Using ROBS Funding to Facilitate Franchise Unit Growth

Apr 23, 2019

IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses.  The following blog has been provided by Rod Bristol of Profit Soup (

Using ROBS Funding to Facilitate Franchise Unit Growth

If you are planning to open new units in 2019, or perhaps expanding into a new brand, you might consider Rollovers for Business Startups (ROBS) funding. As the name suggests, it is often thought of as funding available only for new businesses, however the same principles for startups can also be applied to expanding your existing operation.

This could be a possibility for if you left your corporate job years ago, and still have that IRA or 401(k) sitting there that is not growing at a level that you would like.  It could be used to fund your own growth.

Because of the tax benefits, many Americans have a significant portion of their savings in retirement plans.  Without the proper structure, using these funds can result in significant tax and penalties.  Using the ROBS structure can avoid these penalties and defer the taxes.  Typically, ROBS funding is best used in conjunction with an SBA loan.  This is not borrowing against your 401(k) and therefore is not subject to the $50k maximum and that you can use up to 100% of your funds.

Benetrends has been a multi-unit funding resource for more than 35 years and were the original pioneers of the ROBS strategy.

According to Dallas Kerley, CEO of Benetrends, “It is critical to have a strategic funding plan in place to open multiple units, if you fund the first unit the wrong way, it makes opening subsequent units more difficult or impossible.”

For example, if you are funding a 3 pack, pull out enough money for the cash injection on an SBA for the first unit, leave the remaining balance in the retirement plan.  The bank cannot collateralize the funds in the retirement plan, so those funds will be available for the subsequent units.

When it comes time to fund the second unit, take just enough cash out of the retirement plan to fund the second unit either in its entirety or in conjunction with a second SBA loan.  When it comes time for the third location you can use the remaining funds from the retirement plan.

If the first unit is cash flow positive, try to get an expansion loan of the first SBA loan thus requiring a smaller cash injection than the alternative of seeking a third loan.

ROBS doesn’t fit everyone

While ROBS is an attractive option for many business owners, you should verify whether it fits your circumstances and business needs.  Here are a few signs that ROBS might not be the ideal fit for funding your business:

You have less than $40,000 in your IRA or 401(k) account, or you need less than $40,000 to expand your business.

Your retirement account is sponsored by a current employer, and you’re not expecting to leave that employment.

Your retirement funds are tied up in a non-tax-deferred retirement account such as a Roth IRA, a non-spousal inherited IRA or annuities with surrender charges.

You plan to grow your business with a partner who is not willing or able to invest financially in the business.

Here are the 4 basic steps to complete a ROBS financing plan

1:  Set up a C-Corporation

The process begins with establishing a new corporation using the proper legal structure to support the establishment and operation of the company’s qualified retirement plan.

2:  Design a New Qualified Retirement Plan

To avoid early withdrawal penalties and preserve tax-deferred status, you need a new retirement plan to move your funds into.  You are probably not a retirement-plan expert, and setting up a compliant plan takes expertise. Working with advisors who have extensive expertise in setting up retirement plans for all types of businesses can help ensure you derive the most value for your plan.

3:  Transfer your Retirement Funds into the New Plan

After your corporate retirement plan has been designed, you’ll need to identify an appropriate plan custodian. This custodian creates the new corporate retirement plan account according to the design and specifications developed by you.  Your plan custodian will work with you to fill out temporary IRA documents. If you’re rolling over funds from an IRA, your plan custodian then initiates the movement of those funds. If you’re rolling over funds from a 401(k), you must initiate that rollover.

4: Use the Retirement Plan’s Funds to Launch your Business

Finally, rollover contributions can be invested in the stock of the new company that sponsors the retirement plan. If you or other plan participants direct an investment of your rollover contribution in company stock, the plan then purchases stock in the new company. The company stock purchased by the plan is credited to the individual accounts of plan participants per their investment decision, and the plan can now invest in the newly formed C-corporation. This means your new corporation now has the capital to start, purchase or recapitalize a business or franchise.

ROBS financing can be complicated, however the benefits in reduced interest payments can significantly help cash flow as you expand your business.

Rod Bristol is the Director of Business Development and a Presenter at Profit Soup, a financial education organization specializing in franchised companies. Profit Soup services enable franchisors and franchisees to trust their numbers, focus on priorities, make better decisions and earn more profit. They include conference keynotes and workshops, benchmarking, state of the art online financial education ( and executive coaching. Rod can be reached at or at 206-427-5333.

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