So, what the heck is a ‘ganjapreneur’ anyway? If you have nothing great to do for a few hours and want to laugh out loud in a real way besides what you write on a text message, take a gander here where you can see just about any marijuana slang you could ever imagine. Ganja, is classically defined as another widely-accepted name for cannabis. The term ganja is often attributed to Rastafarian culture, but it is in fact the Hindi word for hemp, introduced to Jamaica by Indian indentured servants. Lately, its usage in western society has become incredibly mainstream and, in some cases, grossly over-commercialized. Thus, the ever increasing ganjapreneur are those that start business in, on, or around the substance known as marijuana.
As somebody who deals in life insurance, your first instinct is to tell yourself that nobody who smokes marijuana or even remotely puts it in his or her body is ever going to have a chance to get life insurance. In fact, even if they don’t smoke any marijuana, what would be the chances of them getting approved for a buy sell or key man life insurance policy if they are an all cash business? Even if you are in the several states where marijuana is legal or almost half of the country where some form of medical marijuana is legalized as well, how will you convince the insurance company that you would be a low risk profile for life insurance? What a difficult dilemma for the fast growing ganjapreneur in America.
What’s funny about this topic is that I’ll bet every person has known someone in their life who applied for life insurance and this scenario came up during the application. The person is filling out the application and the question comes up about whether or not they smoke. The new applicant asks, “Do they mean cigarettes or some other type of substance?” After the insurance agent politely chuckles under their breath, they reply with, “They mean any type of smoking.” Then your prospect responds with, “I’ll sign up for this life insurance but it will take me a few weeks before I can take a medical exam. I have never smoked in my entire life.” Any good life insurance agent can put two and two together, but what can you do to prepare yourself if you are a ganjapreneur?
For most general marijuana smokers, you’ll likely have to classify yourselves as smokers as you would someone who smokes cigarettes. Depending on the insurance company, they would pay the table rates of what a smoker would which could double their rates. There are still some carriers that say marijuana is illegal everywhere and thus will not underwrite a marijuana smoker so do your homework in advance. Since insurance carriers are varying more widely these days, you won’t get preferred rates if you admit to smoking marijuana even recreationally, but you could still get a standard non tobacco rates for only having a ‘celebratory joint’ here and there. Sometimes, insurance carriers call these people social marijuana smokers. Go figure that!
For ganjapreneurs, it is going to be important to keep excellent books and records and despite the fact that your local bank may not bank you, there is no reason to not legitimately keep a balance sheet, profit and loss, and pay taxes for your tax return. If you want life insurance, a buy-sell agreement, disability insurance, or key man insurance, you are going to have to prove some legitimate books and tax returns to the insurance company.
What may have seemed like a joke in the past will become a big business in the future as more and more people smoke marijuana in the United States. It will pay to have an insurance agent who knows how ganjapreneurs work within this industry anywhere from those who directly sell marijuana to the person selling paraphernalia to the public. Having the right person on your side may make the different between getting a yay or nay from the insurance company!
There are different reasons why business owners decide to build a business. Some do it for their family legacy. Some do it for the potential of a big cash out down the road. Some just build a business so they don’t have to work for the man, and get the business to generate enough income to support their lifestyle. Whatever may be the reason you start a business, the question will come up at some point on when the right time (if at all) will come to eventually sell your business. Here are some smart money moves thoughts on when may be a good time to sell your business.
- Historically low capital gain rates– Currently, we have long term capital gain rate of 15% on most items, especially if you are considering doing an asset sale of your business. It has been very uncertain where this rate will head in 2016 or 2017 with a new President, but 20% is really where the maximum rate stands currently (23.8% if you add in the excess Medicare tax). There is no telling where this will be in the future, so one consideration is where low capital gains rates are at the current time.
- It feels like a job– There is always a real excitement anytime you start a new business venture. Over time, the business may not necessarily be the panacea that it was when you started the business. If you can’t find good employees to run the day to day operations or your family doesn’t want to help lighten your load, the business can turn into a job as you grow in size. When you find yourself not having fun anymore, it may be a good sign that it is time to find out whether or not someone can pay you enough cash to walk away from the business.
- Borrowing rates are cheap– If you find a qualified buyer for your business, interest rates are still currently cheap for a seller to finance the business. Just like you saw with home values in the mid 2000’s, you make be able to eke out an extra $100,000 on the price of your business because the low financing rates won’t make borrower’s monthly payment substantially different. Remember, as interest rates continue to stay cheap, making mergers and acquisitions from sellers is going to be more attractive.
