Cash flow is the life force of every small business. Here’s one source to consider.
People start companies every day for all kinds of reasons, but today more than ever, starting a business is beginning to look appealing to a lot of people.
As people have been laid off from their jobs and periods of unemployment have become long, former employees are looking, perhaps for the first time, at starting their own company. Some want to take control of their lives. And others just want to give entrepreneurship a shot for the first time.
If you have never started your own business, one of the first things you will realize is that you are going to need quite a bit of money to get started. And you are going to need cash flow to keep going. Businesses die from lack of cash flow. Period. When you can no longer finance inventory or pay your vendors or keep the lights on, the business goes away. When you run out of cash, that’s it. Most businesses perish because they just run out of enough money to keep going.
So where is all this money going to come from? There are a lot of different sources for funds out there. There are SBA (Small Business Administration) loans, traditional loans, credit cards, savings, borrowing money from friends and family or seeking out investors. All of these are commonly used avenues for obtaining enough money to get started.
One avenue that is available to you that you may be completely unaware of is the ability to use your 401k to help finance your business startup without incurring tax penalties traditionally associated with early withdrawal. The program is called BORSA™, from DRDA, a Houston based accounting firm. BORSA stands for Business Owners Retirement Savings Account.
With a BORSATM plan you can:
• Use your IRA rollover and/or 401(k) plan savings to buy or start a business.
• Roll over your retirement plan balance into a BORSATM without tax or penalties.
• Use your BORSA for the equity injection required for your SBA loan.
• Save 50% or more of your retirement from being eroded by state and federal taxes.
DRDA’s personnel have lectured on the ERISA and Internal Revenue Code Sections that govern the use of 401(k)s to finance the purchase or startup of a business.
So how does it work? Basically BORSA™ allows you to take money from your existing retirement plan(s) and invest it directly into your business. Once invested in the corporation, you can use the money to buy an existing business, start-up, franchise, or for working capital to pay normal operating expenses WITHOUT being subject to tax and/or penalties.
So what’s the big deal about being able to take out the money without being subject to tax and penalties? Well, just for starters, distributions from qualified plans like your 401(k) are generally taxed as ordinary income for both federal and state purposes. Distributions from a qualified plan prior to age 59-½ are subject to an additional 10% penalty. The combination of federal tax, state tax and penalties can consume more than half of your investment if you take it out early.
Using a BORSA™ plan allows you to use the money to start up your new venture without incurring ANY of those taxes.
To learn more about a BORSA™ program you can contact DRDA directly at 281.954.6006 or visit their web page and click on the BORSA™ link: http://www.drdacpa.com/.
BORSA works for Beyond Bronz-d
Tracy Steele is the owner of Beyond Bronz-d, a luxury tanning and skin care salon in Houston. Tracy was downsized after 17 years in the oil and gas industry. While thinking about future employment, she decided that she would no longer leave her future to someone else. She wanted to take control of her life and start her own company.
While trying to obtain financing, Tracy’s loan officer asked her if she’d ever considered using a BORSA™ for financing. She had never heard of a BORSA™, but her loan officer put her in touch with DRDA, a Houston accounting firm and she got started.
After over 30 years in the corporate world, Tracy had built a significant 401(k). Advisors at DRDA explained that she could use funds from her retirement plan to start her company without tax penalties. When asked about going through the process, Tracy said, “Dealing with Suzy and the people at DRDA was easy. They walked me through, making sure I knew how a BORSA™ worked, the deadlines and everything there is to do to get started that you wouldn’t think of. They let me know what was available and walked me through the tax scenarios and everything else. Working with them was fabulous. I couldn’t have asked for a better tip from my loan officer.”
Tracy is planning a multiple store expansion in the future.