.  We walk the road less traveled and we reach for the stars.  We  expect to be tested.  We know that the only way to become capable,  confident and successful leaders is to face down our fears and challenges.

Freelancers don’t make excuses,  we can’t afford to stay mired in a rut for years at a time and we know when to color outside of the lines.  We assess the big picture of the marketplace and recognize when it’s time to adjust how we fit:  when it’s time to rebrand,  enter a new market,  sharpen our message,  boost our skill set with a helpful seminar,  or forge a strategic partnership.  Freelancers know how to exit our comfort zone to keep what we do fresh, relevant and valuable in the eyes of our clients.

Still,  sometimes we need a little inspiration because alas,  we are mere mortals and cannot always dwell on Mount Olympus.  According to Bill Bartmann,  CEO of Bill Bartmann Enterprises in Tulsa, OK,  there are three behaviors that we must recognize and modify to keep ourselves in positive thinking mode and break the cycle of second-guessing and inaction that repels success.  Be mindful of the influence (for good or ill) that our mindset has on the fortunes of our business and our lives.  Remember that the glass is half  full.

1.  Awareness.  Catch yourself in the act of making excuses or resorting to defensive behavior (“But my situation is different…”) as you seek to justify why you haven’t achieved target goals.  Avoid becoming mired in negative thinking that sucks you into the self-sabotage vortex.  Remember that fear of the unknown is normal.  Realize that like Dorothy in The Wizard of Oz,  we must step outside of our comfort zone in order to learn,  grow and move forward.  The Yellow Brick Road presented many surprises as it wound its way to the Emerald City.

2.  Acknowledge challenges.  Denial of reality prevents us from overcoming obstacles.  Just  don’t allow yourself to be handcuffed by them.  Inevitably,  some possibilities will be closed to you,  yet others will be available.  You may have to work hard (and smart) to make those possibilities a reality and you might need some help to reel them in.  A Freelancer is a leader and according to Linda Hill,  professor at the Harvard Business School and co-author (with Kent Lineback) of Being the Boss (January 2011),  “Leadership is not about getting things done yourself—it’s about accomplishing things through others.”  So if your goal is somewhat beyond your grasp,  do not become overwhelmed with despair about the impossibility of it all.  Reach out to the right person.

3.  “What if…” is the phrase that encourages us to see beyond limitation and all the way to the pot of gold.  Say  “what if”  and put yourself on a positive trajectory that allows you to see or create competitive advantages that will be of great benefit.  The  “what if”  mindset is a powerful magnet for good ideas.  The glass half empty mindset is negative.  It crushes good ideas and rebuffs those who could help us realize our goals.  Instead of thinking  “What if I fail”?,  imagine  “What if I succeed”? and let your mind take it from there.

“It is not because things are difficult that we do not dare,  but because we do not dare that they are difficult”.  

–Seneca 

Thanks for reading.  I hope you’ve managed to survive and thrive this year and I hope that you’ll stop by in 2011.  I value your support.  Thanks again to those of you who’ve made comments.

Kim

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Finesse Tough Questions Like a Pro

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An important ingredient in the recipe for success in life and business is the ability to effectively resolve objections.  Nothing takes the wind out of your sails faster than getting blindsided by a thorny question about your intentions,  abilities,  products or services.

The silver-tongued devils among us,  being natural planners (OK, schemers),  always anticipate and prepare for the likely push-back that their caper of the moment might receive.  But because they take a few minutes to consider how the other side might react to their idea,  perfectly pitched and expertly crafted answers land like rose petals,  as they have their way again and again.

You’ve gotta  admire those folks.  Imitation is the sincerest form of flattery,  so let’s bestow a silver-tongued compliment and borrow a  few of their tricks,  so we can have our way with a few clients.

Identify the questions and objections that are most likely to be raised.

Organize what you’ve identified into basic  categories.  Your objective is to simplify the process by reducing the amount of preparation you must do and give clarity and focus to your responses.  You will feel more relaxed and in control because it will be easier to remember what to say.

