When Buying a Business … Pay attention to the Corporate Structure and Employee Benefits. A serious approach to Money Management and Finance must include Tax and Wage Structuring. Ensure you are not throwing away money with inefficiencies and failing to pick up tax concessions – for your business and employees. For instance make sure You and your Accountants are up to speed with 401k Rules and Regulations – Plus understand the Economics of making maximum contributions by employees with Matching by Employer in to Workers 401k Plans.
The generous concessions in Tax Deductions and Borrow Back Finance makes it a Goldmine for Business Owners seeking Finance and for Investors wanting to buy a business with No Money Down and Cheap Finance.
Unless you are an Economist or a peculiar Accountant with a penchant for analysing the esoteric it is unlikely for you to have discovered how the IRS may pay for Acquisitions and contribute towards finance costs.
You need to start with the knowledge of 401k Basics and Maximum Contribution levels for this year – which are $19,500 for Employees and the same for Employers’ Matching.
The follow up is both receive tax deductions for their contributions.
There are various ways of getting your hands on the money to put in to the 401k Investment Plan – which involve Economics in the decision making process – oriented towards minimizing cost, maximizing ROI and releasing money via loans from 401k Plans, and Tax Rebates. *(for assistance in that field book a consultation)
Contributions by employees can be borrowed in order to make maximum contribution to their 401k Plan and the money used by Employers also have that same option. The most efficient investment approach is to use leverage and minimize the amount of money which comes out of pockets.
With the tax rebate for Employees contributions of close to $5,000 their actual costs are effectively $14,500 – yet there is in their 401k fund $19,500.
The situation for an Employer making matching contribution in to their employee 401ks is a tax deduction of 21% – close to $4,200
Thus for employers the effective cost is $15,100
$19,500 contributed to a workers 401k Plan by both parties and the Rules permitting a 50% borrowing back by Employees $19,500 - that amount can be taken to spend, invest, lend by the Employee. It should not be a far step for an Employer seeking finance or a Business Investor needing Acquisition Finance - to make an attractive offer to Employees. Ignoring an employers need for finance now focus on an Investor seeking funding who latches on to the idea of borrowing from Employees to pay for the Business Acquisition. While the use of funds might be for anything it is a particularly novel yet qttractive idea of using a workers 401k money to acquire the Corporation which employs them. Many possibilties arise - such as tying interest rates to business profits, guarantees of continuing employment, bonuses instead of wages (with tax advantages)
- How the IRS is funding business acquisition?
i) Look back at the initial contribution of a worker – there is $5,000 credited for investing the maximum in to their 401k fund.
2) The Employer also gets a tax deduction for their matching contribution
3) When wages are structured appropriately with a Salary Sacrifice there can be a tax savings for worker of an additional $6,000 – giving a worker a total $11,000 tax benefits.
Hence the tax savings of Employee and Employer can be close to $15,200 (before looking in to the effects of using Leverage) ‘
It can be even better – with more money being contributed by the Taxman or in how you structure payments to the Business Seller.
Have you done the arithmetic – multiply $19,500 by the size of the workforce?
That is the amount of Capital you can bring in to play at terms you can determine.