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Make the Right Choice: Should You Use Your Retirement Savings?

Retirement

In the United States, it is very common for people to save up by opening retirement accounts. The problem with this kind of set-up, however, is that the money is expected to stay in the account until you reach retirement age. But what would you do in case of emergencies? Of course you can take out your money from your retirement account even if you are not yet retired. But you have to understand that this would lead to penalties and other tax deductions.

Most of the time, people open an employer-based or an individual retirement account that would be tax-free once they reach 59 and a half. The catch, however, is that if you decide to take some money from your retirement account before you reach your retirement age, it would usually be subjected to state and federal taxes on top of a 10 percent penalty. Yes, withdrawals will have tax deductions because these are considered as “incomes.”

Withdrawing your money before your retirement age is similar to pulling out an investment at the worst possible condition of the market. It’s like selling equities in a down market, a move that would nonetheless cut the probability of earning more from your business.

Thus, before meddling with what’s in your retirement account, you should try to look into other alternatives such as applying for a home equity loan, taking a line of credit, or asking a friend or family member for some money to borrow. These three are great alternatives, especially if you are expecting something some income in the future.

Aside from these, one must think about an intra-family loan which is a really good option since the interest rates set by the Internal Revenue Service are very minimal. In August, for instance, the interest rate was at a measly 0.3 percent for loans that will run for three years. For loans that will for more than nine years, meanwhile, Continue reading “Make the Right Choice: Should You Use Your Retirement Savings?”

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Confessions of a Startup Guru: The Traits of a Successful Entrepreneur

Starting a new business is no doubt difficult. But for some, the task of managing startups is inherently easy and is usually enjoyable. Many successful entrepreneurs, for instance, wouldn’t let pass an opportunity to start a new business.

One of them is 36-year old Phillip Chipping – founder of successful mobile accessory company ZAGG. Chipping, who started founding businesses at the age of twenty-one, has a number of achievements under his name. These include, obviously, the success of ZAGG which he started in 2005 in his parents’ backyard.

Considering the small number of people who would need accessories for their gadgets, Chipping said that he never expected ZAGG to be very successful. Several months after the launch of his company, however, Apple introduced IPod Nano – a device that is very prone to scratches.

And while other companies are still thinking about the possible solutions for this, ZAGG already has one. Thus, despite the limited number of advertisements posted online, Chipping’s company started attract customers. And as the saying goes, the rest is history.

According to Chipping, ZAGG started only with $500 daily sales and two members. Following a single press release, however, it rose to $10, 000 and a couple of neighborhood scouts. After one year, his company finished with $750, 000 in sales and dozens of workers.

Chipping left ZAGG in 2008, a year after the company went public through the OTC market. ZAGG, which currently has a market cap of $300 million, joined the Continue reading “Confessions of a Startup Guru: The Traits of a Successful Entrepreneur”

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Finding Alternatives to Convertible Bonds

For many startups, convertible bonds (also known as convertible debt) are one of the most common sources of financial support. This type of simple and inexpensive agreement helps entrepreneurs strengthen their companies and prevent it from collapsing immediately after its establishment. Despite its enticing promises, however, there is an apparent negative side to convertible bonds – the presence of debts.

In various articles, several successful entrepreneurs have noted the increase in the number of startups that are burdened with debts because convertible bonds. Perhaps some investors would argue that the bonds are nothing but equity investment. Technically and legally, however, these are still debts which are yet to be converted to equity in a future investment round.

Convertible debt is not an issue in startups that are doing well in the market. However, in bad situations, the bonds (technically, the debt) should not be seen as the company’s savior but rather its possible cause of collapse.

Some well-established entrepreneurs note that the problem with these types of financial support is that it gives the investors the opportunity to call for the debt anytime after the end of the so-called conversion period. Like what was stated, this is not an issue in successful startups. But for those that are facing problems, this might spell the company’s doomsday. Imagine an investor calling for the debt at the time of your company’s struggle to stay in the business – simply unacceptable.

With the increase in the amount of funds funneled into startups across the United States, the problem with the ballooning of debt due to convertible bonds must be addressed. This problem is not obvious in most startups in Silicon Valley. In other areas, however, it is very evident.

With this, company owners should be made aware of the negative aspects of the agreements that they are tempted to accept. In the case of convertible debts, entrepreneurs should consider looking into other possible financing deals such as what some entrepreneurs dub as the “convertible equity.”

While convertible equity has the similar functions of convertible bonds, the former’s difference from the latter is very significant: there is no debt. Convertible equity is the convertible Continue reading “Finding Alternatives to Convertible Bonds”