Formulate and rehearse simple,  succinct and rational answers for each category.  Your answers should make sense separately or collectively and nothing can contradict.  In some cases,  your response may not precisely answer the question/objection,  but it must appear to do so (listen to politicians).  Think of one-size-fits-all answers for each category you’ve identified.  Ideally,  you will create a cohesive and convincing narrative that can add additional support to whatever it is you’re trying to advance or sell.

Listen carefully to questions and find the  “trigger”  word that reveals the heart of what  you must convincingly address.  Repeat the question,  to ensure that you’ve understood it and to give yourself time to reach into the right  “bucket”  and pull out a well-designed and rehearsed answer.

Project confidence as you look the questioner in the eye and respond with authority (but never defensiveness).  Jury consultants say that much of witness credibility involves body language.  Jurors apparently trust those who give good eye contact,  have good posture and do not fidget and squirm.

Respect the questioner by showing empathy for his/her viewpoint.  When I worked in sales,  I learned the  “feel,  felt,  found”  method and it goes like this: 

I understand how you might feel this way…

Occasionally,  others have also felt this way when initially evaluating…

Here’s what I’ve (or those who’ve successfully used this product) found…

As every silver-tongued devil knows,  questions or objections will eventually arise.  It’s not all bad,  actually.  The opposite of love is not hate,  but indifference.  If your client has an objection to some aspect of your concept or product,  it signals that he/she has paid attention to what you’ve said and is thinking about how your offering compares to what is being done now and if it could better meet the organizations’ needs.  The quality of your response will go a long way in either building or breaking the client’s trust in your brand.

Thanks for reading,

Kim

Administrative , , 5 Comments

Year End Tax Reducing Strategies

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President Obama’s tax plan will probably pass before Congress recesses for Christmas. The $250K + crowd can once again relax as they glide by in their Lincoln Navigators,  splashing mud on the hoi polloi.  Nevertheless,  those of us who are somewhat closer to the earth (flat on our backs financially speaking, perhaps?) still have a few defensive measures to take,  regardless of whether Bush’s tax cuts get extended by Obama and Congress.

Get the money now

In addition to giving a nice boost to your cash flow to help with Christmas shopping,  this is also a most clever way to approach clients and entice them to either pay on time,  finally make good on a late payment or even request payment a couple of weeks early.  You are not chasing money,  this is all about tax planning… Your accountant would like you to show X dollars in 2010,  for tax purposes.  The client will benefit by cleaning up accounts payable as the year ends.  That’s how you’ll phrase it when you speak to the finance director and ask that your outstanding invoices,  late or early,  get paid by 31 December.

Or, take the money later

Did you buck the trend and have an extraordinary year in 2010,  but expect less than thrilling billables in 2011?  In that case,  income deferral is your best strategy.  Mail invoices in January and sign contracts that require an up-front payment after the calendar turns.

Pump up the write-offs

If you have a few dollars available,  then stock up on office supplies before 31 December.  If you have more money,  then take advantage of the sales and purchase big-ticket items such as office furniture,  a more powerful computer,  a good camera,  or software that will help you manage business more effectively.  For example,  the right accounting software will make tax planning and business financial analysis easier.  Evaluate whether what you’re using now is sufficient for the needs of your business.

You get to choose how and when the expensive purchases will be written off,  either slowly over a period of years as depreciated assets or immediately,  by using the Section 179 deduction.  You can make that decision at the April 2011 filing.  Conversely,  if you suspect that you will come up short on deductions next year,  shop after the new year.

Review your retirement plan

If you’ve thought about establishing a Solo 401K,  do it by 31 December.  Add extra dollars to your pre-tax funded and tax-deductible SEP IRA or Solo 401K (if you’re age 50 +,  remember the catch-up contribution feature of the latter).  Exercise the profit sharing or salary deferral benefits of your Solo 401K if you’ve had a lucrative year and would like to keep some money away from the tax man for a few years.

Review your choice of business entity

Especially if you operate as a Sole Proprietor,  try to squeeze in an appointment with a business tax attorney or an accountant,  so that your financials can be reviewed and you can talk about where your business is now and what you’d like it to become in the future.  Do you envision selling your business,  or passing it to a family member? Perhaps you would be better served if you changed your business entity to either an LLC or S  Corporation.

