The Design Builder's Blog

Remodelers, Make Sure To Pay All The Taxes You Can This Year.  Really?

 

The holiday season is now upon us.  For small business owners, in addition to celebrating the holidays with family and friends, it’s also the time of year to start making plans and doing budgeting for next year.  To increase your after taxes net profits next year you might want to consider paying more taxes this year.  Here is why.

 

At the end of September I posted a blog about the impending Fiscal Cliff.  In that blog I pointed out several ways the Fiscal Cliff decisions might affect remodeling businesses.  I also pointed out that how our country’s leadership ultimately decides to deal with the pending changes would depend quite a bit on who won the presidential election.  The election is over and President Obama will be our leader for the next four years.   With that in mind I suggest small business owners re-read that blog post and look into the list of possible tax changes that are now more likely to occur with President Obama remaining in office.

(Click here for a pretty good Fiscal Cliff summary by NPR)

 

A Few Ways You Might Be Affected:

The House Committee on Small Business has offered a chart on its web site to show the potential changes and affects on small businesses if the current Bush Era Tax Cuts are not extended.   Remodelers could be hit really hard because many of them are organized as “pass-through” entities, where their business gains or losses are reflected on their individual tax returns. Several that could really affect the after tax profitability for remodelers includes:

• An increase in capital gains from 15% to 20% (33% increase!)

• An increase in tax rates on business dividends received by individuals will be treated as ordinary income (higher rates) rather than as capital gains, currently 15%.

• Tax rates in the top four brackets will be increased to (from current rate): 39.6% (35%), 36% (33%), 31% (28%), 28% (25%)

• Small businesses with undistributed taxable income will no longer be taxed at the current rate on dividends (currently 15%), but rather will be taxed at the highest individual tax rate (up to 39.6%).

What To Do:

So, to limit your tax liability I suggest remodelers speak with their accountant ASAP to fully understand how the potential changes and ultimately any actual changes will affect you and your business.   Remember, profits can be used to reinvest back into your business, but you must pay tax on those profits first, leaving only the remaining profit available to invest.   The same holds true if you were planning to use business profits for other personal purposes such as paying for your children’s’ college education or buying a new home or RV.  Back when I owned my remodeling business my accountant helped me strategize how to claim certain revenues and profits in one year versus the other depending on my effective tax rate for each respective year.  By doing so in one year I saved over $20,000.00 the next year!

 

Make Sure You Have The Right Accountant:

There nothing worse than the feeling of working really hard to earn a profit only to find out that you could have reduced your total tax burden (and the amount of profit you get to keep) by taking advantage of simple and completely legal tax strategies.   A big lesson for me when I owned my remodeling business was making sure I had the right accountant and financial advice.   Saving money on an accountant’s fees might just cost you far more in taxes than the money you might save if you have chosen your accountant based on price rather than value, strategic advice and timely services. 

My second accountant cost me twice as much as my first.  It was well worth paying the difference because of the money I saved in taxes.  It still is!

 

Help Your Clients Prepare For and Deal With Remodeling Fatigue

 

Even if everything has been going well so far on the project, after about 6 weeks your clients are likely to experience what I call remodeling fatigue.   They’re just sick and tired of the disruption to their home, their normal family schedule and their lives. And, if they’re not aware of remodeling fatigue, it could happen to them and affect your team well before the typical six week mark.

Living through the experience of remodeling your home is not easy.  As creatures of habit its only human nature that remodeling customers get worn out and worn down by the normal remodeling process.  If you have ever remodeled your own home you and your family have probably already experienced this condition.  However there are several ways you can help customers get prepared for, delay and deal with the onset of remodeling fatigue.   A page on your website and or a blog about this topic can help you advice prospects and clients about this condition.

 

Help them get mentally prepared:   Let them know what to expect they will live through while the construction is under way.  Tell them about things that might affect them like the noise, the dust, shutting off their water, change orders and the decisions that come with final selections and unanticipated challenges.  Just as a doctor would do with patients regarding medications, a good remodeler will warn clients that it is likely there might be side effects experienced during the remodeling process.   By doing so clients can recognize the warning signs so they will be able to mentally and physically adjust.  Also, my experience was that by discussing these realities in advance, the fatigue might not set in as early, or at least would not be as significant, as early, as it might be if my team had not warned them.

