Ep. #1036 - Startup Financing
In today’s episode of Startup Hustle, Matt DeCoursey and Mickey Parker talk about startup financing. Our guest is the COO of Accelefund, and he’s ready to share investment options available for you. Along with Matt’s insights, they also reveal smart tips on how to avoid pitfalls in managing your business’s finances.
Covered In This Episode
Matt welcomes Mickey to the Startup Hustle studio. And proceeds to pick his brain on startup financing strategies that involve using your retirement funds. But that’s not all there is to their session.
Get to know more about what Accelefund does for its clients. Learn what other investment options are available aside from your retirement funds. And there are also tidbits of wisdom in escaping traps that can drag your business down.
Want to succeed in managing your business finances? Listen to this Startup Hustle episode now.
- Mickey Parker’s journey (02:09)
- Is your retirement fund a bootstrapping option? (05:08)
- Other investment options to consider (06:57)
- What Accelefund help solve for entrepreneurs (09:32)
- Limitations in using your retirement fund as an investment (11:30)
- Most businesses start a business without a C Corp (13:37)
- Registering your business (15:27)
- Definition of a “rollover” for a business startup (17:45)
- Penalties incurred for an incorrect rollover (21:26)
- What happens to your retirement fund when invested? (23:22)
- How Matt used part of his retirement funds to build a business (25:58)
- Redeeming your stock before a liquidation event (27:02)
- The high failure rate in business and how it can happen (29:53)
- Mickey’s story of a client from Florida (32:39)
- How to know if your business is in the right place (34:27)
- Managing financials when running a business in the Philippines (36:01)
- How Mickey helps founders with the investment side of the business (39:39)
- Advice for those thinking of starting their own business (42:14)
Think about it as an equity investment. It’s not a loan, so you’re not going to necessarily pay anything back for the stock that’s in your retirement plan. If you sell the business, chances are you’re selling the assets of the business without selling the stock.– Mickey Parker
I don’t know what’s worse: the financial penalty or the pain in the ass. Because, for me, at this point, unwinding a ball of rubber bands is never fun at a business. And invariably, when you’ll have to do that, as you know, Murphy’s Law will dictate that it will occur when you want to do at the least.– Matt DeCoursey
We’re not in the business of helping you manage your business. That’s what you’re doing. Our side is to help you manage and perhaps mitigate any issues with using retirement plan funds to help fund that business.– Mickey Parker
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Following is an auto-generated text transcript of this episode. Apologies for any errors!
Matt DeCoursey 00:01
And we’re back! Back for another episode of Startup Hustle. Matt DeCoursey here to have another conversation I’m hoping helps your business grow. I talk to people all the time that are looking for startup financing and funding. It’s probably the most popular topic here on Startup Hustle. Outside of Startup Hustle, everyone’s trying to get funded and looking for clever solutions. We’re gonna get into that today. I really think you’ll find a lot of value in some very interesting and clever solutions for startup financing. Before I introduce who I’m having a conversation with today, today’s episode of Startup Hustle is powered by FullScale.io. Hiring software developers is difficult, and Full Scale can help you build a software team quickly and affordably. And has the platform to help you manage that team. Visit FullScale.io to learn more. That’s my company. If you’re interested in chatting, I love hearing from Startup Hustle listeners. And I really find it even more fun and enjoyable to help you find solutions. So reach out, and let’s chat. With me today, I’ve got Mickey Parker. Mickey is the CEO of Accelefund, and they are in the startup financing business. I’m not going to try to get you to spell Accelefund in your browser. So there are some show notes down there. You’ll find a link to Mickey’s company as well as FullScale.io. That’s all it takes to scroll down a little bit. Click that link and get a little bit of context about what we’re talking about. I guess I should go ahead without further ado. And, Mickey, welcome to Startup Hustle.
Mickey Parker 01:29
Thanks, man. I appreciate it. Glad to be here.
Matt DeCoursey 01:32
Well, I believe you’re in for a long time. What is this? The long-time listener? First-time caller?
Mickey Parker 01:37
That’s exactly right. Yeah.
Matt DeCoursey 01:39
Well, I appreciate the support. Mickey was kind enough to remind me of him being in person at episode 100, which was one of the very few live audiences shows we’ve done. And I was like, wow, that was four years ago. So I think both of us are better with time. We haven’t aged. We’ve just gained experience.
Mickey Parker 02:00
Right. Lots of experience. And it’s been a positive experience.
Matt DeCoursey 02:03
I agree. I agree. So, you know, well, Mickey, let’s dive right into this conversation. But let’s start with a little bit about your backstory. And what brought you to do what you do now?