2010 Tax Tactics

  • The health insurance deduction for Freelancers,  including Sole Proprietors,  LLC members (single or group),  general partners and S  Corporations (single or group and owning 2% or more of the stock),  will reduce taxes owed on income generated by self-employment and also the amount of self-employment tax owed.  Health insurance premiums are 100%  tax deductible if one is self-employed and does not participate in  a group health insurance plan.  Health plan premiums to insure your spouse and dependent children are also fully deductible.  However,  your business must show a Schedule C profit in order to claim this tax benefit.  Businesses that show a loss will not be eligible for this deduction.
  • Those launching a new business venture in 2010 will have a more generous start-up expense deduction of $10,000.00 ($5,000.00 is the usual limit).  File your registration paperwork toute de suite.
  • The Section 179 deduction has been increased to $500K for 2010 (and 2011).  Maybe you need commercial property for your business,  or a company vehicle or two?
  • If you’ve been thinking about hiring an employee and can find someone good within two weeks,  a one-time hiring credit can be taken in 2011 for an employee hired by 31 December, 2010.  The tax credit will equal 6.2%  of wages paid,  not to exceed $1000.00,  for each employee who is retained for one full year.  Your new employee(s) must have been either unemployed for the 60 days that preceded the hire or underemployed,  having worked a maximum of 40 hours in the 60 days preceding the hire.  Family members hired are ineligible for the new hire tax credit.

Thanks for reading,

Kim

 

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Ask and You Might Receive

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Nearly all Freelancers are feeling the pain of the long slog through the sluggish economy.  Merely treading water is now considered a victory.  Even those fortunate  enough to have maintained robust billings are sensitive to the cash flow problems of their customers and fellow business owners.  Consequently,  the time is ripe to ask for a better deal,  for everything.  You may be pleasantly surprised at what people will do to keep your business.  To get the ball rolling,  all you’ll need are some creativity and moxie.

You’ll also need to remember that your goal is to both save money and build mutually beneficial business relationships,  especially when approaching fellow Freelancers or other small business owners.  Be assertive,  but considerate and respectful.  Don’t try to squeeze someone whose business may be hurting.  Think of benefits that will accrue to the other party and communicate that as you present your proposition.

The other party will appreciate that you’ve thought of their interests as well as you own,  so no matter what,  you’re likely to be seen in a positive light.  Even if you are unable to get what you want,  you’ll never lose by asking.  As they say,  it’s just business.

  • Think about bartering products or services.  What do you sell or do that suppliers and service providers might value for their businesses?  HR or IT services?  Graphics or PR or landscaping?  You’ll never know until you ask the question and get the dialogue started.  Make sure the exchange is of equivalent perceived value,  so that no one feels short-changed.
  • If you rent an office,  begin preparations now to campaign for a rent roll-back.  Commercial space is plentiful and most landlords want to keep a good tenant.  Be sure to pay your rent on time and otherwise cast yourself in a favorable light.  Get information on rents for comparable spaces in your area and determine what would be reasonable to pay for yours in the current economic climate.  Are their problems in the building?  If so,  make a list so that you can more effectively negotiate with your landlord at lease renewal time. 
  • When it’s time to advertise,  ask for a discount (try 10 %).  You’ll be more successful if the ad is larger and/or if you place multiple ads with that publication.  Ask also if you can be notified when remnant space is available,  which will save even more money.  You must be flexible and prepared to act quickly when taking remnant advertising space.  You might even spend more than you anticipated.  In exchange,  you just might get an eye-popping half page ad for the price of a quarter page.
  • Think about the products and services that you use all the time when doing business.  Do you ship items on a regular basis?  Do you travel frequently and stay at the same hotel?  If so,  then it’s time to ask for a loyalty or volume discount.  Have information about how often you use the service/product and how much you spend at the ready,  to support your case.
  • To preserve your cash flow,  request more flexible payment terms from suppliers and service providers.  Ask for 45-60 day terms,  or ask to pay half of the balance in 30 days and the remainder at 60 days.  The other party may not love it,  but the terms may nevertheless be extended in an effort to keep you as a customer.

