Finding Financial Flexibility in Self-Employment

financial flexibility in self-employment

Self-employment is about purpose and flexibility.  Being able to build deep purpose into your work and bring a new way of work into the world.  It also means you can choose who to work with and the way you work with them.

If the goal is to live a purposeful life, doesn’t the journey mean as much as the destination?  

Self-employment gives you that possibility beyond what a normal 9-to-5 can.

What are the top things to know when becoming self employed?

Know yourself.  

Forbes put together a quick hit list of the 13 signs you are meant to be self-employed and I couldn’t agree more.  

Flexibility and control in doing the right work day in and day out?  That is freedom.

During this time of lay-offs in the tech space, it can also mean survival.  Bringing cash in ASAP may be your goal.  Some of us go into self-employment from a place of anxiety or scarcity.

So just like money, self-employment can be freeing or anxiety driven.

How should I approach finances when self-employed?

The main thing about self-employment is you now wear many hats.  You didn’t get into this business to keep track of bookkeeping, invoicing clients, creating contracts, etc.  Once you start to make more and more money, there is a whole extra slew of things to consider for minimizing taxes longer term.

The first step in self-employment is to decide how much you want to be able to make in income to support yourself and a fulfilling life.  Ask:

  • What is my short term income goal?
  • What is my longer term income goal?
  • How many hours a week will I work?
  • How many days/weeks do I want to be out of the office each year?
  • What should my product / services look like?
  • How do others charge for those services?  How much do they charge?
  • Can the above questions align into a successful and sustainable business for me?
  • How long is my current cash runway?

A key tip – we all end up charging too little for our first engagements 🙂 So feel free to charge a price higher than you think is reasonable.

Another note is that your income is taxed differently as a self-employed person.  As a business, you are the employer +  the employee and so more taxes from the employer side will show up in your tax return.  Often, this means less ‘net’ income than working for the same pay rate.   Here is a self-employment tax article explaining the implications.

Should I be a ‘sole proprietor’ or create an LLC?

This is a hot topic – does it make sense to create an LLC for my business?  Well, it couldn’t hurt.  A single owner LLC can still file their taxes like a sole proprietor and include the business income on their personal tax return.  

An LLC is a flexible business entity that can grow with you as your income increases.  Then, you determine how big to grow the business (a bigger team, international presence, etc)

Here is a great article from Wolters Kluwer on the pros and cons of an LLC and how to form one.

Each state is different in how they tax LLCs vs sole proprietors.  For example, California has a Franchise tax with a minimum $800 fee annually.  Build this into your income projections.

Beyond the LLC taxes, you have other reporting requirements.  Reporting vendor payments (For 1099s), annual information reporting (Secretary of State filings), Sales and use tax, and Beneficial Ownership Information ‘BOI’ reporting.  Get to know the rules for your LLC entity to make sure you stay in compliance.

If you don’t have an accountant or bookkeeper, now may be the time to find a good one!

What are the financial benefits of being self-employed?

This is one of my favorite topics as a financial planner!  Oh, the opportunities 🙂

As a self-employed individual, you may be able to make a bigger retirement contribution.

Many professionals in the tech space have the opportunity of a 401(k) contribution, a good employer match, and sometimes an after-tax 401(k) to lean into.  These are pretty wonderful retirement benefits to go up against.

If you make enough income to support yourself and have room for investments, there are many ways to put away more pre-tax dollars.

My personal favorite is a Solo 401(k).  This may not be the right solution for all, so please speak with a professional about your specific situation.   

A Solo 401(k) is like a 401(k), but for self-employed individuals.  You get to be the employer and the employee.  So you can match yourself!   The calculation is a little more complicated than doing whatever you want.  A good estimate may be to use AARPs self-employed 401(k) contribution calculator to visualize what this could mean for you.

Solo 401(k) value:  a simple example

Let’s assume as an employee or a self-employed individual, your goal is to make $220,000 in income.  This lets you enjoy your time, make enough money to cover your expenses, and continue to invest.

As an employee, you would be eligible for a 401(k) contribution up to $23,000 and receive an employer match.  If you maxed out your contribution, and your employer match was 6%, you would put $24,380 towards retirement in a year.

As a self-employed individual, you would be eligible for the same 401(k) contribution of $23,000 and an employer contribution.   With a Solo 401(k), that employer contribution could be up to $41,000 in this example.  That means, in theory, you could put away almost $64,000 towards retirement a year!

Barring the fact you may need some of those funds, this is quite a pre-tax contribution.  This may also reduce your taxes by a considerable amount.  Depending on your situation, it may knock you down a tax bracket or two.

You will be able to continue making contributions as long as you do not have any part-time employees working over 2,000 hours a year for you.  Once you bring on full time employees, the benefit of the Solo 401(k) is no longer available to you.

At that point, you will need to put in a company wide plan if you wish to continue making retirement contributions.  There may be other deferred compensation plans available as well.

Even if you can only enact this strategy for a few years, a Solo 401(k) could be to your advantage.

If you work for an employer and do side consulting, the Solo 401(k) may not be the best option for you.  Check with a professional on what is best for you.