- Your industry is changing– As with any business, it is important to keep a close eye on industry trends and make sure you don’t get lost in a tidal wave of change. Perhaps the technology you developed is getting out of date. Or, there are regulatory changes to your industry that will inhibit future explosive growth. Sometimes, the peak time to sell your business is when you are attractive to another buyer as an integration or snap on piece to their business.
- Uncertainty of the cost of benefits– One of the big issues that continue to plague businesses is the overall cost of health care and benefits. Retaining employees in business is becoming more and more competitive, so you’ll need to consider how much benefits will eat into your future profit. If you continue to build the business, you’ll have to determine if your pricing and overall revenue can continue to sustain this growing expense line item in your profit and loss.
You should always consult a qualified business broker, financial advisor, CPA, and/or attorney before you sell your business
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In the first year of a start up operation, there is a great focus of energy from the new business owner on client acquisition. Gaining new customers opens the floodgates for the generations of revenue to pay the bills of the business. However, one of the tough lessons learned by young owners is not thinking clearly though pricing out the services of your business correctly.
It’s always exciting to think about the idea of having your own new start up. You hear about stories where entrepreneurs started with just $300 and a cardboard box and then turned their business into millions. In reality, having worked with many types of business owners, the first mistake made by most is simply not having enough capital or access to capital while growing your business.
After an owner makes heads or tails at the end of the year, they will usually determine whether or not money is left behind for setting up some sort of long term retirement plan within their business. Since there are so many people setting up individual LLC’s or home based side businesses, you need to keep a close eye out this time of year for setting up one kind of retirement plan, a SIMPLE IRA. The deadlines are just around the corner in the next few weeks, so could this be the right type of retirement plan for you?
A SIMPLE IRA (Savings Incentive Match Plan For Employees) was first available to small business owners in 2001. A SIMPLE IRA plan is an IRA-based plan that gives small employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an Individual Retirement Account or Individual Retirement Annuity (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis. See IRS Publication 560, IRS Publication 590 and IRS Notice 98-4 for detailed information on SIMPLE IRA plans. (www.irs.gov)
SIMPLE IRA’s are designed for businesses with under 100 people (mostly I have used these with businesses under 10 people) and people who have earned at least $5,000 in compensation for the calendar year. A SIMPLE IRA plan can be set up effective on any date between January 1 and October 1, provided the plan sponsor did not previously maintain a SIMPLE IRA plan. With October 1st looming right around the corner, you must get the program set up or the tax year will pass you by to do this type of retirement plan. Even older workers who are over the age of 70 ½ can still make contributions into a SIMPLE IRA plan. This is what makes this plan so spectacular is that it can be used for both younger and older workers.
An employee may defer up to $12,500 for 2015 (subject to cost-of-living adjustments for later years). Employees age 50 or over can make a catch-up contribution of up to $3,000 for 2015 for a maximum of a $15,500 contribution. (subject to cost-of-living adjustments for later years). The salary reduction contributions under a SIMPLE IRA plan are “elective deferrals” that count toward the overall annual limit on elective deferrals an employee may make to this and other plans permitting elective deferrals. (source: www.irs.gov) This means that you could have a small business which nets $8,000 in profit and still make an $8,000 retirement contribution provided your family has the cash flow. In addition to the ‘employee’ contribution, the employer can make a ‘match’ up to 3% dollar for dollar or the employer can make a non-elective contribution of 2% of the employee’s compensation. The majority of these I have set up over the year typically will have a matching program to force some behavior on behalf of the employee to save. If you have a small business, you can also consider hiring your spouse into the business to gain some additional retirement contribution flexibility.
SIMPLE IRA’s fall underneath the same tax rules that you see on regular IRA’s. You typically will be penalized for an early distribution before the age of 59 ½, so you should consider any money you put in the plan as a long-term investment. For employer’s, you cannot set up a vesting schedule on this type of retirement plan as all employer contributions will be immediately vested the day that you make the matching contribution. The SIMPLE IRA plan doesn’t carry any administrative cost beyond the custodial IRA cost if there is one at all.
Most people do their tax planning sometime in December or they wait until the time they actually file their taxes. Even though it is football season, it is an important time of the year if you started a new business venture, created a home business, or earned some type of 1099 income because there could be an opportunity to make life ‘SIMPLE’ and get some more dollars set aside for your retirement. That is a smart money move no small business owner can pass up and if you need help go to www.oxygenfinancial.net and we will help you set one up no matter where you live in the country!
Written by: Ted Jenkin