Now may be the perfect time to consider utilizing qualified retirement funds to capitalize on your dream of business ownership. Thousands of entrepreneurs have chosen to use Rollover for Business Startup (ROBS) to start their business tax-deferred and penalty-free. To find out if this is the best solution for you, lets review the advantages and disadvantages. By Sherri Seiber

Now may be the perfect time to consider utilizing qualified retirement funds to capitalize on your dream of business ownership. Thousands of entrepreneurs have chosen to use Rollover for Business Startup (ROBS) to start their business tax-deferred and penalty-free. To find out if this is the best solution for you, lets review the advantages and disadvantages.

Advantages

ROBS is a great funding strategy in any environment, but it is particularly beneficial during downturns and periods of uncertainty. The advantages of ROBS include the following:

  • Starting your new business without debt can allow you to reach your break-even point sooner.
  • ROBS plans are tax-deferred and penalty-free.
  • There is no risk from collateralizing your home, which is required for many SBA loans.
  • ROBS plans allow you to invest in yourself rather than the stock market.
  • Credit score is not a factor in the ROBS approval process.
  • ROBS plans allow for the flexibility of using the funds as down payment for a loan.

Trade-offs

Every funding strategy has trade-offs, including ROBS. However, the trade-offs for ROBS plans are not unique to downturns or recession. They include the following:

  • Using your retirement funds to invest in your own success is a great strategy, but the risk it carries is not for everyone; retirement funds cannot be recovered if the business is unsuccessful.
  • ROBS plans entail that your business must be operated as a C corporation. Although C corps have many advantages, the guidelines are more complicated than for S corps or LLCs.
  • Third Party Administration is required to meet stringent IRS regulations. This makes it critical to partner with an experienced plan administrator.

Rollover for Business Startup (ROBS) is a unique funding strategy that works for many entrepreneurs in varied economic climates. Although this strategy seems complex, it is very simple if you work with an experienced ROBS provider to establish your C corp, facilitate your plan, and take care of ongoing administration.

– Sherri Seiber

Sherri Seiber is the Chief Operating Officer for FranFund. She and her team are passionate about designing flexible funding plans that help new and experienced business owners fund their franchises, from single units through multi-unit expansions. For more information, contact Sherri at sseiber@franfund.com or visit franfund.com.