Thanks for reading,

Kim

Marketing , , 2 Comments

Diversify Under Your Brand Umbrella

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“Show me a company with more than 10 % of its business with one customer or more than half of its business in one industry and I’ll show you a company at risk of being (adversely) impacted by one company or one industry.”

Paul Weber,  CEO Advertising Group    Kansas City, MO

In the Freelancer’s favorite dream,  we somehow manage to sign a nice group of steady clients who all offer multi-week projects that carry us smoothly through the year.  We smile as we sign our contracts and deposit our checks…

In the rude awakening that is the  “new normal”  economy,  however,  the realization of our dream is slipping further from our grasp.  Client behavior is more fickle than ever and outrageous fortune can oh,  so easily snatch a good account away from us,  no matter how well we work with the prime contact or how long the association.

A departmental  shake-up can cause  someone new to enter the Garden of Eden,  who will cast us out and bring in their own hand-picked specialist.  Other times,  industry changes,  shifting organizational priorities or even a technology upgrade can render our services obsolete. 

Knowing our primary customer groups and industries where our services are most welcome is essential branding knowledge for every Freelancer.  Nevertheless,  underneath the umbrella of your brand,  it is wise to keep eyes,  ears and mind open for new sectors of enterprise.  Where else might you find an open door?

I liken it to cross-training in fitness:  participating in different activities expands our competencies,  guards against boredom and makes us less vulnerable to injury.  Cross-training makes us  stronger,  more versatile and ultimately,  healthier.  Under the umbrella of fitness,  it is possible to run,  swim,  bike,  row,  ride the elliptical,  weight train,  core train and practice yoga.  It is wise to apply that principle to your body and your business.

Here are five activities that will help you to apply the cross-training principle to your business and help you to diversify your client base:

1.   Cold call  by reaching out to clients you haven’t worked with in a while or re-approaching prospects who liked your services but weren’t ready to take you on at the time.

2.   Energize your PR  by sending out press releases that announce your speaking or teaching engagements to media followed by clients that you want to reach.   Get involved with an event sponsored by a local business or business association and send press releases to your targeted media outlets.  Remember to make follow-up phone calls and create an opportunity to develop relationships with the media along with the participating business owners.

3.   Network face to face  and meet people.  Approach new contacts with the mindset of helping them to achieve their objectives by making introductions and sharing information.  Your generosity can pay off in referrals,  no doubt to new clients and possibly new industries.

4.   Collaborate  with complementary businesses to broaden or deepen your professional reach and get introduced to new clients or industries.

5.   Volunteer  for a cause that resonates with you or join the local Rotary Club.  Your network of professional relationships will increase,  others will see your expertise in action as you apply your talents to various projects and referrals may eventually come your way,  giving you entrée to new clients and industries.

Thanks for reading,

Kim

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Go to the Front of the Pack

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I’m a little bit of an egghead and every once in a while I like to read a good study,  to keep myself current,  or even ahead of the curve,  on matters of health,  business or anything else that catches my eye.  Recently,  I read an interesting study on strategic competitive positioning,  a survey study done this year at Babson College’s Babson Executive Education.

Lead author H. James Wilson competes in triathlons and he used those competitions and their participants as the study framework.  Triathletes assess competitors in a clean and simple fashion:  who is Front of the Pack,  Middle of the Pack or Back of the Pack?  The first two groups are ranked as actual competitors and the latter is seen primarily as new to the triathlon scene and nothing to worry about.  MOPs and BOPs have one goal and that is to improve their time in every event they enter and move up to the FOP.

Wilson applied the FOP,  MOP and BOP classifications to 300+  global companies that had recently reported facing intense competition within their respective industries.  He segmented the companies as follows

  • FOP if they achieved greater than 15%  annual revenue growth in FY09  (5%,  16 companies)
  • MOP if they achieved 1-15%  annual revenue growth in FY09 (48%,  145 companies)
  • BOP if they showed flat or declining revenues in FY09 (47%,  144 companies)

The essential question of strategy is,  are you heading in the right direction?  Wilson knew that the FOPs were doing more than a few things right and to get to the heart of it,  he analyzed the FOPs and identified three ways in which they outpace the also-rans.  He then developed the following survey questions based on those strengths.

