Guidant Financial Group Blog

In the February issue of Entrepreneur Magazine, you will find a nice little expose on Guidant Financial Group (see What to Do When the Bank Pulls Your Line of Credit).

And by expose, we mean, paragraph. Well, two paragraphs, but who’s counting? Besides us, we mean.

Although short, the couple paragraphs dedicated to Guidant pack quite a bit of punch. The article, as you can tell from its title, focuses on the options a small business owner has should the bank pull their credit line. One of the unique things about the Guidant option that is hinted at, but not touched on by the article, is that investing your retirement funds into your business can not only help your business, but it could help your personal financial future.

As our Cofounder, David Nilssen, points out, the Guidant 401(k) Small Business Financing program is not to be used as a last-ditch effort to save a failing business. That being said, should the bank pull a credit line from a well-performing enterprise, investing one’s retirement funds can not only be a good move from the business’ perspective, but it could also be a prudent investment. Just think, as your business grows, so does your retirement account!

Many of the other options the reporter lists involve borrowing against other assets – or even assets that they don’t yet have (such as payables). The idea of opening up another credit line after one bank has just closed one down cannot be very appealing to many people.

We are honored to be a part of Entrepreneur’s list of solutions for small business owners who face this all-to-realistic dilemma. And, especially for owners of otherwise prospering businesses, we believe that investing your retirement future into the future of your own business is a pretty darn good alternative!

While we’re not in love with the word-choice for the article’s title, we do like the fact that CNN.com highlighted Guidant client Paul Cardosi’s success story.

Raiding the Retirement Fund to Keep the Business Afloat mainly focuses on entrepreneurs who took advantage of their funds the old fashioned – and very expensive – way (aka: a distribution). And, as the title alludes, financing or bailing out a business this way can leave a person in debt and with no retirement account.

The great thing about the Guidant solution is that it alleviates both of these problems. Because the retirement funds are invested directly into the business itself, there is no expensive distribution and the retirement account stays intact – and, if your business goes well, it continues growing!

We wish the reporter had lead off with Cardosi’s story, as it would have been a much more enlightening tale, but we are glad that main-stream media is finally taking notice of this unique financing option that’s been available for many years.

Cardosi, after spending 28 years in the corporate world, came to Guidant to invest his 401(k) into a self-storage business in Phoenix, Ariz. Six months after making the initial investment, Cardosi’s business is up 200% from when it was sold by the previous owner.

“The 401(k) owns the majority of the business,” he told CNN. “I haven’t lost the money, I just invested it. When I sell, the money goes back into the 401(k).”

Now, how many of you can say your 401(k) just made a 200% return on investment?

Word on the street (Wall Street, that is) is that REITs may finally be seeing some increase in value. This is good news because anything real-estate related seeing some kind of increase could be a sign that the US economy is stabilizing.

In a recent article by the Wall Street Journal (see REITs: Better but Not All-Clear), REITs were highlighted as an investment opportunity on the rise. In fact, the Dow Jones All REIT index, has doubled since last spring. That being said, though, the very same index lost 75% of its value between February 2007 and March 2009.

The interesting thing about this article, to us, is how much talk there is about the premiums put on REITs for speculation. The reason many people come to Guidant to explore a self-directed IRA for real estate investing is because the speculation is largely taken out of the equation.

Don’t get us wrong, there will always be some sort of speculation and calculation involved in any kind of investment, but the fact that this article has to point out that “REITs now trade at a roughly 20% premium to the net value of their real estate,” makes us want to roll our eyes. Several times.

What does that even mean? 20% premium for what?

According to the article, it’s a premium for optimism; Optimism that the commercial market is on an upturn.

Would you like to pay a premium for optimism?

Maybe, but we’ll bet that you’d rather pay a premium for real returns. It’s exciting that there’s a positive rumble around REITs – because that means that there’s a positive rumble around real estate. But, for our self-directed IRA clients who invest in real property, this is even more exciting. For them, this rumble really can become a reality.

Guidant has been selected as the exclusive financing provider for NextBigFranchise.com, an online resource for prospective franchisees. Click here to check out the story!

Marc Kieckenapp, CEO of NextBigFranchise.com, explains that he chose Guidant Financial Group as the site’s exclusive financing partner because they are the leading provider of franchise financing services in the country. “While there are many companies that provide a service,” he says in a press release on the new partnership, “Guidant is one of the few that offers an array of franchise financing solutions through the industry’s most experienced team of consultants.”

Conversely, Guidant is equally pleased to have been selected by NextBigFranchise as their financing partner because of the unique prospective the website has on the franchise buying process.

NextBigFranchise.com is the only web portal that offers video as a way to explore different franchise opportunities. “We are in a time when people want to ‘look before they leap,’ if you will,” explains Guidant Cofounder David Nilssen. “With the use of video, NextBigFranchise.com can provide prospective entrepreneurs with a level of information and discovery currently unavailable in the marketplace.”

With the way the economy is going, we can’t help but believe that by providing prospective entrepreneurs with the resources they need to realistically consider self-employment we can do our part to help resuscitate America.

“While asset values have come back, consumer confidence is up, and the economy is turning a corner, both rising unemployment and a credit crisis continue to affect us,” explains Nilssen. “There are millions of Americans who could pursue self-employment but who don’t understand how to get started, or how they might finance a franchise.”

And that’s why we’re so excited about our new relationship with NextBigFranchise.com. Check it out!

