A Rollover as Business Startup (ROBS) is a method of business capitalization that allows you to start your new small business or franchise debt-free and penalty-free using the funds you’ve saved for retirement. Although ROBS is a great funding mechanism for many aspiring entrepreneurs, the concept is not well understood. There are many misconceptions surrounding the model that might dissuade entrepreneurs from using it to fund their businesses.
One of the biggest points of confusion surrounding ROBS is what business owners are legally allowed to use the money for when starting their business. The truth is that ROBS funding can be leveraged for almost any business expenses as long as the account is structured and administered properly.
Here are just a few key ways you can use ROBS funding for a small business or franchise.
- Purchasing property: Buying property for a business is one of the biggest hurdles to overcome as a business owner. Funding through ROBS can be put toward the purchase of a business location so you can start off right with a space of your own without needing to navigate leases and high rents. However, if renting a space makes more sense for your company, ROBS funds can be used for rent, too.
- Buying equipment and startup supplies: Every business needs some things to get up and running, whether that’s equipment and machinery or inventory. New entrepreneurs can put ROBS to use to tackle the miscellaneous start-up costs of their business and ensure they have everything they need right away.
- Paying yourself a salary: Many people think that ROBS funding can’t be used to pay themselves a salary as the owner because it benefits them personally. However, this isn’t true. ROBS allows you to take a salary as long as you are an active employee of the business. The salary you pay yourself might be subject to scrutiny if it’s too high, but you can work with your ROBS administrator to ensure you’re following the IRS guidelines.
- Hiring employees: ROBS can also be used to hire other people if you need some extra help to get the business running. Full- or part-time employees can be paid in the same way as you by using funding from ROBS. Remember that all employees must be offered the opportunity to invest in the company’s retirement plan, as well.
- Recapitalizing a business: While ROBS is often used to start a new business or purchase a franchise, the funding model can also be used on existing businesses. If your company needs a cash injection to overcome a growth hurdle, ROBS can recapitalize the business in just a few short weeks. This may be a great choice for businesses on the cusp of growth, since the money will not need to be paid back.
Key in mind, a ROBS funding plan to buy or start a new business or franchise is not a loan. There’s no repayment schedule, interest being charged or collateral required. You’re literally taking your existing money from your qualified retirement fund and choosing to reinvest it into your new business or franchise. What’s more, a ROBS plan is very flexible in that you can use more than one retirement account – such as two of your accounts or possibly your account plus your spouse’s account – to do the Rollover process. Lastly, and one of the most attractive benefits of using a Rollover as a Business Startup Funding plan is the ability to use these Rollover dollars as the non-borrowed equity injection that is needed for most loans (such as an SBA 7(a) loan).
ROBS gives aspiring business owners the opportunity to start their small business free of debt and fees while putting their hard-earned retirement funds to work. If you’re interested in learning more about how to open your new business or franchise using ROBS, contact Tenet Financial Group today.