Why use a ROBS to fund a business or franchise purchase?

Are you a wannabe entrepreneur looking to escape the “corporate grind?” Are you contemplating buying a business or franchise? Are you unsure about how to fund your purchase? The desire to strike out on your own and take control of your career is not new. As the economy begins to rebound after the devastating impact of the pandemic, many people are reconsidering their career options and seeking ways to leverage their existing assets to make their business ownership dreams a reality. Fortunately, there is a funding option that has been used for many years that can leverage an existing asset that you may not have considered: your 401K. The ROBS (acronym for Roll Over Business Startup) has been successfully used by entrepreneurs to fund business/franchise purchases for many years. Key aspects of the ROBS:

• Instead of investing your 401k in the market, you can invest in yourself by investing in your business
• ROBS is an arrangement in which prospective business owners use their retirement funds to pay for new business start-up costs 
• Owners roll over money from a 401(k) or traditional individual retirement account (IRA) into a new business or franchise (and in many cases not requiring outside financing)
• If you’re under the age of 59 and a half, any 401(k) withdrawals normally incur a 10% penalty, but that does not happen with a ROBS
• Using a ROBS enables business owners to reduce the debt that could otherwise be incurred in a purchase and reduces debt-related cash flow requirements
• There are several pros and cons to consider when deciding whether to use a ROBS to help fund your business/franchise purchase

In this series of blogs related to ROBS, we will discuss:

• The pros/cons of using a ROBS
• The process of setting-up a ROBS
• Compliance challenges/requirements and 
• Exiting your ROBS 

If you have set-up a ROBS and you are looking for expert accounting support for your ROBS, please contact Attaway Linville today at 803-831-0263 or 404-607-8400 to learn more about how we can help. 

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This is #1 in a series of blog posts about ROBS. Click below for the other entries:

#2: What are the Pros & Cons of using a ROBS?
#3: What is the process of setting up a ROBS?
#4: What are the ongoing compliance requirements of a ROBS?
#5: How can I exit my ROBS?