 

Help them get physically prepared: Living through the remodeling process can be much easier with some preparation.  For example, remind customers they will not be able to cook while you remodel their kitchen.   Suggest they consider cooking and freezing easy to microwave meals and or collect take out menus before you start their kitchen renovation.   Some remodelers have told me they actually provide their clients recipe books and or a collection of local restaurant menus to help with this.   If you are renovating their only bathroom as part of a project, ask how they plan to deal without a toilet for a few days or more.  They may not have even thought about such realities.  Maybe you or they can even set up temporary spaces to tide them over until they get their homes and their lives back.

 

Earning good online customer reviews and referrals for new projects has more to do with the experience your team provides customers than the work they perform.  If you manage their expectations you’re more likely to exceed them and delay the onset of remodeling fatigue.

 

 

 

How Will The Fiscal Cliff and the Elections Affect Remodelers?

 

The threat of a year-end perfect storm of expiring tax cuts and massive defense and domestic budget cuts could push the economy back into a recession.  A recent article on the Fiscal Times website offers some insight into this possible reality and points out that many voters are clueless about the cliff and are in for a shock.  Another article posted on Reuters warns the cuts could cause the loss of nearly 1 million jobs across the country.   Remodelers trying to work on business planning, marketing and budgeting for the New Year may also be in for a shock if they make decisions without first considering the cliff and the outcome of the elections. 

Making any business decisions in a down economy can be difficult and risky.  

Unfortunately in addition to a bad economy we also have a lot of uncertainty about what the government will or will not do.  I think the problem, at least for those who keep an eye on the economy and the political arena, is having any confidence in making long term investments and decisions.   The fiscal cliff could really challenge the economy if across the board cuts are made as planned. And because the current administration has not clarified or committed to what will be cut, we don’t know how or in what market areas the economy will be affected most.  Unfortunately, true discussion about all this by our elected leaders won’t even get started until after the elections.

The economy and remodeling could take quite a hit if our politicians can’t come to an agreement.  And, even if they do come to an agreement, what will it be and how will it affect the economy?  If it gets pushed off into the future again, it will leave all businesses including remodelers in this unconfident position for a long time.  If consumers remain unconfident, and or get laid off as a result of the cliff, they probably won’t be spending money on remodeling.

Remodelers need to be very cautious about investing in capital assets.   

If the current tax deductions for capital asset purchases go away, the cost of those assets will in effect increase.   Waiting to make such purchases is a gamble.  If remodelers invest in capital assets now before the deduction possibly goes away, the question to ask is whether they will be able to meet the payments on those assets and or actually be able to make use of them if the economy does not improve or gets worse?  If they wait to see what happens they may miss out on the tax savings if the deductions are eliminated.  Making the right decision is hard without knowing who will be elected or which party will be in control after the election.

Should remodelers consider hiring more staff if they are seeing a work backlog building up?  

In my opinion, as long as they are selling work at a price that meets their overhead costs, remodelers must decide if they will use the gross profit to hire office and management staff and reduce their workload, hours and or stress; or work all those hours and keep the gross profit as their own compensation.   On the other hand if they are not selling at prices high enough to support the overhead, hiring more staff or buying more assets are not sound financial options.  I suggest waiting to see what happens with the elections and the cliff before making any long term business investments.   If you have money you are willing to invest, I suggest using it to improve your marketing and sales skills.   Those are investments that can help a business regardless of the economy and can even give you an advantage over your competition when it comes to capturing the limited amount of work available during a down economy.

 

Guest Blogger: Jason Dickerson is a freelance writer for Direct Marketing and Analysis who focuses on ways people can make their home's more energy efficient and green.  When Jason isn't writing he enjoys mountain biking and spending time with his wife Marissa.