Self-employment is a delicate balance

As I work with self-employed individuals, I find there is an incentive to work a little bit more to bring in a little bit more money …until you hit a burnout.  Then, life tends to show us that a little more work isn’t worth the money.  

I encourage you to decide on that balance ahead of time and stick with it.  Check in with yourself on how you feel about your time worked in the business and time outside the business.

Remember, this business exists to support your life.  If it isn’t making your life better, then why do it?

Self-employment requires a wide range of skill sets including sales, marketing, project management, etc.  If you can get over this hurdle, you will control your work, have more flexibility in your time, and a happier work life.

I wish you the best in your self-employment journey!

P.S. For ongoing clients, we dive deep into the weeds of accounting setup, operations, and taxes.  Setting your business up for success allows you to focus on the work you are meant to do 🙂

If you are interested in learning more, schedule some time to chat with us.

The above discussion is for informational purposes only.  Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

 

What should you do if you are laid off in tech?

Laid off in tech

Being laid off in the tech industry is not uncommon right now.  Every industry goes through ups and downs, and unfortunately that may mean a company shifts focus or needs to downsize.  We’ve seen this from Meta, Google, LinkedIn, Twilio, and much smaller companies in the last year.  The important thing to remember is that it isn’t because of you.  This is not a reflection on who you are as a worker and a person.  

Losing a job can feel like you are losing a part of yourself when you’ve put 8+ hours a day into the role for a long period of time.  You will go through an emotional process in this and you need time for yourself.  

Below are our 8 best tips on preparing for this pause in your professional journey.

1. Take time to process your layoff

Understand the 7 stages of grief and how it can show up when you’ve been laid off.

Breathe and decompress.  If you’ve been working long hours, try to get outside and move your body.

Spend time with friends and family to reconnect to yourself.  Often, we spend so much time sitting and staring at a screen,  we aren’t nourishing ourselves.  Reconnect with friends and family.  Don’t let your fear or shame keep you inside and from talking to others.  This is your time to step away and hit ‘refresh’.

Take long walks and meander while you think about next steps.  Research shows our brains are better at processing information while walking.

Don’t make any rash decisions while you process your emotions around this shocking event.

Consider speaking with a counselor to help you through this time.  We all need a thinking partner from time to time 🙂

When you feel ready to take on the financial steps, we recommend reviewing the points below.

 2. Adjust your budget and review your cash reserve

Once you are in a place where you can focus on money, take stock of your debt and cash balance.   This is not the time to default on loans or miss credit card and loan payments.  Make sure you have a plan for continuing your obligations and know where you can seek deferment.  Federal student loans may allow unemployment deferment.

Review your spending habits and understand what you can delay vs what you need to make life work month to month.  If you’ve never budgeted before, now is a great time to start and make it a habit!   

If you are starting from scratch, our template HERE can help you gather your expenses for the year.  Then, determine which are necessary day-to-day expenses, nice-to-haves, and future payments to be ready for.  This will also help you during interview season to know what your base need is.

With the number of layoffs in the market at this point, we are seeing much lower salaries presented to job candidates.  Be prepared.

 3. Consider your post-layoff adventure

Our clients maintain an emergency fund for times like this.  We often encourage clients to use their time between jobs to do something they don’t normally have time for.  Travel to South America (where living may be cheaper) for an inexpensive trip or lean into working with your hands.  If you’ve always wanted to dabble with ideas or other educational endeavors, this may be the time to do it.

4. Wrap up your ‘work’ when laid off 

We recommend taking these steps when laid off with your employer:

  • Review documentation sent to you for signature.  Your severance package will list final payments, confidentiality terms, etc.  Review this in detail and make sure you understand what you are signing.  Highlight important dates/cut-offs so you aren’t taken by surprise.  Consider having an employment attorney review this and your employment contract to see what negotiations can be made
  • Find out how you will access your final paycheck, download it, and make sure your information is up to date for getting your W-2 after year end
  • Review your stock plan agreement to understand what your timelines are for exercising any vested options.  You may only have 60 to 90 days to exercise them (at a public company) or a separate window of time post-IPO (if they hope to go public eventually)
  • Make sure you can access your 401(k), HSA, and other benefit websites without your work email address
  • Write down the good things: a list of accomplishments or portfolio projects will help with case study interviews.  It can help you remember what this role gave you during your time at the company, too
  • Contact colleagues for potential references or letters of recommendation.  You will need this for your next round of interviews

In a layoff, several employees are dismissed at once due to a shift in company priorities or a downsizing across the board.  This is different from a ‘termination’. A termination (for cause) is due to an employee’s direct actions.  Make sure you are reading the correct subclauses when going through your contract.  Other thoughts are nicely laid out by BetterUp.

5. Review your severance package

A typical severance package in tech will depend on a few things:  Company size, employment length, etc.   We often see 6 weeks to 3 months of severance provided with an additional week per year of employment with the company.  However, this may not always be the case.   For companies that shut down quickly (like Convoy) there may not be severance provided.

Beyond money benefits, your company may also offer professional help.  Look at what is offered for career, financial, and emotional counseling.  Every little bit helps.