Wilson’s data indicate that if you can answer yes to each of the survey questions,  you’re on your way to the FOP.  How do you stack up?  Something to think about.

1.  Are you/is your company becoming more effective at meeting the needs of clients/customers?

Despite the economic downturn that spawned the planet-wide recession (depression?),  FOPs have maintained the trust,  confidence,  loyalty and dollars of their customers.  FOPs understand what customers want and they are better at anticipating future needs and trends.  They put resources into keeping a finger on the pulse of the customer and they know what resonates.  FOPs are proactive in market research and customer outreach.

2.  Have you/has your company recently implemented a significant innovation campaign or launched numerous small-scale innovation pilots?

Brainstorming ideas for new services,  fresh approaches,  an innovative marketing campaign or self-development plans is an important beginning.  It is always necessary to think things through,  examine the big picture and weigh the possible outcomes of your actions.  Just remember that  “implement”  and  “launch”  are the key words.  How many good plans have you left to languish on the drawing board?  FOPs understand that results come from deeds,  not words.

3.  Are you/is your company becoming more collaborative with other Freelancer colleagues/other organizations?

High levels of cross-company interactions distinguish FOPs more than any other factor studied.  FOPs are also more likely to inform those in their network about business opportunities.  As a result,  FOPs receive the benefits of reciprocity more than most,  when referrals come their way.  Think of  how you might include selected non-competing colleagues in business opportunities that would be mutually beneficial.  Perhaps this is the smartest way to scoop bigger contracts for both?  Plus,  you’ll gain exposure to another’s business methods and perspectives and that information will make you even more savvy and competitive.

Thanks for reading and Happy Thanksgiving,

Kim

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The Roth, The SEP and The Solo 

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As you begin to ponder your inevitable retirement from the Freelance life,  you’ll  need to examine options for saving.  Those who generate an income large enough to make planning and saving for the future an obvious course of action probably have an investment counselor to act as guide through the minefield.  

Yet at some point,  less wealthy Freelancers must also understand how to finance the next phase of their lives.  Choosing the best retirement plan option is confusing and subtle differences can magnify both at tax time and when it’s time to retire.  I hope that you find this post useful as you formulate the plan for your future.

The Simplified Employer Pension Plan

Somewhat similar to Solo 401K,  the SEP IRA retirement plan may be used by Sole Proprietors,  LLCs,   C  Corporations,  S  Corporations and Partnerships.  As an added bonus,  the SEP IRA may be used not only by those who have both W2 and self employment income,  but also by business owners who employ more than just the spouse.

Contributions to the SEP IRA are made pre-tax and contributions are tax deductible.  It is permissible to contribute up to 25 %  of W2 earnings plus up to 20%  of self employment income,  to the maximum annual contribution of $49,000.00 in 2010.  There is no  “catch up contribution”  provision with SEP IRA.

If you have a job,  including one where you are able to participate in a retirement plan,  along with a sideline business,  then SEP IRA is your option of choice.   Up to the maximum,  the amount you choose to contribute,  or even if you choose to contribute,  in a given year is up to you.  Contributions are held tax deferred and withdrawals made after age 59 1/2 are taxed as ordinary income.  Withdrawals made prior to age 59 1/2 are subject to the customary 10 %  premature withdrawal penalty and additionally,  will be taxed as ordinary income.

Small business owners with employees may institute a SEP IRA for themselves and their employees.  Business owners are able to make generous tax deductible contributions to the company SEP IRA on behalf of themselves,  the on-the-payroll-wage-earning spouse and other employees.

The business owner decides at what level to fund the plan,  up to 25%  of annual compensation.  The %  of funding for the business owner must equal what is offered to employees.  Each employee has an individual SEP IRA account and the business owner pays the entire contribution.  The pre-tax money paid into each SEP IRA account is tax deductible for the business and is a tax free benefit for the employee.