Mickey Parker 02:15
Well, it’s interesting. My background is in accounting and finance. I’m a CPA, but it’s been primarily in the operations side of businesses. And I was the CFO of a small oil company in Houston, oh, 10 or 12 years ago. And as part of that process, I recommended that we expand and find other investment auctions because we were 100% in the oil business. We identified this company at the time that was based out of California that helped people use their IRA and 401K, generally, or any type of retirement funds to help start their new business and really found it fascinating. And the outside CPA for the oil company. And I went out to California, did some due diligence, and came back and said, hey, we think this to the owner, this was probably a good investment opportunity. The owner ultimately decided no, I’m gonna stay in the oil business. I don’t want to do anything outside. Well, the outside CPA liked the business well enough. He put together a little investment group, bought the business, and then came to me and said, you’ve done all this due diligence, you know, the background, you know what this business is all about? You can run it for us. So that’s how I got started at what I’m doing.
Matt DeCoursey 03:39
Well, I love the origin and backstory of so many businesses because a lot of them have started accidentally. I’m in that group. I’ve had a few of those. And then, sometimes, you just get some people that see what you want to do and make it happen. Now, part of what I’m excited about when it comes to today’s episode, I want to preface something. I’m not a financial advisor, and I’m not giving you financial advice. In this episode, I’m just going to speak from my own experience because I’ve actually utilized a method that Accelefund helps with, which is, and here’s the thing, folks, you might not know this, but you can actually use your own retirement savings. Now look, this is risky. And that’s why I gave a disclaimer. But I’ve done this before. I did it when I started GigaBook. You can use your own retirement funds to invest in your own startup.
Mickey Parker 04:28
Absolutely. And to your disclaimer, I’ll have a number of people come to me and say, I can’t believe you’re recommending people use their retirement funds because it is risky. And my response is I’m not recommending it. I’m just telling you the options available and that the real challenge is most people don’t know they can do this. So that’s what I work toward is just simply the educational part of it. Is it right for you that For that’s for the participant to decide?
Matt DeCoursey 05:03
Yeah, I agree. And I think that you know, as an entrepreneur, I, well, when I first realized that that was possible, I was kind of like, wow, you know, like, How did I not know that? I’m sure you get it.
Mickey Parker 05:16
Absolutely, I can’t go to a meeting, whether it be with entrepreneurs, VC, angel investors, bankers, and they’re like, I’ve not heard of this. And so it’s only been around three decades.
Matt DeCoursey 05:32
Well, the bottom line is, is, you know, the retirement vessels. And there are several kinds. In my case, it was a 401K that I had earned. At a company that I owned, you know, over an eight-year period, it was the company I owned, I wrote about in my book, million dollar bedroom. And you know, here I am, wanting to start something new. And I’m looking for funding. And I’m like, I don’t know if I want investors. And then I, I, it was kind of wild because it was actually me that thought about it first. So that was like cash. Can I invest my own money? Because I can buy stocks? Can I buy my own stock? I wasn’t sure, and I did a little Google searching and, you know, kind of realized that that was the thing. And I thought about it for a while. And I don’t know for me, and once again, this isn’t financial advice. I like investing in myself. I’m honestly not as entertained with the 401K retirement stuff as some people are, but that’s just me. I’m risk averse, though I am a little bit of a riverboat gambler on Sundays. And I’m also okay with the responsibility that comes with it if it turns into vapor.
Mickey Parker 06:39
That’s what I find in visiting with our clients. Ultimately, comes down to, I believe I can do a better job with my own retirement funds than putting it in the stock market or some other investment vehicle. So it gives them the freedom to go start their own business, run their own business, and pay themselves a salary to get there. Most of my clients have their families or children involved. So it’s something that allows them to create a family business with funds that they didn’t think they could use.
Matt DeCoursey 07:17
Yeah, and I know this is a little bit of a counterpoint to what you guys do at Accelefund, but you can also borrow your own 401K. I think you can borrow half of what it’s valued at and pay it back over a five-year period. Sure. Certainly. There are some other things I think you can like with buying a home and some other things. So the 401K can be useful in that regard. If you don’t feel comfortable with it. I’m an all-in kind of guy. I literally cash my whole thing. And my wife went into, I mean, it was hundreds of 1000s of dollars, but it funded a business that turned into other things for us, and I don’t regret it. Well, that’s not the case. Yeah, I don’t regret it. I questioned it a little bit during the pandemic. I was like, because, you know, the pandemic tested a lot of our resolve for, I don’t know, it made me realize, wow, it’s pretty easy to fly too close to the sun. Right? Absolutely.
Mickey Parker 08:09
And speaking of the loans, yes, that’s an option. And it’s generally an option for someone who has an existing 401K and maybe doesn’t want to quit their job. To do what we primarily do, you generally have to leave your existing job and really be all in on your own goal of starting and running your own business. But the 401 k loan option is certainly out there. And yes, I think you’re right 50% of the balance, up to $50,000, I think, is available. If you have an issue, as long as the 401 K plan that you have through that employer allows it.