There may be fine print around paying severance back if you find a new job.  Make sure you know your rights in the severance package. This is another area that an employment attorney could help review for any inconsistencies or ‘gotchas’.

6. Consider your health insurance options

Depending on what state you are in, you may find the health exchange or COBRA a better fit for your needs.  The trade-offs between these two will be payments vs health coverage.  

COBRA is offered through your employer as a continuation of your employee health insurance.  The downside is your employer will no longer be contributing to the health premium of that insurance and you will need to bear the full cost.

If the cost of COBRA feels out of reach, a state health exchange may allow you to take on a lower payment for basic coverage.  These individual plans may also come with a subsidy if your income is dramatically lower.

Are you married, or have a domestic partner?  You may be able to get added to your partner’s health insurance.  A lay-off is a change in life that will allow you to update your health insurance coverage outside of an employee benefits enrollment window.

Be wary of moving forward with no insurance.  Some states, like California, implemented penalties for non-compliance with maintaining health insurance.  The California Individual Shared Responsibility penalty can be steep.  You can estimate your penalty HERE.  Beyond penalties, this could also leave you open to insurmountable medical costs if an emergency medical event occurs.

7. File for Unemployment

Each state is a bit different here, but generally there is a filing process online at a governmental website.  The Department of Labor keeps a comprehensive list of state unemployment office websites.

Generally, there is preparation required to file.  You will need identifying information for the tech company you worked with, the last date you worked and the reason you are no longer working there.   Then, they will request information for all employers you had over 18 months+ and documents to verify your identity.

8. Start the process of looking for a new job

Each person’s journey is different, but I do like the idea of finding job descriptions that feel like a ‘hell yes!’ to apply to.   Use that to drive where your next role may take you.  Review job descriptions for a role across many employers to see what keywords you may want to use on a resume.  I am not a ‘resume guru’, but there are some wonderful ones out there!

While you are looking for a job, consider freelance and contract work while you search (if this doesn’t put your severance at risk).  In our current market, I am hearing it takes longer and longer for laid off tech workers to find the right next fit.  Allow this kind of hourly work to help take the pressure off of your day-to-day finances.

Get back to your network.  Lean into catching up with past colleagues or others you respect in the industry.  Ask for feedback on how you can be competitive in the industry and evaluate if you need any ‘upskilling’.  After being buried in work, you may find the job market post lay-off is on a different path than you remember.

In the end, no individual’s journey is the same and you may decide to get out of tech completely.  Our goal is to know you can move forward with your most fulfilled life while streamlining finances behind the scenes.  I hope this tip list helps prepare you better in this time of need!

If you are laid off and need a financial thinking partner, schedule an introductory meeting for us to give you feedback on your next steps.

The above discussion is for informational purposes only.  Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

  

What to do with stock options at termination

Stock options at termination

Stock options (ISOs or NQSOs) generally expire 10 years from the date of grant.   This makes sense most of the time as the majority of startups aim to go public or exit within that time frame.  What we don’t think about is what happens to stock options at termination.

This isn’t the only time you may be wondering what to do.  Stock options add to the fun at:

  • Termination
  • Expiration and the company is still private
  • Massive stock growth since grant

This post will discuss what to do with stock options at termination – when you are looking at leaving your job and moving on to the next opportunity.

Expiring Stock Options at Termination

In the recent month, big vests are occurring for many tech companies and tech professionals seem to be reconsidering where they want to be.  Add on ‘The Great Resignation’, and your new ideal may be totally different than what you previously thought possible.

When you terminate your position, you generally have 60 to 90 days to exercise vested stock options.  Your choices will be different depending on whether you are at a public company or privately held company.

For a Public Tech Company

Stock options in a public company have the value of being liquid due to an exchange you can easily trade them on.  You can choose to exercise and hold, exercise and sell a bit later, or do a cashless exercise.

Since you are no longer an ‘insider’ any trading windows would no longer be applicable for future sales.  

This is far less complex.

For a Pre-Exit Tech Company

This is far more difficult.  If you haven’t exercised options before, you may be sitting on quite a bit of value and the company may or may not allow you to engage in a secondary market sale.

On the one hand, if you exercise your expiring stock options now, the stock will become ‘paper money’.  ‘Paper money’ is basically stock in name that is highly illiquid with no known value in between.  If the options are NQSOs, you will be paying tax on the value between the 409(a) and the exercise price as if you received that in cash.  Ouch.

On the other hand, if the company does well, then the stock may grow to give you a huge payoff.  

What to do??  This is a high risk, high value trade-off in the startup cycle.   How much cash out of pocket are you willing to lose?  Since this is a bit of a crap-shoot on when it becomes liquid and if it turns into something, we keep the cash in hand trade-off front and center.

Some tech professionals consider a loan to exercise the shares.  Firms like ESO may offer liquidity now for a piece of the shares at exit.  If you are considering this,  read the fine print in the deal and consider your ‘cash out of pocket’ as what they could come to you for if it doesn’t turn out as hoped.