If you like,  it is possible to convert a SEP IRA to a Solo 401K,  something you may choose to do when you turn 50 and want to make those catch up contributions.  Other retirement accounts can be consolidated into the SEP IRA,  with the exception of a Roth  401K,  which is an after-tax fund.  It is not possible to borrow against the value of the SEP IRA.  April 15  is the deadline to establish and fund your SEP IRA account in order to receive a tax deduction for the previous year.

Roth 401K

 Unlike SEP and Solo 401K,   Roth 401K contributions are made with after-tax income.  Which option you choose will,  like most of life’s choices,  depend upon how much money you generate.  Depending upon your financial situation,  you may decide to split the difference and have both a  (pre-tax)  Solo 401K and an  (after tax)  Roth 401K. 

It is permissible to use the salary deferred portion of your Solo 401K to make a Roth 401K contribution.   Remember that the maximum annual contribution is $16,500.00  for those younger than 50 years and $22,000.00 for those 50 years and older.  Profit sharing Solo 401K contributions are not eligible to be made as a Roth 401K contribution,  since they are made pre-tax and are tax deductible and you cannot commingle the two.

While Roth 401K income deferred contributions are NOT tax deductible,  withdrawals you make after age 59 1/2 years are tax free IF five years have passed since your first contribution to the Roth (known as the 5 year rule).  Roth distributions must begin at least by age 70 1/2,  unless you roll over to the Roth IRA.

BTW,  if you transition into a job that offers a retirement plan,  you may be tempted to roll your SEP IRA or Solo 401K into the new retirement account.  Be advised that may or may not be a smart move.  Maintenance fees will be much lower for an account attached to a large company vs. that of an individual;  but there is much more investment flexibility available in your Solo 401K vs. what is available to a big corporation. 

Thanks for reading,

Kim

Administrative , Leave a comment

The Self Employed 401K Plan

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Freelancers are the CEO of our solo business empire and we wear many hats.  In addition to promoting our business services,  networking and prospecting for new clients,  managing our brand,  remaining relevant in a fluctuating marketplace and BTW,  actually working on projects that give us the billable hours that allow us to eat and maintain the roof over our heads,  we must also define,  fund and manage our retirement strategy. 

A March 2010  SBA study found that we Freelancers are much less likely to make adequate financial preparation for retirement.  That’s probably because most of us are either on our spouse’s retirement plan,  or are not generating enough income to incorporate saving into our lives. 

If you’re unmarried and able to spare a few thousand dollars a year,  do set up a retirement account.  It is essential that we have cash available to us as we get older.  Inevitably,  the day comes when one is too old and frail to work.  Plus,  a retirement account  keeps money out of the hands of the tax man,  for a while anyway. 

The Self Employed 401K was created in 2001 and made available on January 1, 2002.  The Self Employed 401K offers benefits that compare well to the traditional 401K plan.  This retirement plan option may be used by Sole Proprietors,  LLCs,  S  Corporations,  C  Corporations and Partnerships.  Solo 401K may also be used by small business owners whose only employee is the spouse.  The spouse must be on the payroll and receive income from the business.

Solo 401K consists of two types of contributions,  salary deferral and profit sharing,   both of which are tax deductible.  Funds deposited into the account are held tax deferred.  As with the typical 401K plan,  you may begin to draw down after age 59 1/2.  Those withdrawals will then be taxed as ordinary income.  Withdrawals made prior to age 59 1/2 will incur the 10%  premature withdrawal penalty and will additionally be taxed as ordinary income.

The Self Employed 401K,  or Solo 401K,  allows Freelancers younger than age 50 to contribute a maximum $16, 500.00 tax deferred annually.  Freelancers aged 50+ are eligible to contribute up to $22,000.00 tax deferred income each year,  known as the  “catch up”  contribution.  Money deposited into a Solo 401K must be generated by self employment only and not salary.