Matt DeCoursey 08:53
So when people come to excel to find like, what does that look like? What is the problem that your business solves? When it comes to this whole process? Like, because there’s obviously some pitfalls, and you’re trying to avoid paying huge penalties and stuff like that, like what’s the main value problem?
Mickey Parker 09:11
Well, it’s the ability to use some existing equity that has everybody coming to me saying, How can I get this business started? Maybe they’re buying an existing business, and a number of clients are doing that. And they’ve got this nest egg sitting over here from the corporate world. Most of my clients are people that have been in the corporate world, and they’re ready to get out of that rat race and go do their own thing. So that’s what we have a discussion with him about the 401K option is available to them, Ira 403, B 457, whatever that option may be. And we talked to them about how they can do that and what the process is to be able to Do that. And ultimately, they’re going to use that 401K or that retirement money to become a stockholder. Their retirement plan is going to become a stockholder in their corporation. And by doing that, the retirement plan is going to own some stock in exchange for the cash out of the retirement plan. So the cash goes into the company, and now they’ve got the money to go start the business. Now, they might use that to just start a business from scratch. Or they might use that as a downpayment to go buy an existing business.
Matt DeCoursey 10:32
So that kind of answered the question that I have, but I want to bring it up anyway, for those that might not have picked up on that. So if I wanted to buy a Subway franchise, right, that’s that that’s fair. If I wanted to buy your business, that would work. Absolutely. What can I not do?
Mickey Parker 10:50
The biggest restriction is limiting. You basically can’t be a bank, don’t fund a business that’s going to, in turn, lend money. So you don’t want to be a bank. You can’t be receivables, factoring company, that type of thing. The other, I guess, I don’t want to call them pitfalls, but things to be aware of whenever you’re using a retirement plan. And at some point, we probably need to go through the steps involved here so that people understand. Let’s do that now. Okay, yeah. What happens if somebody says, we want to do this; I’m ready. That sounds like the best way for me to finance my business or to go buy this business. We will help them. The IRS says that you have to use a C Corp., So you cannot have an LLC, and you cannot have an S corp. C Corp is what’s required. So we will actually help them form that C Corp unless they have their own attorney or the ability to do that. That C corporation then adopts its own company-sponsored retirement plan. So we now have a really unfunded company with an unfunded retirement plan. Now that participant that that potential entrepreneur is going to roll their money over, out of their 401K out of their IRA 403 B, into the new retirement plan, when they roll it over into the new retirement plan, they’re gonna say, Mickey, I don’t want to invest in mutual funds, I could have done that, in my old plan, what I want to do is invest in the stock of the C Corp that we just formed. So we have the documentation, the stock subscription agreements, and the formal documents to show that their retirement plan is investing in the corporation. So in exchange for the retirement plan sending cash to the corporation, the corporation is going to issue a stock certificate to the retirement plan. So ultimately, rather than owning stock in Microsoft, you’re going to own stock on your own in your own C corporation.
Matt DeCoursey 12:57
Okay, so And let’s point out that that’s, you made that sound a lot more straightforward. I mean, most people that start a business don’t have a C Corp. No, they don’t. And that’s when most people start a business as well. First off, a lot of people have started a business and don’t ever get around to forming an entity, which is folks, if that’s you, you’re okay, so anytime you do anything, business, any type of business or entrepreneurial thing, like you’re, you’re by default, a sole proprietor, which is the worst format of business ownership possible. And the reason why is you have absolutely no separation between your, your, quote, entrepreneurial or business thing, and your personal life, which means if it implodes, you get sued, something happens. Now, all those creditors and people that want to collect have a direct line of sight at everything, including your retirement accounts, your house, stuff like that.
Mickey Parker 13:57
Well go back and listen to a Startup Hustle podcast from just a short time ago, you and Matt Watson discuss that exact very thing you need to have an entity.
Matt DeCoursey 14:09
I think that was the Small Business checklist one, I believe, yeah, in talking about that, and setting up a business entity is not complex. I mean, there’s a lot of a lot of things online and I’m not going to plug any of them because honestly, they’re all okay.
Mickey Parker 14:40
Like, okay, they basically send you a bunch of boilerplate stuff and they register you and get you what’s an EIN an employer identification number, which by the way, you can get on the phone call to the IRS and five minutes well, and that’s the service I mean, because quite honestly, because it’s a fairly simple process.
Matt DeCoursey 14:47
Well, that party will do that but you also have to register with like the state you’re in right like that’s all different and here’s the thing I just really think that’s that are done by people that know what they’re doing right and I don’t like the online things because they you know, they Really what happens is they send you a big packet of stuff, and you’re never going to fill it out?