If the company allows a secondary market sale, it may be a bit easier.  You will be able to exercise/sell some to offset the exercise and hold of others (if that makes sense based on your financial situation).  In this situation, we do like to do both around the same time so that you have a ‘known’ market value for the Form 3921 (exercise of stock options).  Otherwise, if another sale occurs closer to your exercise, your stock price may jump up and cause you to pay even more AMT.   Always consult your tax accountant or CPA when making this decision.

Another Option to Keep in Mind

Do the above ideas sound too risky to you right now?  There may be one final option for stock options at termination.  Over the last few years this became more and more common – negotiating for a new stock option grant.

Companies like AirBnB and WeWork who saw some turmoil in the moments leading up to an exit were kind enough to recognize:

  • You worked hard for the company with a promise of stock as part of your ‘compensation’
  • You should not have to stay at the company to finally get that value
  • They may be able to get a longer transition period from you at leaving

In this current down market, many tech professionals are jumping to perceived safety in another job.   If you are negotiating to leave your job, bring up the above points and asking for a revised stock option agreement.  I am making a bit of an assumption – that you were critical to the success of the company over your lengthy tenure so you have the leverage.  🙂

If you have ISOs, they will most likely be forced to become NQSOs due to the IRS rules around total value.  For ISOs or NQSOs, the strike price will become the most current value (so higher).  The deal won’t be totally equivalent to your prior grant, but it does allow you to participate in some of the growth longer term with no immediate downside.

A little catch in this – the new stock agreement will show the strike price at the current market value.  This may also mean that granted ISOs may not be able to meet the ‘$100K in value’ rule and your new agreement could be NQSOs only.

So if you do have some cash you’d like to put towards your stock options at termination, you may want to exercise some ISOs before bringing this negotiation tactic to the table.

There are so many options (pun intended) when you are looking at leaving your company.  I hope that you look forward to a better position that aligns with your values and allows you to grow.  As always, consider each opportunity to lean into your ideal financial life with care and try not to overextend yourself.  Mistakes in stock option calculations can be so costly and disheartening.

If you are struggling with these decisions and how they fit into your financial life, please reach out to us to schedule an introductory chat.  Our passion in life is to help guide and partner with our clients for a better financial future that allows you to live into your values.  

The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

 

Teachings from my trek through Nepal

Jim goes to Nepal

by Jim Garvin, SeedSafe Financial LLC Lead Planner

Stepping away from work and the normal American life for an entire month to travel isn’t the norm.  It gave me a lot of headspace to think, reflect and experience life with new people and new cultures. If I could summarize the theme of my reflections, it would be “Gratitude”.

Gratitude

A few days ago I got back from Nepal, where I hiked the Everest Base Camp Trek, explored Kathmandu (Nepal’s capital), and Chitwan National Park.I love hiking and going on extended backpacking trips in Colorado, New Mexico, etc. but none of my U.S. adventures compare to Nepal.  Experiencing the Himalayas is the most challenging and fulfilling adventure I’ve been on yet!

This was my first time traveling to a third world country, and my experience was incredibly positive and very reflective. 

Being born and raised in the United States, a first world country, can make it easy to forget the true blessings that are around us every day.  Infrastructure, drinkable water & access to fresh food anytime anywhere. The low level of widespread poverty, the opportunities we have, etc. are very easy to take for granted. 

The biggest difference was opportunity.  Long ago, Nepal & India followed a very strict caste system. You would be born into a caste level, live and get married at your level, and die at that level. It was near impossible to change your caste level.  Recently, there are efforts to change this system, but culture takes decades to change a system that has been in places for centuries. 

In contrast, in America and other first world nations, you have the ability to change your economic status. This doesn’t mean it’s easy to change, but it is still possible. In third world countries, if you are born poor or into a bad situation, you most likely will die in the same or worse situation. 

This resonates strongly with me, as my personal background is from humble beginnings. Without the support of the Pell grant, the right mentors in my life, and other positive life-changing factors, my life would be very different. 

Regulations

Other big differences include regulations.  Environmental laws and auto emission laws were either nonexistent or not enforced.   Smog and certain areas of Nepal’s poor areas were trashed. We either bought bottled water or purified our own with iodine.  Electricity was spotty at times and their roads were rocky dirt paths with no pavement (talk about super bad motion sickness during every bus ride). These are observations of Nepal only – I had a wonderful time and I plan to travel back to the country in the future.  I mention these items to reflect on my gratitude for every day living in the United States. I am thankful we have fresh water, clean air, and environmental laws to help preserve our environment.

Based on my experience in Nepal, I’ve added to my bucket list to volunteer with the Peace Corps in their Economic Development program. 

Other Notes

The trip gave me the headspace to reflect on myself, life, philosophy, and more. If I were to write about each individual reflection, this would be a super long blog post! I choose to speak about gratitude because it is one of the most relevant reflections (especially around the Holidays! 🙂 but also because it resonated with me. 