How Remodelers and Their Customers Can Both Make Money Being Green

 

 

So you have a client that has decided to remodel their home. Considering that they’ve decided to make a serious investment in their home, it’s easy to suggest that they should also think about investing in something that can pay them dividends.

The value of adding green energy infrastructure to a home is threefold. Not only will residents save money in the long run by decreasing the amount of energy they purchase from their retailer, they’ll be helping reduce America’s dependence on foreign energy, and they might even make money by selling the energy they don’t consume to others.
Here in Texas, there are plenty of energy retailers that offer special plans for homeowners with green energy technologies installed on their property. If your clients need to find out which retailers have the best offers, tell them to visit energyproviderstexas.com to explore their options.

What is green energy?

Green energy is a big buzzword in politics these days, but it’s rare that someone actually explains what it is. Green energy generally refers to energy produced through means that are not dependent on fossil fuels. Instead, renewable resources drive the production of energy. Some of the most recognizable forms of green energy are hydroelectric energy, wind energy and solar energy.

Hydroelectric energy

Hydroelectric energy is one of the most developed forms of green energy across the country. For generations, American engineers have been developing dams for many of our nation’s rivers. Once a river has been dammed, engineers can control how much water passes through at any given time. As that water flows, it rotates a series of turbines thus creating energy.
Unfortunately, if you don’t live close to a major water source, this form of green energy probably isn’t available to you, and it’s definitely not something a single homeowner can implement on their own property. That said, hydroelectric energy is collectively one of the largest sources of renewable energy in the country.

Wind energy

In order to turn wind into electricity, a new type of windmill has been developed. Often these windmills are installed in large groups referred to as wind farms. All throughout West Texas, there are thousands of new windmills that have been built over the past decade, and wind-generated power is becoming an increasingly substantial source of energy for the Texas grid.

Individual homeowners can harness the wind to produce energy on a small scale, or if they’d rather not make that sort of an investment, many energy retailers offer products that are comprised of energy derived solely from wind farms in Texas. Either way, utilizing wind energy is one of the most effective ways for Texans to support green energy.

Solar energy

Harnessing the energy of the sun’s rays requires the use of solar panel technology. While solar panels were once extremely pricey, prices have come down as technology has advanced. Now, many people in sunny regions, including many areas of Texas, are installing their own personal solar arrays in order to capitalize on the most abundant energy resource in our solar system.

If one of your clients is interested in pursuing a green energy solution during the remodeling process, be sure to suggest they install their own solar array. Solar energy in particular can really pay off in the long run, especially when homeowners elect to sell the energy they do not use to other consumers on the grid.

If a client is interested in adding a solar array to their home, but isn’t sure if they can afford it, there are still options for them to consider. Some energy providers in Texas subsidize solar arrays, by offering to lease them to homeowners.

Green energy and remodeling go hand in hand

 

Considering how volatile the energy market has been in Texas over the past few years, it’s easy to make the case to many clients that green energy infrastructure is a worthwhile investment. Consider adding green energy installation to your skillset in order to capitalize on the current trends in the market!

 

 

 

 

 

Guest Blogger: Judith Miller has worked with remodelers nearly 30 years; she writes for Remodeling Magazine, facilitates for Remodelers Advantage and consults with remodelers around the country with particular focus on the importance of good financials!  Visit her website at www.remodelservices.com

 

Two Ways To Predict and Measure Good Cash Flow

In his excellent blog post on cash flow, Shawn mentioned direct costs, overhead and net profit as all potentially contributing to good cash flow.  And, as he so rightly pointed out, the potential for good cash flow begins with accurate pricing for the job.  Shawn also mentioned the importance of working on ‘accrual’ accounting rather than cash.  When you’ve got these important elements of good construction accounting in place, you can lay out a couple metrics which will be useful in understanding cash flow.

First, get all your costs in the right place on the Profit/Loss:

Income = revenue from construction projects

Direct Costs = expenses, including ALL labor (even that production manager who doesn’t keep a time card) AND associated labor burden, related to jobs for which you receive the income.  Don’t include work on your own house or you Mom’s in this category because you’ll skew (and screw) the numbers.