Mickey Parker 15:07
Well, sometimes what we do in states where the process is pretty straightforward and most states have the online process where you can just go on to the Secretary of State’s website, and and do the do the paperwork you need, but in other states will, we will actually hire one of those outside not, not some of the ones I think you’re talking about, but but ones who actually are professional in those types of services. You know, there’s one here in the Kansas City area, and specifically, and we may hire them to go say, Hey, I’ve got a client that needs to be registered with a new corporation in South Carolina, South Carolina has a little different requirements for getting your corporation registered.
Matt DeCoursey 15:58
So they’re all different states. The thing I don’t like about the online stuff is they don’t, they really try to sell you a bunch of crap you don’t need, you know, they’re always upset like, well, it’s like a registered agent, and all these different things. And you know, like, you might need those you might not that I don’t, I feel that you kind of get signed up for a bunch of crap by default. And I’ll tell you, what, if you want to make sure your data gets sold to 10,000, different kinds of companies that are all going to just completely destroy your phone lines, you when you form a new business entity, you will never receive more phone calls in three days. Right? Because that is the hot you are the hot lead for credit card processing. As the first one, you’ll get 100 calls for that. Yeah, you gotta understand it’s all public information. It’s filed with the secretary of state, it’s public information. And on top of that, they get it even faster from the online people that register that if they’re not trying to sell it, use a credit card processing and you name it go down the line, you’ll get 200 phone calls in that first week. Right? And it’s annoying.
Mickey Parker 17:05
Yeah, it goes back to the C Corp, you know, that is a requirement of, of the IRS to do this, and we call it I think as the IRS is actually the one that kind of named, it’s called a rollover for business startup. Our OB s is the acronym, which is kind of funny, because you’re kind of robbing your 401K.
Matt DeCoursey 17:21
If you don’t need to look at it like that. You’re investing in yourself. But yeah, I think that might be the acronym to be kind of fun.
Mickey Parker 17:32
I think the IRS did that intentionally. Yeah, but yeah, I’m talking to people about Rob’s plans are OBS rollover for business startup. And, again, it’s an educational process, what what my goal is, is to let them know the option is available, does it work for them? Perhaps they have Roth funds, Roth funds cannot be rolled over into this. So if they’re primarily invested in Roth, then this is not going to be a good option for them. If they’re wanting to. We were talking earlier about some of the pitfalls, you know, are things you can’t do. There’s the IRS has what’s called prohibited transactions. And let’s not get too deep into this, but there are things you can’t do within your retirement plan. And one of the primary ones that I talk to clients about is what’s called self dealing, don’t do business with yourself. I had a potential client call and say, I want to buy a fourPlex I want to buy an apartment building. That’s fine. You’re in the property management business, and you want to use this to buy a fourPlex what you can’t do and what was an issue. He says, I want to live in one of the apartments, that becomes a no no, you can you can lease it, rent it to for unrelated parties. Don’t buy it in a college town and put your kid in one of them. That’s a prohibited transaction.
Matt DeCoursey 19:04
And we steer people away from those kinds of things. Well, this is where you want to hire experts. And speaking to experts, finding an expert software developers doesn’t have to be difficult, especially when you visit FullScale.io where you can build a software team quickly and affordably use full scales platform to define your technical needs, and then see what available developers testers and leaders are ready to join your team. Visit FullScale.io to learn more. You know maybe 15 years ago I did so much of this stuff myself. And I learned pretty quickly the value of finding experts and I’ve talked to so many people that have this level. But that lawyer charges $400 an hour. Well you’re not paying for people you’re not paying for that hour you’re paying for all of the hours that ran up to that one and the experience that came into that because the right people probably not don’t even need an hour in many cases to give you advice that is worthwhile. More than that. So like, the ability to reach out and find people that know what they’re doing is really important. Because here’s the thing, if you do this stuff wrong, there’s some pretty penalties that are stiff. Absolutely. And let’s talk about that. So we can make that aware what happens if I do this incorrectly?
Mickey Parker 20:19
Well, if you have a prohibited transaction as an example, first off, you have to undo it, which can sometimes be difficult if you’ve already spent some money or you’ve already done, if you rented the apartment, then you just get out of the apartment. But the IRS has an excise tax. And I think that excise tax is 15% of whatever the value of the prohibited transaction was.
Matt DeCoursey 20:49
So yeah, you don’t want to, you don’t want to do so possible penalties for early withdrawal.
Mickey Parker 20:53
They don’t do that correctly, they could potentially come in and say this was an incorrect rollover, we’re not going to give you the rollover benefit, therefore it’s going to be a taxable event.