Investing Retirement Funds Into A Business Has Rewards & Risks
By David Nilssen & Jeremy Ames, Cofounders of Guidant Financial Group

Ten Tips for Investing in a Business with Retirement Funds

1. Don't consider if you have less than $35,000. If you have a smaller amount of money it is likely easier and cheaper to take a distribution and how you are able to use those fund is more flexibility. Investing in your own business can be a great option if you have a solid model and a great business plan. Do not base your budgets on optimism alone.

2. Work with an outside tax attorney and CPA. If you choose to invest your retirement funds into a business you must follow the guidelines detailed in tax law and those governing retirement plans. Make sure you work with your own independent counsel to determine whether this form of investing is right for you. Along with your attorney, your tax professional must understand and embrace this strategy to adequately serve you. They must understand that your IRA's needs are different than yours and should be treated as such.

3. Understand the risks. When Enron collapsed, many people who had invested in company stock lost their investment. It was not taxable - but it did disappear. Understand that a business can fail and any money invested is exposed to this risk. While it is possible to invest up to 100% of your retirement funds into a business without paying taxes or penalties – once again, it is only you who can truly decide to make that leap. You have to objectively take a cold hard look at the facts. Ask the experts. Once you have done all that, it is up to you to decide. You must decide whether it is a prudent way to invest your retirement savings. Thousands of entrepreneurs invest their retirement funds into a business each year because they believe there is no one they would rather invest in.

4. Create a solid business plan. If you neglect to create a business plan for success – you indirectly create a plan for failure. The need to succeed is heightened by the fact you are investing a portion of your life savings into the business or franchise. After all, it’s not just anyone’s money, it’s your future! Make sure that you have built a solid business plan to grow your investment. Also, however long you *think* it will take to turn your first profit, plan for a longer runway. Most businesses produce negative cash flow in the beginning and that’s ok - remember, you planned for this. Whether you are buying a franchise or starting a business, plan for the "runway to profitability" to be slightly longer in the current economic environment. The number one reason businesses fail is not because they were a bad idea, but because they were undercapitalized. Make sure you have time for the investment to realize a return.

5. Build an advisory group. Make sure you have experienced counsel for your business transaction. Attorneys, CPAs, consultants, brokers and other experts specific to your business’ sector play a vital role in helping you identify, evaluate and acquire a great small business or franchise concept. Post-acquisition, you should build a support system of advisors who can help you nurture the business investment.

6. Treat it like a business. This is not monopoly money and you cannot treat the business' account as an extension of your own. The retirement plan will become an outside investor and thus the funds need to be treated as such. It might seem an unfair barrier, but it will keep your retirement plan and the business on the path to prosperity.

7. Verify the business' value. It is imperative that you purchase the business at fair market value (or less). Don’t underestimate the value of seasoned experts. Cheaper is not necessarily better—this is another step where you want the best professional help. If you are purchasing an existing business you should get an appraisal.

8. Select a firm carefully. There are very reputable firms with a proven track record that are capable of helping an individual correctly invest their retirement funds into a business. Investing your retirement funds into a business can be a phenomenal tool for building wealth. If done incorrectly, the taxpayer could be liable for taxes for early withdrawal. Work with a company that is experienced providing annual recordkeeping services and performing compliance testing for your specific plans.

9. Buy something with a track record. There are thousands of successful businesses being sold on any given day. There are many existing franchise concepts that have years of good history of driving positive cash flow to business owners. Check out the business model they have followed to get where they are. Many times, that is where you will see the best odds for success in the future.

10. Invest your retirement funds into a business only if YOU think it’s a great investment. The IRS is on the lookout for individuals who are abusing these laws to buy businesses simply to pay themselves a salary. You should have enough savings to live off of until the business is producing enough income to pay a reasonable salary. If you buy a solid business, have a great plan and execute with precision – you can be very successful. There’s a reason the small business is the backbone of the American economy, and it’s not creative bookkeeping.

To Learn more about investing your IRA into a small business, contact one of our experts at 888.472.4455.  Or visit the Small Business Financing section of our website.

2010 will be the year of the entrepreneur. We are so confident that this will be the case that our cofounder David Nilssen has announced this affirmation to the entire world. Literally.

In a recent press release, Nilssen announced to the gossip engine that is the US Media that 2010 will be the year that American small business owners become the next Great American Hero.

Not only is this because so many big business are failing (or have already failed), but because so many key indicators are pointing toward a more friendly landscape for the small business owner in 2010.

To read more about why 2010 will be a year to remember – a year that we tell our kids and grandkids that American small business had a victorious revival, click here. Still not convinced you need to click the link? Well, here are some teasers from David’s top ten entrepreneurs and small business owners will be the US’s ticket out of a recession:

10. The jobless recovery will continue to be slow, and jobless.

9. Small service businesses have the advantage of being able to rely on “local marketing.”

8. Small businesses will start spending money again – and they know how to spend it smartly.

7. Growth in the 401(k) Small Business Investing industry will continue (P.S. Since this is our particular area of expertise, we thought we’d add some more info on this: Did you know that the Guidant 401(k) category of our business has grown 1,250% since 2005? Woah. That’s a lot.)

6. SaaS and Managed Services will give small companies the ability to compete with the big boys.

5. The government has created a secondary market for loans to small businesses, TARP funds.

4. Big lay-offs in 2008-09 will leave large service gaps in bigger companies that will need to be filled by an outside source.

3. While interest rates for small business loans will increase, more opportunities to acquire funding are available - with retirement fund financing being key.

2. Experienced and well-educated professionals will move their retirement funds out of the Wall Street roller-coaster and invest their retirement savings into themselves.

1. A record number of new small businesses will be started in 2010.


Wanna read it now? Here’s the link again.