Overhead = all costs it takes to run an office, including a construction office, but not related to jobs – those costs go into Direct.  This includes marketing expenses, rent, office supplies, professional fees, owner and admin salaries and related burden, general insurance – not liability or workers comp which go into Direct.

(List of Typical Accounting Terms and Definitions)

 

Second, establish a good system for job cost analysis

 A good system for job cost analysis lays out the true estimated cost of the job – no SWAGs or ‘guesstimates’ – and allows you to post costs against the estimate as they are incurred.  Remember that a cost is incurred WHEN THE WORK IS DONE not when the bill is received.

 

Third, reliable reports are accurate, complete and timely

Prior to calculating these metrics, be sure to review all reports for reliability. 

 

Now you’re ready to develop these two useful metrics:

1: Slippage/Grippage:  this metric calculates the difference between your estimated gross profit and the produced gross profit.  Slippage is negative, grippage is positive.    This is of critical importance because if you’ve got slippage either your estimating is wrong or your production is not working up to expected efficiency.  And if you’ve got grippage, you might be leaving money on the table from estimating too high.  Control of production allows for profits which can then be managed to ensure good cash flow.

• The calculation is: Estimated gross profit margin MINUS Produced gross profit margin
• The goal should be no more than 2 percentage points slippage – or grippage.

2: AR/AP Turnover Net: this metric calculates the difference between the number of days it takes to RECEIVE your cash from customer’s invoices (AR Turnover) and to PAY your customer’s expenses (AP Turnover).  If you receive money from your customers in 10 days and pay your expenses in 15, you’d have 5 days “float” – a good thing!  However, if the reverse is true, you might have to borrow to pay the bills.

The calculation is three part:

 

Once your accounting system is set up correctly, information is entered accurately, timely and consistently, you’ll be able to see where the money comes from, where it goes and how to control the all important cash flow!  This is a set of gears which all work together to produce profits and protects cash!

 

The Most Common Reason For Construction Business Failure

There are many reason construction businesses fail.   A read of a 2007 report by the Joint Center for Housing Studies at Harvard University titled “The Performance of Remodeling Contractors in an Era of Industry Growth and Specialization” offers an in depth analysis of the reasons for failure across a variety of residential construction industry segments.  The report is further broken down by business sizes within those segments.   One glaring observation is that smaller construction businesses fail at much higher rates than larger firms.   According to the report twenty-two percent of contractors that had payrolls of less than $30,000 in 2003 were no longer operating in 2004, a failure rate almost ten times higher than contractors with payrolls of $350,000 or more.  I think it's safe to assume the failure right is even higher these days due to the current recession.

But why do the businesses fail? 

After further analysis of the report, along with my experience and observations over many years of assessing and consulting with remodeling businesses of various sizes, one big picture fact jumps out to answer why they fail.   The most common reason is that the businesses grow faster than the business systems required to support the growth.  The fact that larger businesses have a better survival rate backs up this observation.   Simply put, the business needed efficient systems to grow and without them they never would have achieved the growth.

So what does this mean to the smaller remodeler and his or her business? 

First, if you don’t put efficient business systems in place as a small business your likelihood of failure will be very high even if your business remains small in size.   Also, even with modest growth, unless you put systems in place your business is more likely to fail.  Also consider, without efficient systems, it will be you the business owner who will have to work harder and longer to get things done due to the lack of those systems.   If that is the case then burn out and or the typical resulting health problems might lead to failure.  But remember, that burnout happened because of a lack of systems.

 

So here’s my advice if your business lacks adequate systems:

Start with your financial system first.  Here are four reasons I suggest you do so.  These suggestions assume you have and use a properly setup financial tracking software like QuickBooks or something similar.