Matt DeCoursey 21:02
So if you take your 401 K funds out before you’re 59, and one half years old, then that just goes out, that gets reported back as regular income and you pay a penalty on it, which depending on what your normal income looks like, could be anywhere from not much to a whole lot. And it’s really the whole purpose of the 401K. And like what you guys do in Accelefund is to maximize the pre-tax funds that you’ve been squirreling away for years.
Mickey Parker 21:31
An example is I had a client come and say I need, I need to under $50,000. And if they go and just take a distribution, and they’re under 59, and a half, where they’re subject to that 10%, early withdrawal penalty. So in addition to perhaps a 20%, state tax, or a federal tax, another 5% state tax, and now you got a 10% early withdrawal penalty, you might be paying 40% or more of that distribution in taxes. So all of a sudden, you’re down to 150,000. And that’s not what you need. Using a ROPs plan, you roll the entire 250,000 over into this new retirement plan, that’s your C corpus as formed. And now you have access to the entire 250,000. So you are using pre tax funds in order to invest in your business. So you’ve now saved $100,000. Come back to your idea of paying for it. Yes, we charge a fee for our service. But you’re gonna save. If you’re gonna save $100,000 in taxes, I think you’d be pretty happy to pay our small fee.
Matt DeCoursey 22:42
So let’s play a sunny, sunny day game here. And so now I’ve used I’ve until I like to excel fun, you guys helped me set up Rob’s plan. And I pulled this money out of my 401K. And I started this awesome startup. And then in five years, I sell it for a whole bunch of money for a lot more than the 250 Grand that I pulled out of it. What should do I have to pay back the original money?
Mickey Parker 23:15
Like what happens with like, what does that look like when things go really well think about it as an equity investment. So it’s not alone. So you’re not going to necessarily pay anything back for the stock that’s in your retirement plan. If you sell the business, chances are you’re selling the assets of the business without selling the stock. So now that stock has a significant value inside of your retirement plan. So you’ve just increased the value of your tax deferred retirement plan by that significant amount.
Matt DeCoursey 23:49
So which means that the increase in value is not a capital gain at that point, right, you can roll those funds back into, you could put them back essentially back into a traditional marketplace kind of thing, or you have the funds available to they need to be in that they stay in there. Whatever percentage of it now, and some of this case, we’re talking about starting to hold a business, maybe 100% of the shares. In my case, it was just a small portion. Right.
Mickey Parker 24:17
And let me just let me clarify. Because if you have a C Corp, and one of the kind of the downsides, a little bit to the C Corp, and we address this is that if you go sell the assets that are in that C Corp. There’s a taxable event for the gain at the C Corp level. So what happens in our case? I’m working right now with a couple of clients who have liquidated their business and they sold it. They now have $2 million of cash sitting in their corporate checking account. So what we do is essentially redeem that stock, the stock that’s held by the retirement plan. Now we kind of do the opposite of what the initial trans Actually, the initial transaction was the retirement plan sending cash to the Corp in exchange for a stock certificate. Now we’re going to do the other thing, we’re going to let the corp use its cash that it’s built up from the sale of these assets, to buy the stock back from the retirement plan in order to get the cash back into the retirement plan.
Matt DeCoursey 25:18
In my particular scenario, and I put a five year window on that on purpose that actually and where these kinds of things work out, if you were selling the stock that you had acquired, or stock in the company, like you’re exiting the whole thing, that’s actually what is referred to as a long term capital gain, which is taxed at a significantly lower level. Like if this is a big transaction, we’re talking millions here, like the thing is, if you had, so any asset you hold that is less than two years owned, it gets taxed at a regular wage. And like dividends can often fall into that category, whatever.
Mickey Parker 26:06
But in this particular case, and that and the sale of the stock, that long term, capital gain is going to be a much, much, much, much, much lower, if you believe and that’s your goal is to is to is to grow a significant business, what my recommendation is, use that cash to start your business, because you have to use the C Corp. But at some point, redeem that stock before your liquidation event. So that you may then be an LLC or some other entity when that stock event occurs. And again, I’ve had clients who had a local client here in the Kansas City area just a couple of years ago, went out and bought a business. I guess, not knowing if he’s lucky, but maybe working hard. He got some great contacts or contracts put in place. And he generated a significant amount of revenue. So what he did is come back and say, hey, I now want to redeem that stock and put the money back in my retirement plan. And it required an appraisal of that business because again, the IRS requirement is that the stock has to be sold out of the retirement plan at no less than fair market value. Well, the fair market value of a privately held company can only be determined through appraisals, there’s no public market for it. So that’s what he did. And then he ended up putting the cash back into his so now he’s running his business, through whatever entity he chooses to run it through, and has now put his money back including some additional back and does retirement once again, why we look for experts, you know how to do stuff and they’re out there.
