The Art of Using Retirement Funds for a Franchise Purchase (ROBS)

We’re going to talk a little bit about a unique financing option for franchisees known as Rollover for Business Startups or, ROBS, for short. A FranNet finance partner, such as Guidant Financial, can assist with this endeavor, but what’s it all about? Not to worry, we have the explainer here, down to the last detail.

FitSmallBusiness.com has a very useful definition of what a ROBS maneuver is and how it might apply to your desire to fund a franchise on your own. Taken from this April 2018 article, it defines a ROBS technique this way:

“A rollover for business startups (ROBS) is a way to invest funds from your retirement account — like a 401(k) or individual retirement account (IRA) — into your business without paying early withdrawal penalties or taxes. A ROBS isn’t a business loan or a 401(k) loan, so there’s no debt to repay or interest payments to make.

Studies have shown that business owners who use a ROBS often see higher success rates than those who rely on traditional business financing. However, getting a ROBS is unique to your situation. That’s why it’s important to consult with an expert to see if a ROBS would work for your business.”

Utilizing a ROBS technique provides an IRA holder with access to their own retirement funds. Applying this strategy, a potential franchisee could fund a business of their own without technically borrowing or cashing out their retirement account. When you use this option to fund a future business of your own, it’s your own retirement funds that will end up owning the shares of your new operation. Technically speaking, you’re just rolling the funds over for your own use.

It goes without saying that this is not an avenue to take without professional guidance—either from franchise funding specialists or the advice of a qualified FranNet consultant. We’ve helped many a franchise candidate fund a business by going this route and we can do the same for you. Before putting a ROBS into action, there are qualifications you must meet, along with specific steps in the process that must be followed to the letter of the law—literally. Compliance is extremely important.

As with any franchise financing option, there are pros and cons in deciding whether or not a ROBS strategy is right for you. On the plus side, using ROBS to fund a franchise means no debt or interest payments on the money you invest in the business, leaving you with a healthy cash flow. And, you won’t be taxed for an early withdrawal of your retirement funds. On the flipside, the ROBS strategy puts in place a few caveats which must be administered correctly, some of which may detract from time spent building your business or franchise operation. As with any business venture, there is always the mitigated risk of loss, which must be considered.

Getting back to the bright side, studies have shown that candidates who implement a ROBS strategy have a fairly high rate of success. A study by FranNet financial partner Guidant Financial shows that over 80 percent of businesses and franchises utilizing this strategy were still operating after four years, likely due in part to having critical cash flow on hand.

If you’d like to see if the ROBS strategy is right for you, a FranNet consultant can help determine if you meet the stringent requirements and guide you through the process. All it takes is a no-cost, no-obligation visit with a representative who both lives and works in your area.

Let’s chat! There’s a local FranNet consultant right in your market who knows that market inside and out – knows the personality of the market – knows the competitive landscape. FranNet has a great track record of assisting individuals on their path to entrepreneurship, and one of our franchise experts would love to provide you with guidance free of charge. Sound like something you might be interested in? Get started here and find your local consultant right now!

 

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