1. First, unless you can determine the cost of being in business you won’t know what to charge for your services over and above the direct job costs of labor and materials.   If you don’t know what to charge you literally won’t know whether you are buying or selling jobs.  Plus, every contractor I have helped do a budget goes forward with confidence and success selling at the price they now know they need to get to be profitable.
2. Second, if you have predicted the costs of being in business you have established a reference (budget) against which you can measure your efforts.  This budget can then be entered into your financial software.  By measuring (budget to actual report) you will know if you are selling enough work and bringing in enough gross profit on all the jobs you complete to bring in enough gross profit to cover your overhead and planned net profit. 
3. Third, if you know whether or not your earning enough gross profit you can prioritize how and what overhead expenses you can afford.  Having that budget can also help you shop around for better pricing when and where appropriate.
4. Fourth, all other systems within your business might not matter if you don’t have the money you need to pay for them and know if you will have the money you need when you need it (cash flow)!

 

Have you used a Marvin Product in one of your projects?

• Submit your before and after project photos to the Marvin Remodelers Gallery

• If your project gets added to the gallery you can link to it from your own web site!

 

 

How Remodelers Can Make More Money; If They Have Good Cash Flow

Making more money as a remodeler

 

As a remodeling or Design/Build business grows, managing cash flow becomes extremely important, maybe even critical to continued operations. The business owner or manager soon becomes a money manager by default. As this happens, there may be opportunities for the business to earn more money by using the money it already has in a strategic way.

 

Good cash flow is an assumption of my suggestions

Many Design/Build and remodeling companies put all the money collected from sales in one checking account. The funds are then used to pay for the expenses of producing projects (direct costs) as well as the operational costs of the business (overhead). Typically businesses leave any excess of money (net profit) in the same account as well.  If this is how your business is operating, meaning you actually have excess funds to contribute to profit, you have what can be referred to as good cash flow.  If this isn’t happening already at your business I suggest you stop reading this blog and read this one first.

Accrual accounting can help you predict excess funds

If the business’ financial system includes the ability to predict income and expenses on a monthly basis, the cash flow needs for that month can be easily determined in advance. Any excess of cash that would normally remain in the account could also be anticipated and create an opportunity to earn additional profits. In order to actually qualify what is excess cash over and above monthly expenses, the accounting system should be run on an accrual basis, not a cash basis. By using the accrual method of accounting, expenses are recognized as they occur, even if the expense has not yet been paid for. Income is recognized when the customer is billed, even if payment has not yet been received.  Income and expenses are then tracked by the exact day they are to be collected or are due respectively.  By tracking the income and expenses in this way, one can easily predict the money that will be owed at a certain given time as well as how much money will be available to pay for those expenses at the time the expenses become due.

You will need a second account for your money

If your accounting system predicts you will have excess funds, consider opening a second interest-bearing account where any excess monthly funds could be deposited.  The amount of interest this second account could earn depends on how long the money will stay there. Typically, the longer the commitment to leaving the money in the account without having to access it, the higher the interest rate a bank would offer. Interest rates on these account types may seem low, especially in the current market, but over the course of a year a significant amount of money you wouldn’t otherwise earn could be added to your bottom line.

I also suggest that this second account and your primary business account are with the same bank. By working with the same bank, transferring of funds between accounts can be instantaneous. There will be no need to wait for checks to clear between banks. Also, most banks now offer electronic banking using the internet. This can eliminate the need to even leave your office or the job site when making transfers between accounts. On-line banking services can be used to be sure the money is actually available in a “just in time” fashion.

A word of caution!

Before you consider using any of my suggestions, be sure they make sense for you and you understand the legal and or tax implications for you and your business.  I suggest that you always be sure to consult with your accountant, tax adviser and or other appropriate counsel before trying any new strategies, including those described in this blog.

If you have been use this or a similar strategy, be sure to share your experiences in the comment section below.  Other remodelers and Design/Builders looking to earn more money could benefit from what you have to offer!

 

 

Three Considerations for Controlling the Destiny of Your Remodeling Business

Many remodelers start their business with little real planning or consideration for the future other than to grow the business and make money.   For many this tends to work out alright, particularly during a good economy.  But the current recession has definitely exposed to remodeling business owners some of the natural consequences that come along with a lack of a long term vision for their businesses. A couple of obvious examples might include the current cost of excessive overhead accumulated when work was strong, and the overwhelming workload and responsibilities the business owner had to absorb due to staff layoffs.   However, an anticipated improvement in our economy offers an ideal time for businesses owners to rethink how they will move their businesses forward as the economy eventually improves.  Planning for the future now can definitely put you on a much better path and using what you have learned in business so far makes that planning much easier and more likely to protect your business when the next recession shows up.