Matt DeCoursey 27:44
I mean, there’s a ton of stuff out there. I I love the creative nature of this approach. Have you been doing this for a while, you know, like what are let’s, you know, obviously we can’t we’re not going to disclose too much information. But where have you seen uh, where have you seen a use the most? Like, what’s the most first off the most common form? Like I mean, I get it, you’re trying to start a business, but like what kinds of businesses do you see?
Mickey Parker 28:16
You know, it’s, it’s all over the, it’s all over the board, Matt. From probably the smallest I had a person just rolled over like $35,000. And they were buying a hot dog stand on the beach in Florida. So I mean, there’s a pretty simple operation.
Matt DeCoursey 28:39
I’m a sucker for a hot dog. It’s a weakness.
Mickey Parker 28:44
I mean, that’s a very simple option for somebody, I had three guys go together, they all worked at the same business. They call me and say, Hey, we want to start our own business. Can we put all this stuff together, the corporation, the retirement plan, and then we’re all three gonna walk in and quit our jobs on the same day, so that we can do our rollover. And they between the three of them rolled a million and a half to go buy this business. So what’s interesting about that case is they ended up selling that business a year or two later. And they were smart enough when they sold it to put a clause in the contract that if the company that bought it from them wanted to ever get rid of it. They would have the right of first refusal. So probably three years. Four years later, they came back to me and said Mickey, we have the opportunity to buy that business back from the company that we sold, have they ruined it and new people because I’d see that happen a lot. I don’t know if they read it. My understanding is that they just didn’t put the effort into growing, right?
Matt DeCoursey 30:00
Well, that kind of ruins it. Yeah, in some ways, an interesting story, that’s back to the $2 million book reference. So my uncle was one of the inventors of the model home concept. And housing. So you mentioned being down in Houston and Texas, and this is in the early 60s. And it was a company called General Holmes that started it, literally in a trailer, five years later, it went public. And he won’t, he won’t stick the claim to being the inventor of the model home, but it was either hammered by the other competitor. And with that, that was a new concept. But so that company went public, and he sold it for a huge amount of money in the early 80s. The people that basically the acquiring party that got the majority of the controlling stock, essentially did ruin it. And he bought it back for a fraction of what he paid, built it up again, sold it that happened one more time and did it again. So he’s basically come back in and growing and going up and down, right, you sell it for 80 million and a lot of money and 9080 something. And you know that, but that’s not uncommon. And it’s the same thing that you look at, you know, the you talked about generational businesses, the if you’re if you’re taking over your parents company, you actually have overwhelming odds of failure.
Mickey Parker 31:43
It’s and so some of that, is that people people that are buying a business or, or getting it handed down, and you say why is that rate of failure so high a lot of times is they just don’t have the passion or the vision that the original founders or owners had, well, they’ve been part of the business, but they’ve never led the business. Right. And it makes a huge difference.
Matt DeCoursey 31:49
Yeah, and there’s and that’s, you know, just kind of an interesting fact. That’s why I asked that because it’s, it’s kind of the, the trailing vapors of that.
Mickey Parker 31:59
But we go all over. I mean, I’ve had a fairy this past year, a gentleman in Florida, retired, he was a car dealer, or a general manager at a car dealer for years. But at some point in the past, they had owned a retail aquarium store. So he used his 401K to now go follow his passion in his wife to open a retail aquarium store.
Matt DeCoursey 32:25
So let’s watch the saltwater aquarium. And I will say that is on my list of worst investments possible. Oh, my God, it is expensive. And if all it thinks that I’ve had a high failure rate out that was it. Yeah, it was a struggle.
Mickey Parker 32:43
Well, I don’t know anything about the aquarium business. So most of the businesses or aquariums are a terrible investment.
Matt DeCoursey 32:47
That’s financial advice. That’s what you get right there.
Mickey Parker 32:53
But, but again, I whether it’s somebody wanting to buy a piece of property, or start something from from scratch, again, a local client who went out and and invested in a piece of equipment, and he’s doing his own thing with that piece of equipment, which means you can be a service provider.
Matt DeCoursey 33:12
Now, here’s and I don’t know if you know the answer to this, I want to put you on the spot. But I have a feeling like you can’t use this to start a cannabis business, because that’s federally illegal. Is that prohibited?
Mickey Parker 33:26
That’s a good question. Nobody’s asked me that. So I don’t I don’t know the well, that’s been such an either.