Another strong reflection item was how much people from around the world are all alike. We trekked with people from South America, Western and Eastern Europe, and of course a few Nepalis. We laughed together, overcame challenges together, and related to each other on the most personal level.  Even though we all came from all different backgrounds. It was magical 🙂 

For the technicalities of the trip, we trekked about 70 miles and our highest elevation was 18,500 feet at the summit of Kala Pathar. At this altitude, you have about 50% of the oxygen compared to sea level. I carried a backpack of 35 pounds and we stayed in lodges and tea houses along the way (so we never had to use or carry a tent). We ate noodles and rice at every meal but we felt satisfied the entire trip. I also visited Tibetan Buddhist monasteries and joined in several different ‘services’ where the monks chanted and played music. 

Nepal is a beautiful, wonderful country that I encourage anyone with a hunger for adventure to explore. You will not be disappointed. 🙂

7 Rookie Mistakes Even Your Boss Makes at Benefits Enrollment Time…

Benefits Enrollment

Benefits Enrollment season… that lovely time of year where you have less than a month to get your life together (what changed from prior year?) and still meet all your big year end work deadlines.

Side note: This is one of the things I feel like Amazon did right by having a non-year end enrollment period 🙂 

There are probably 1000s of blog posts on benefits enrollment topics, but sifting through them means you might miss something big.  So instead of restating details on what each benefit means, I’m giving you the short twitter headline and a link to a great blog explaining the topic.  

HSAs

Do you have positive cash flow?  Maxing out your 401(k)? Contribute to an HSA.

Have an HSA?  Not using it much?  Look at investing part of it to make the most of the tax deferral!

https://youngandtheinvested.com/what-is-hsa/

Dependent Care FSAs

Are your kids no longer at daycare?  What about after school care or summer camps?  Might be eligible for this pre-tax benefit.

https://www.fsafeds.com/explore/dcfsa

ESPPs

A forced savings mechanism and a ‘guaranteed’ discount means automatic after-tax value in your pocket.

https://blog.wealthfront.com/good-espp-no-brainer/

Exec Deferred Comp

Okay, I lied, this one is going to be longer than a Twitter headline…

Most of our executives have a ridiculous amount of stock vesting each year through RSUs and NQSOs.  Many are uncomfortable with the tax hit they would take for diversifying their risk. Most deferred compensation plans come with more investment options.  Therefore, some executives can use this to defer 75% of their salary and bonus, then use NQSO exercises/sales to fund their annual expenses. Thus getting out of a concentrated position and into a more diversified investment strategy.

Using your deferred stock plan might be a great way to diversify out of your NQSO concentrated position.  However, it isn’t a fool proof decision. Unless you work at a mega employer that has made commitments to keep these funds as legally safe for you as possible, it may end up not so great.

https://www.nytimes.com/2017/06/30/your-money/should-you-take-advantage-of-a-deferred-compensation-plan.html

Supplemental Life Insurance

Do you need life insurance to cover debts and family needs?  If you are young and fit, there may be a better alternative.  Check the pitfalls and benefits.

https://20somethingfinance.com/should-you-buy-supplemental-life-insurance-through-your-employer/

Critical Illness Insurance

Are you approaching your 50s and not in the best of shape?  If heart problems or cancer runs in the family, this may be a great deal for you.

https://www.thebalance.com/what-is-critical-illness-insurance-4588339

Pet Insurance

This is the time I really wish my dogs could talk.  X-rays, blood tests, oh my! We love our pets but hate the vet bills.

https://www.thebalance.com/best-pet-insurances-4169714

May the odds be forever in your favor…

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

Startup Offer: The Opportunity and Risk

Startup offer

How do you evaluate and negotiate your startup offer?

This year is a crazy year for IPOs.  Some have gone well, some have gone terribly wrong, and others never even made it to the finish line (yet).  Many of the more eccentric CEOs are now getting pummelled by news media, when they once were media darlings. This doesn’t just affect CEOs, but all employees that trusted that CEO to take them to success.  The impact this drama has on employees can be draining and cause anxiety to the point they look at new opportunities. Kind of reminds me of how the news outlets treat stock market coverage… 

Anyways, this craziness may have finally pushed you to see what else is out there.  No more golden handcuffs! Chances are you are in one of three categories:

  • you may be looking at a larger tech firm post-startup burnout, 
  • looking to join another startup with your gained wisdom, or 
  • leave the industry entirely

For this blog post, we will cover how to think about your startup offer.  This is how we begin the conversation with our clients who are going through the interview process.  

In a prior blog post, we covered the main levers in negotiating a better offer.  This article is more about the types of questions you should be asking in the process and other resources we are aware of.  

We’ve helped techies at all levels consider new offers using the below questions and further analysis.  In the end, it breaks down to three things:

  • Are you asking the company the right questions?  Sometimes, we are so focused on the recent hurts/pain we went through that we look to what was lacking and not the whole picture in pursuing our next role.
  • Have you thought about the effect this job will have on yourself?  Just because things may look dire, in your eyes, doesn’t mean you should jump ship for the next shiny object.  Make sure you are sure this is right for you.
  • Analysis to do:  I love it when a tech company throws out a number of shares or a total stock value for your stock grant.  This doesn’t tell the whole picture and may not help you understand what you are really getting

Questions to Ask the Company

For private tech companies, once you get toward the end of the process, these questions will help you understand a little more.  The goal is to learn more about the immediate risks in the business, the direction the business is taking, and what your startup offer compensation actually represents…

  1. When was the last 409A valuation done? Will there be a new 409A valuation required for issuing shares in connection with this position?
  2. How much runway does the company currently have? 12 months or less of cash?
  3. How close are you to raising your next round? What is the high-level impact of the money? Further building out the product? Expansion only? New line of business?
  4. Are you positioning yourself for IPO or looking at an acquisition? If acquisition, who are you targeting? What is your expectation for when an exit might happen?
  5. What kind of accelerated vesting provisions are available for your stock grant?  Double trigger or single trigger acceleration? RSUs that required double trigger for vesting?