This summer I will be participating in several Remodeler Summits sponsored by Marvin Windows and Doors to be held at their training center in Warroad MN.  As part of the Summits I will be presenting seminars to attendees to help them strategically grow their businesses.  Here are three things I will be asking the attendees consider about themselves and their businesses before new opportunities for business growth appear as the economy and the remodeling market improves.

 

(1) Are you an Entrepreneur or a Craftsperson?

This should be your first consideration.  Be honest with yourself.  Do you really want to be a business owner running and growing a business where your role is to develop your business so it creates the opportunity for employees and subs to perform the work, or is your love for the tools and craftsmanship what motivates you to go to work each day?  Either one can be a good choice, but the business you build will be dramatically different depending on your choice.  If you choose the craftsman route be sure to consider your age and health; now and in the future.   Will your body be able to handle the work type your business sells as you get closer to retirement age?   Also, as you age, will you be able to maintain the productivity required to earn the money you need to live and eventually retire?

 

(2) Will you hire to complement your skills or to maintain your authority?

Regardless of your choice to the consideration above, few business owners can know and or do everything needed to run a profitable business and still have a life outside work.   When seeking to add new employees, consider how you chose your previous employees.   Did you hire people who required constant supervision and instruction, or did you hire people who added skills and knowledge to your business that you didn’t have yourself?   Who you hire going forward will make a big difference in regards to what you will have to do yourself and how much of your time will be spent where.

 

 

(3) Will yours be a Practice or a  Growing Business?

A business that is a practice depends on the participation and the skills of the owner every day.  If the owner is on vacation or can’t come to work for any reason the business stops operating very quickly.  If you plan to run your business as a practice keep this reality in mind.   Your ability, as well as your employees’ abilities, to pay the mortgage and feed the kids can quickly become compromised.   Be sure to consider options like disability insurance and a reserve fund to protect yourself.  If you plan on growing your business be sure to take the two considerations above very seriously.  Also, make sure you choose employees with the cognitive abilities and desire to grow with your business.

 

 

There are two schools of thought regarding destiny

Destiny is often seen as either a fixed sequence of events that is inevitable and unchangeable, or that individuals choose their own destiny by choosing different paths throughout their life.  Marvin Windows and Doors is helping contractors shape the destiny of their businesses.   How about you:

Will you let destiny happen for you and your business?

Are you shaping your destiny on your own?

Are you getting help shaping your destiny, and if so, who's helping you?

Please share your comments and thoughts.   Other contractors looking for options could benefit from what you have to offer!

 

 

 

Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the author of A Simple Guide to Turning a Profit as a Contractor.  Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant.

Benefits of Rethinking Your Estimating and Job Costing Approach 

What functions should an estimate serve on a fixed/contract price job?

 

Pricing
The cost of the job determines the price of the job, so knowing the costs allows you to generate a sale price.

Job Costing
The estimate can function like a budget for both time and costs.

In order to price and job cost accurately, the estimate needs a lot of detail. If you (oops!) forget to include windows or a toilet, your only choices are (a) go back to the customer, admit your mistake, and hope he accepts the revised price or (b) eat the cost.

Also, sharing a highly detailed estimate with the project’s lead carpenter can help limit questions from the field back to the office.

But the same high level of detail that can save you when pricing and producing the job can get in your way if you attempt to job cost at that same level of detail. As a QuickBooks ProAdvisor working with literally hundreds of contractors, I have seen two common categories of errors:

 

Job costing at too high a level of detail can be a problem

Contractors who try to job cost inside QuickBooks at the level of 2x6’s and specific products (Kohler faucet K-13490-CP) produce three problems:

1. Your project manager and bookkeeper will waste time coding out every little line item on a vendor’s bill.
2. The more opportunity for choice, the more likelihood of misclassifying things. Highly detailed job cost reports actually have a greater chance of being inaccurate on a category-by-category basis.
3. Your job cost reports will be so lengthy and complex that you’ll lose the forest for the trees.