Matt DeCoursey 33:30
Yeah, I just say kind of came up because I give you a lot of context. And so yeah, I’ve been offered advisory roles in different things over the years. And a couple of them were cannabis businesses, which I turned down. I wasn’t opposed to the concept of it, it is what it is. But I was opposed to you know, there at some point you if your business, especially if you’re in the desert, a b2b model, you may find yourself in a situation where you have to attest to not being an ownership and an owner or being involved in anything that is quote, federally illegal. And technically cannabis is even though like here, we’re in the state of Kansas right now. But our neighboring states are about a month away from opening the doors on everyone walking in and buying weed when they want, you know, and with that that is technically federally illegal, the federal government just kind of we’re going to look the other way. Now, with that, I know that there are a ton of restrictions around that. My guess is that that’s probably the case because if you’re talking to your Well, these funds are saved, managed and reported on a federal level. Yeah, I bet there are probably restrictions around gambling.
Mickey Parker 34:46
It’s, you know, again, it all has to do with what is allowed inside of a retirement plan because we’re this is a retirement plan investment.
Matt DeCoursey 34:55
And that’s why public, publicly traded companies in the US can’t touch any of the Canada stuff right now because the SEC won’t allow it.
Mickey Parker 35:03
Well, you talk about using experts, you know, yeah, I would I would go, I would go to my ERISA attorney and throw that idea or do. Yeah, before I would ever talk to a potential client about being able to do that. Yeah. Yeah, I would.
Matt DeCoursey 35:21
I mentioned that gambling would come to mind, as you mentioned earlier, like the lending business, where the lending probably extends to some elements of currency exchange, because that comes up. Because as you’re aware that, you know, we’ve got 300 employees in the Philippines, and so that comes up for us a lot when it just when, oh, it comes up with banks. And we have to do a lot of international wire transfers and stuff like that. And I mean, we have to attest to the fact that regularly, whenever we do anything new with financial services, everything from like, the corporate Amex card to all of it, it always gets hung up on that international component, because they want to make sure that you’re not because there’s I don’t know, there’s I don’t know what the risk element is, without, I think you can just get yourself upside down in a hurry. Like, it’s the same thing with the lending stuff.
Mickey Parker 36:11
I think from a retirement plan standpoint, again, the IRS rule on Rob’s is you need to in your company, your C Corp needs to provide goods or services. So if all it’s wanting to do is invest in crypto, that’s probably not a, that’s not gonna fall under providing goods or services. You don’t want to fund a C Corp just to be an investor. Sure.
Matt DeCoursey 36:37
And that’s like, yeah, so the reason I brought that up is that if that’s if you’re considering any of the things mentioned, and we were sitting here, as experienced, you’re an expert on it, we don’t know the answer to it, that means you don’t know the answer to it, not you, Mickey million low listeners. So you got to find someone that understands it. Because once again, making the wrong moves with this kind of stuff. Really, it’s you know, I don’t know what’s worse, the financial penalty or the pain in the ass, because, for me, at this point, unwinding a ball of rubber bands is never fun at a business. And invariably, when you’ll have to do that, as you know, Murphy’s Law will dictate that it will occur at the time you want to do at the least, or that’s the least convenient. And I literally had to stop progress at one of my businesses for a couple of weeks once and I’ve referenced million dollar bedroom in this episode three times, it’s my book, you can go get it’s on Amazon, it’s super cheap on Kindle, too, because I want you to read it, I’m not trying to make your royalty fee on that. But, you know, with that I had just the bit you know, a lot of people start a business, it goes really quickly. And the things you don’t know, you don’t know. And then you find out you know it later and you’re like, I got a lot of stuff to write. So within that particular case, it was like commingled personal funds had gone in there and kind of lack of, of, of reconciling credit cards and stuff like that. And we had to literally just stop buying stuff, because that was a very purchase intensive business, we’re making hundreds of purchases, we bought and sold event tickets. So you know, in some days, we’d have a couple 100 purchase orders, and we’re just putting more balls, more rubber bands on the ball. So the accountant was literally like, Matt, I’m gonna tell you something that you’re going to be upset about. And you don’t want to hear but you’re going to have to stop buying stuff. And that’s kind of a key component of a business that buys and sells stuff highly transactionally. But it’s like, because if you keep doing it, we’re never going to catch up. And we need to stop and figure this out. And then you can go full speed ahead. But that was a painful moment, because we were just really kind of figuring a lot of stuff out. And by the way, I didn’t fully stop mine. Limited that a little bit I kind of find that with accountants, lawyers and other finance other service providers that like I usually do most of what they say. And then in some cases, I don’t know, it’s sometimes easier to ask for forgiveness than permission.
Mickey Parker 38:59
Well, you gotta keep running your business, too. But one of the things that we also talk to clients about is kind of this separation between retirement plan, and the operation of the C Corp. You know, we’re not in, we’re not in the business of helping you manage your business. That’s what you’re doing. Our side is to help you manage and perhaps mitigate any issues with using retirement plan funds to help fund that business. Right now. I’ll have a few clients. So maybe they’ll contact me and say what do you think of this? Or even better if somebody says, hey, we want to do this with the funds. Do you see this being a potential issue? Again, we don’t provide legal advice, but I’ll certainly share my thoughts with them and say, you know, if you think this is a real issue, you might want to hire your own legal advice, but my thoughts are, are this but that’s separate from the The operation of of your actual C Corp.