Questions to Ask Yourself

Start-ups have their own risk, and depending upon your personal situation it may be the risk you need to take to get to where you want to be. Or, it might be a shiny object that is distracting you from what you really want in life.

  1. What is driving you to look at this position right now?
  2. Imagine your best work life, what does it look like to you? What does it allow you to do? Where do you want to go with your career in general?
  3. If you feel you are making less than market rate: if your current company gave you a counter offer for the same compensation, would you take it? How much longer would you be willing to stay?
  4. Do you want ‘walk away money’ at some point? This may mean exiting tech, building your own thing, etc. What would life after ‘walking away’ look like for you?  How does this role fit into that goal?
  5. What are your plans for maximizing your current job stock compensation?
    • If ISOs, how much cash out of pocket are you willing to risk?
    • If RSUs, what will be your strategy for using them vs saving them?
  6. Do you currently budget? Do you feel you have a sense of how much in annual expenses you have? What about savings? What kind of risks can you take at this point in your life?

Not sure the answers to these questions?  It may be time to clarify your finances and long term goals with a financial advisor.  Schedule a time to chat with us.

Analysis to Do

  1. Review the company in crunchbase.com.  Find the company and look at:
    • recent funding rounds, 
    • information on the executives and investors, and 
    • look into what their previous experience or exits may have been.
  2. Try to find out more about what your market rate for the position might be.  Websites like https://www.levels.fyi/ or https://angel.co/salaries may be a good place to start.  Search for other sites or use your network to see how much more information you can find out.
  3. Put together a spending forecast for yourself to see what a comfortable cash target could be.

Once You Get a Startup Offer

  1. Evaluate the offer(s) and ask for more information.  Often, start-ups and private tech company offer letter state cash salary, number of shares granted, and the strike price.  That isn’t the whole picture though! You still need total shares outstanding (i.e. KEY piece of information), ongoing share grant opportunities, or other details around benefits to help make it a more apples to apples comparison.
  2. Understand the dilution risk and chance of what your equivalent total annual comp would be.  We’ve put together a basic spreadsheet to help you think about what the all in may be one day. 
  3. Look at your current company stock and vesting parameters.  What are you giving up? Is it worth it? Understand what decisions you may need to make when you terminate.  Remember, most vested options expire within 90 days of termination, so now is the time to consider the costs to exercise and whether it makes sense to.

If you aren’t sure how to move forward on some of these action steps, reach out to us.  We do often help clients with their startup offer and evaluate the after-tax cash flow of what these moving parts will do for them in the end.

Best of luck on your new adventures!

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

3 Steps for Long-Term Budgeting Success

Budgeting Success

Budgeting sometimes feels like a New Year’s goal for weight loss.  “I’m going to stay on top of my budget this year!” “I am going to start tracking my expenses January 1st!”

The truth is, you only have so much time.  Like with weight loss, there is no magic pill but there is a long term sustainable option.  To get to this, I recommend a three stage approach:

Budgeting Step 1:  Manual process – one or two months of inputting every pain-staking expense into a spreadsheet (example here).


This hurts – but only for a short bit!  If you really want to see where every dollar goes, manually categorizing expenses in a spreadsheet is the way to go.  However, a manual process generally isn’t sustainable.  I generally recommend doing this for one or two months to see where your money is going and then switch to a semi-automated or automated format.  

Think of it like visiting the nutritionist or a personal trainer, they want to see a week or two of exactly what you’ve eaten and when.  This helps them, and you, understand your starting point.

Budgeting Step 2:  Semi-Automated process – Mvelopes app or other budgeting app that works for you.  Generally for around 6 months.


Using mvelopes, or a similar service, allows you to connect your bank accounts for automatic feeding in of expenses.  Then you can set categories and assign transactions to those categories.  For categories, you can get into specifics like electricity, water, internet, etc. or have one category of utilities to include these.  I like how easy it is to see where you are with each budgeted category.  I’m using an app right now since having a baby changed our expenses a bit.

Make it fun by setting goals for each expense category and see if you can ‘beat the goal’ by spending less than you budgeted for.

Budgeting Step 3:  Automated process – Mint.com with the ‘Big 3’ categories for long term success.


Category 1:  Home – includes only housing, transportation, utilities and groceries (suggested to be no more than 50% of take-home pay).  These are your semi ‘fixed’ costs – so a lower percentage of take-home pay is even better!