 

Job costing using apples and oranges?

Contractors who continually add job-specific line items in QuickBooks invoices (ex: “repair Jones front porch step”, “Replace damaged shower tile”, “Add backsplash”) produce these two problems:

1. They create a disconnect between the categories used for estimating (apples) and those use for job costing (oranges), making it virtually impossible to compare common estimated and actual categories
2. They create an ever-increasing list of job-specific categories inside QuickBooks with single-use history   

 

How to do it right

Instead, estimate at a high level of detail but create a way to subtotal these into categories that you use consistently, will be relatively simple to code, and will produce reports that allow you to perform a side-by-side comparison of estimated and actual costs.

For those using a customized spreadsheet for estimating, the process might look like this:

The summarized categories with costs can then be entered in your accounting software and job costed using the same categories. Doing this will keep your cost categories consistent and provide apples to apples comparison.

 

Harsh Realities About Retirement for Remodelers and Their Employees

The harsh reality I am pointing out in this blog post is the fact that for most remodelers and their employees a comfortable retirement is really just a fantasy. 

For these individuals, ignoring this fact so far during their careers is the reason they are lacking adequate funds to retire and my prediction is that they will continue to ignore this fact.   However, remodelers are not alone.  Most Americans are in this same predicament.   When they reach retirement what will their lives be like and who is going to pay for their living and medical expenses?   One answer; the next generation of working tax payers, assuming they have jobs.  With such a financial burden on the next generation, they too may be destine for the same harsh reality.

Business owners are obviously too busy running jobs to even think retirement.   Employees are often living and thinking day-to-day, often working for cash.  This is a huge mistake.  While you may love what you do, your body may not allow you to do it forever.   Consider the day when you will no longer be physically able to work in the field and or your declining physical abilities will result in lower productivity and therefore reduced compensation. 

 

Just the facts  

Here are some harsh facts that I hope will wake up those who are currently sleeping when it comes to retirement planning.  These facts and others can be were found in an article on the Fiscal Times web site titled “5 Shocking Predictions about Retirement in America”

• In the U.S. seventy-seven million baby boomers are slated to retire in the next 20 years, with approximately 10,000 reaching retirement age every day.  At the same time 401(k) accounts have been drained by the recession, pension systems are strained, and Social Security coffers are near a breaking point.
• According to a study by the Transamerica Center for Retirement Studies 54 percent of workers in their 60s said they haven’t saved enough to sustain themselves for the rest of their life.
• The Employee Benefit Research Institute recently found that just 14 percent of those surveyed were very confident they will have enough money to live comfortably in retirement.  Even more shocking, sixty percent of workers reported that the total value of their household’s savings and investments (not including the value of their home and any official retirement benefit plans) was less than $25,000.
• Another report from the financial industry think tank LIMRA, found that 49 percent of Americans aren’t saving for retirement at all. 
• The Employee Benefit Research Institute (EBRI) reports that for those who are 10 years away from their planned retirement age, more than a third have saved less than $25,000.  That’s $875K away from the EBRI’s suggested $900,000 that a typical person would need to live out his or her years.

 

Will your children be able to support you?

Oh, and if you are assuming that the government will be footing the bill for your retirement, that doesn’t look very good either.  The latest annual trustees’ report for Social Security predicts that the program’s trust fund will be depleted by 2033, three years earlier than they estimated last year. When the fund runs dry, the government will only be able to pay 75 percent of the promised benefits to retirees.  This of course assumes our children will have jobs and earn enough to generate the taxes the government will need to meet the 75%.

 

• Are you confident in your abilities to earn enough for your own retirement?
• Are you confident that the government will be able to finance the lifestyle you want to live when you can’t work any longer?
• Are you motivated to do something before its too late?

 

Don’t fall into the trap of running your business to the point that it runs you and your employees into the ground!