Matt DeCoursey 40:03
Now one thing I know you can do after you deposit those funds, give a seller a shot at helping you with that you can use those to hire software engineers, testers and leaders at FullScale.io. We’re here to help you know, much like the people that are on the show. We want to offer expertise, we want to give you advice and guidance, I’ll be the first person to tell you that I don’t think we’re a good fit for what you do or that I don’t know, we just we’re really in the transparent business of providing reasonable solutions and advice. And anytime you have a call with anyone at Full Scale, you’re going to come out of it with good advice and a non self serving way. Because I’ve learned that it’s I don’t know, I definitely got to provide a solution, you got to provide value. And if we don’t think we can win, we’re going with you and we’ll tell you that I don’t even want to get the project started. Because and that’s what you want to look for with good service providers, you want to look for people that similar to have an attitude similar to Mickey that are going to look out for your best interest and aren’t just concerned about fees or getting shoving you down and assembly line of billing, or added products that you don’t need and stuff like that. So you know, as we kind of wrap up the show here, Mickey I mean, what’s the here we are 40 minutes later, I mean, what are some of the key points that we went over or anything we missed on the way?
Mickey Parker 41:34
Well, I think the big thing is, number one, making sure that your listeners understand this process is available to them, make sure that you’ve got a retirement plan account, if you’re thinking of leaving your job and starting your own business, at least take a look at this option. It might not be the right thing. And as you talked about, we may feel that it’s not because we’re long term we stay with you, we help administer that retirement plan long term. So this isn’t a one time transaction for us. I’ve got clients that did this 20 years ago, and they’re still clients of ours today. So we’re going to be there. So we want to make sure it’s a good fit in both directions as well. But take a look at it, just just inquire if it’s a right fit. If it’s not, then you go look for other options or decide to take the taxable distribution and just take the hit on it, if you want to do that. Maybe if you’re going to continue your employment, the 401K If all you need is the loan, if all you need is 50,000 or 50% of your balance, that may be a good option.
Matt DeCoursey 42:53
I think on the way out, the best advice I can give is just to look at the options. You know, I think that you’re most informed decisions occur after examining the choices that you have. And, you know, you don’t have to make these decisions instantly. You know, sit back, think about it, make a move that’s the best for you, and don’t sacrifice the long term on the altar of the immediate if you can avoid it. And you know, just kind of know what you’re getting into. And starting a business or buying a business, or investing in a business is a risky proposition. And it’s especially when it comes to startups. And you know, the thing is, realistically, the odds are not in your favor. It’s kind of like The Hunger Games when you get in there. And you know, everyone’s running around and trying to stay alive and advance to the next phase and kill each other on Sundays and team up and form squads that, you know, maybe kill the other competitors. This is a real feeling in business that counts, you know, and it’s it’s a, it’s a volatile world. But on the flip side, if you do it right, in my opinion, it’s one of the most rewarding experiences and feelings that you can get. There’s a, you know, Abraham Maslow once created the hierarchy of needs. And the very fifth step and the highest pinnacle of that is self-actualization, which is defined as doing the things you always knew you could do or you’re capable of doing. And I think for entrepreneurs, that’s when you have that moment at the business, and you’re like, wow, I finally built something that’s bigger than me. And you start looking at like all of the good and amazing stuff and opportunities and like I look at how impactful what we do is in the Philippines and the charitable efforts that we do and then like here on Startup Hustle, I’ve had people reach out from all over the world like this is this shows free to like, and we have a money-back guarantee on it. So if you don’t like it, you can have a refund because, like, and that’s the thing is you know, provide value and do a lot of that, and you’ll I think you’ll find that you’ll end up getting what you want that it really does start with providing value in so many ways.
Mickey Parker 45:03
Well, I think you mentioned certainly there’s a risk involved. And I think that’s why a lot of clients are looking to buy existing businesses. I think the same can be said for this historical saying that you’re more likely to succeed by buying an existing business. And one thing we didn’t mention is people have used their 401K as an equity investment for a bank loan. I mean, the SBA recognizes Rob’s plans as a source of equity investment. So I have clients who will say, Hey, I’ve got I’m, I’m gonna go buy this business, I need an SBA loan, but the loan the bank is going to require, you know, X percent 1015 20%. And they use Rob’s plan, their 401K to provide that equity injection. So that’s also an option as well.
Matt DeCoursey 46:01
Click that link in the show notes, people. I’ll see you down the road, Mickey.
Mickey Parker 46:10
All right. Thanks, Matt.