Category 2:  Investments – includes savings, debt payments, and personal investments (suggested to be at least 20% of take-home pay)

Category 3:  Miscellaneous – includes lifestyle choices from gym fees, hobbies, eating out, internet, cable, etc. (suggested to be no more than 30% of take-home pay)

Within Mint.com, you can set ‘rules’ for expenses to automatically flow to these categories.  It will take some time in the beginning, but as you frequent places this will quickly go down to a few updates a month.

Notice yourself spending outside of the budget again? or want to fine tune your budget?  Go back to Step 1 or 2.  This is a sliding step process as you find your needs change.

Budgeting is an important step in building your financial home.

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

Signs You Need a Financial Planner

Financial planner Seattle

Financial Planners Help Build Better Experiences

Sometimes it’s hard to tell if you need professional help for a problem or if you can handle it yourself. Whether it’s taking care of a common cold, fixing the sink, changing the oil in your car or doing your own taxes. The same question often arises about finances.

It happens all the time – financial questions pop up that you consider silly or stupid so you feel like you must handle alone and you don’t seek help. This is not the best course. As happens often in life, not reaching out to a professional can delay you reaching your goals and cause you to incur more out-of-pocket expenses and lots of headaches.

Here is the thing: there are no stupid questions when it comes to your finances. Don’t ever sit on the sidelines and fear asking a question or think you’re unqualified to go to a planner. Solid and respectable planners let you know if they can’t help you and refer a professional who can. They also let you know if they think you can plan your finances yourself.

Here are signs you may need a financial planner:

You recently married

To merge or not to merge finances is a huge question: emotions to contend with, forms to update, cash flow to track, debts to pay down, goals to lay out and spending habits and needs to reorganize and prioritize.

Communication during this transition helps you navigate possible questions about taxes, investment allocation updates, selecting benefits, joint roles in management of the household, deciding whether to maintain separate bank accounts and more.

You make a career change

Job or career transitions also bring changes in income and benefits. As a tech employee, you have a little more complexity than the average bear.  Stock compensation can make a huge difference in your overall compensation.  Make sure you maximize your company benefits, leave no retirement accounts behind and ignored, plan appropriately for income fluctuations, take into account future job growth or career prospects and consider the transition’s overall influence on your lifestyle.

You own a business

Whether considering starting your own business or a long-term entrepreneur, you likely need to know how to prioritize goals, pay yourself while keeping the operation running and the best way to manage cash flow on an income that fluctuates monthly.

Not to mention saving for retirement, obtaining health insurance and protecting you and your family against a loss in income from death or disability.

Your family is growing

A baby comes with a slew of considerations: ensuring you have an emergency fund of three to six months’ expenses adjusting your spending for child care, groceries and medical costs and updating your estate plan and insurance coverage in case something happens to you, among many other needed updates.

At the End of the Day

The first step in asking for help always seems the hardest. The assistance and feedback may surprise you when you open up to the idea that you need not handle all financial questions solo.

And it makes the experience much more enjoyable.

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

3 Levers to Negotiate a Better Offer Letter – Stock, Salary, Bonuses

Stock Comp Amazon

How do you negotiate an offer letter from a tech company or startup?  What are the levers you can pull to get to the opportunity you want?

Recently I received the following note: “I found the job I want!  I am pleased with the initial offer, but I asked the recruiter to go back and see if there was any more wiggle room to increase my total compensation. #negotiating

The recruiter came back with a new offer this morning. Total increase in my total compensation for year 1, but they increased the RSUs and lowered both of my signing bonuses.   How do I decide which offer is best for me?”

Stock compensation, cash salary, and cash bonuses are the levers available for companies to work with in your offer letter.  If you require more cash salary to meet your current expenses, then your stock compensation component will be smaller.  Everything is a trade-off.

How much less stock compensation should you expect compared to the increase in cash?  It all counts on the company’s analysis – so do your own as well!

The main consideration to keep in mind is that you and the company may value these levers differently.  Make sure of how you feel about each component to ensure you negotiate for the best agreement for YOU.

First:  Review similar job positions at the company for salary and bonus parity.

I love using Glassdoor.com for a quick review of whether my compensation looks right for the market and the position.  The more of your type of position at a company, the more accurate and timely the information posted will be.

If you are looking at a tech startup, make sure you review similar compensation packages at similar sized startups (i.e. both Series B).

If you are looking at Amazon or Microsoft, a friend may help you find the salary band for the position.  Generally, they will need the Job ID to review internal documentation (if they are comfortable looking it up for you).

Second:  If you have an offer with RSUs or Stock Options, think about the trade-offs.

Look for reviews online or ask startup friends what the usual RSU / Stock Option grant is and take some time to decide how you value this component.

  • What is your risk tolerance when it comes to investing in stock? RSUs will automatically become stock in the company once they vest.
  • Where do you see the company going?  Is their stock currently at an all-time high?  Is it a private company raising its next Series funding?  What does growth look like?  Do you believe in the company’s strategy longer term?

Stock Options in a private company may not be sold until a liquidation event (merger or acquisition or IPO).  So you may need to hold onto the stock for 5-7 years and the company may end up closing its doors in the end.  Stock Options are definitely a long-term play for most private companies.