Up to the maximum,  you may decide the amount of your annual contribution.  If you’re unable to make a contribution in a given year,  then don’t make one.  When billable hours are strong,  add extra money to the account whenever possible.  The profit sharing feature allows you to deposit up to 25%  of your annual income,  which is tax deductible and held tax deferred.  That equals maximum $49,000.00 a year for those under age 50 and $54,500.00 yearly for those age 50+.

A solo 401K retirement plan is easy to set up and there are no complicated administrative requirements for us to micromanage.  We are responsible for making the contributions and deciding where to invest.   The deadline for establishing your Solo 401K is December 31 of the year in which you would like to receive the tax deduction (fiscal year end for corporations).  When researching 401K plans,  look for the following:

  • Low expense ratios.  Check out http://morningstar.com for a rate comparison.
  • No or low set-up fees and annual costs
  • Investment flexibility.  You should be able to invest in stocks,  bonds,  index funds and mutual funds.

It is possible to borrow against the plan’s account balance,  maximum $50,000.00 or 50% of the account balance.  If the loan is paid back on time,  there will be no penalty charges or taxes assessed to the transaction.  It is also possible to transfer funds from another retirement account into your Solo 401K and consolidate your holdings.

We’ll delve further into this topic next week.  Thanks for reading.

Kim

Professional Development , Leave a comment

Become a Mentor

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In Greek mythology,  Mentor was a trusted friend and adviser to Odysseus.  When Odysseus left Ithaca to fight in the Trojan War,  Mentor helped Penelope,  wife of Odysseus,   raise their son Telemachus.  He became a protector,  teacher,  counselor and trusted friend to Telemachus as the youth grew into manhood.  In Homer’s Odyssey the goddess Athena,  disguised as Mentor,  protects Telemachus as he sails the Mediterranean Sea in search of his father.

Perhaps you have reached a level of professional success where you feel ready to  “give back”,  to take someone less experienced under your wing,  show that person the ropes and set him/her on the road to great achievement.

Or perhaps you feel yourself stagnating professionally,  spinning your wheels and blocked from entering the winner’s circle.  You long for a rewarding project to sink your teeth into,  to demonstrate your relevance to colleagues and decision makers and remind yourself that you are still valuable and deserving of success.

Choosing to become a mentor may be the best response to both scenarios.  The process of mentoring provides many benefits,  tangible and intangible,  for both mentor and protegé. 

The less experienced and often (but not always) younger protegé will learn to hone his/her business acumen,  receive introductions to those who can help further his/her goals and finesse the unwritten rules on which success  so often hinges.

The mentor will likewise benefit handsomely.  Strengthened leadership skills,  such as the opportunity to gain a fresh perspective on one’s leadership style or learning to relate to,  collaborate with and/or manage colleagues  and workers from backgrounds other than one’s own,  are among the more practical benefits that accrue to a mentor.

Mentoring can help you bridge the generation gap,  become more attuned to gender differences as they relate to expectations or perspective and break down barriers between you and those of other ethnicities and religions.  As our nation’s workforce becomes more diverse,  these competencies can only grow in value. 

Moreover,  your protegé will no doubt have a few skills to teach you and may be able to introduce you to a few of the right people as well.  You’ll gain an ally,  expand your professional network and influence,  enhance your reputation and leave a lasting and positive legacy. You’ll experience the deep satisfaction that comes from seeing those whom you’ve mentored succeed,  perhaps beyond what they dared to dream.  Formerly dismissive decision makers may come to view you in a new,  more favorable,  light.

So share your wisdom and experience and help someone who needs support and guidance to achieve their goals.  Challenge your protegé to think in new ways,  consider options previously unknown,  open up to new perspectives,  gain new insights  and develop judgment and confidence.

When you notice someone who is bright,  talented and motivated,  yet seems to need some  wise counsel,  get to know that individual.  See if the two of you click,  if the communication between you flows.  Asses how that person responds to and processes advice.  

Be advised,  however,  that a potential protegé could reject that role,  or prefer to not go there with you.  Respect boundaries and if the mutual agreement is there,  gradually ease into a mentoring role.  Both you and your protegé will receive many benefits and it will be a feather in your cap.

Thanks for reading,

Kim