  • Is the grant larger than expected, based on the information you could find?  This may be a signal that the stock is at an all-time high price range, so they are cushioning you for any volatility in the next few years.  I’ve seen Amazon doing this for some recently.

Third:  If you negotiate for an updated offer, consider the differences between the levers and how you value those differences.

Most large companies analyze where they believe the value of their stock will be over the next 5 years and the volatility surrounding that.  This is how they determine how much stock compensation equates to cash compensation changes.  They want employees to be satisfied over the longer term, but they also want to use their stock well considering the future value.

Consider how you will use the stock compensation.

  • Will you sell vested RSUs immediately or plan to hold onto some/all for a significant time period?
  • If your stock options vest, will you exercise the options?  Do you have the cash available to buy your options?  Will you make an 83(b) election once granted to you?
  • Does the cash portion of your offer cover your expenses + adequate savings?  If so, are you interested in the greater risk and reward in stock compensation?

In determining how you ‘value’ these levers, decide what makes you most comfortable.  Are you more comfortable with a bit more cash salary than the unknown RSU or Stock Option value over the next few years?  Then discount the value of the stock compensation you will receive in your mind.   If you do a great job, more RSUs/Stock Options will be on the way.  Many companies in the tech industry prefer to give bonuses of stock compensation instead of cash.

A higher cash salary gives you a greater bump when they assign increases in compensation.  This is generally done as a percent change (i.e. Amazon) or in line with performance (i.e. most small startups).

One final note: Review the invention assignment clause.  Pay close attention if you are working on, or think you may want to work on, something outside of the business during your tenure.  You may need to determine whether it makes sense to buy a website and throw a splash page up and carve it out in the agreement.

Where are you in your start-up adventure?

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

 

How to make an 83(b) election for your company stock options

Many individuals are interested in making the 83(b) election to minimize long-term tax due. However, this may or may not be a good choice for you. I will not go through the analysis and pros/cons of such a choice in this post. This is for information purposes on the mechanics of making the election.

Before making the election, it is important to understand whether your stock option agreement allows this. Your company should share an 83(b) election form with you, if you are eligible for this. You can also look at your stock option plan documents to see if it allows for accelerated vesting of your options.

You need to review your agreement to ensure it allows accelerated vesting. This gives you the choice to exercise your option and buy your stock now to show the stock was transferred to you and is in your control. You will likely still have restrictions on the stock in case of separation with your company.

Please review your stock option agreement and talk to your finance department to find out if you are eligible for this election.

Now on to the mechanics of Completing the 83(b) Election your company provided!

First: Pay your Company for the shares

The first thing you should know about making the 83(b) election is that you must elect to accelerate your vesting and pay for your shares first. Paying for your shares shows you own the stock and the risk of forfeiture is sufficiently minimized from the IRS’ perspective. Once you own the shares you may now make an election on your shares.

Next: Completing the 83(b) Election form

The election form is generally provided by your company (or their attorney). This form asks for your personal information and information on the shares you wish to elect this treatment for.  The election must be made within 30 days of receipt of the shares.

The fair market value of the shares is generally the most recent 409(a) valuation or Series funding value for non-publicly traded companies. This is something you should ask your company for.

Gross income is the total fair market value less the amount you paid for your shares. This amount is something you may owe taxes on, depending on the situation. Ask your company if they withhold taxes due via payroll for your election, or if you will be personally responsible for them.

Once the form is complete, it’s time to prepare all the paperwork!

Cover Letter and Copies, copies, copies

Preparing to file the 83(b) election requires a bit of paperwork. This paperwork ensures you have proof of the election if it is lost at a step in the process: on the way to the IRS in the mail, at the IRS office, etc.

You will need to create a cover letter for the election (sample here  or provided by your employer). The cover letter will tell the IRS that you’d like a copy of the election stamped as received, and sent back to you in the mail. This ensures you have proof the IRS received your election request. Make sure you include a copy and a self-addressed, stamped envelope for ease.

To the IRS

  • Cover Letter
  • Original signed 83(b) Election Form
  • Copy of signed 83(b) Election Form
  • Self-addressed and stamped envelope for returning confirmation to you
  • Send to the IRS via your IRS home office location (found here for 2016). Take the package to the U.S. Post Office and attach a Certified Return Receipt (example here). This receipt will serve as proof of the post-stamp date in case the IRS claims you did not send it within the 30 day period. Keep this for your records.

To your employer

  • Check for shares (already should be with them – but double check you did this!)
  • Copy of Cover Letter
  • Copy of signed 83(b) Election
  • Copy of Certified Return Receipt

For your records

  • Original signed 83(b) Election Form
  • Original Certified Return Receipt
  • Copy of Cover Letter
  • Copy of Check for Shares
  • Stamped IRS returned copy of signed 83(b) Election Form (once you receive it in the mail)

This post does not include a discussion on the pros and cons of making an 83(b) election. This post is for informational purposes on the mechanics of the election. Discuss whether making the 83(b) election makes sense for you with your accountant or financial advisor.

Where are you in your start-up adventure?

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.
If you live in a state with it’s own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns.