Guidant Financial Group Blog

Rollovers for Business Startups (ROBS) are helping to create businesses that in turn create jobs.
ROBS are here to stay.

By: David Nilssen, CEO & Cofounder of Guidant Financial

Guidant Financial held its annual party at the Museum of Flight on January 29, 2011, in Seattle, WA. We celebrated a year of tremendous growth (up 30%), applauded our clients’ successes and recognized the team members who made—and continue to make—Guidant a company we’re proud to say is “ours.”

In my closing comments, and inspired by the Museum of Flight, I found myself talking about the Wright Brothers and how they changed the world forever. While historians acknowledge they weren’t the first to fly, they are credited, however, with launching an industry that has changed the way we travel, do business, communicate and socialize forever. Early on, skeptics said that commercial flight would never be popular or successful. History (not to mention my frequent flyer card, which racked up over 150,000 miles last year) has proven those skeptics wrong.

The story of Guidant shares parallels with the story of the Wright Brothers. While Guidant was not the first company to help individuals invest their retirement funds into a small business or franchise, we have, however, become the largest provider of such services and are changing the way people fund a business. Early on, skeptics said that large numbers of people would never invest their IRA or 401(k) into a business or franchise, yet we have helped more than 5,000 people in all 50 states invest more than two billion dollars through Rollovers for Business Startups (ROBS) . . . and that amount keeps growing.

Just as skeptics once warned that flying was far too dangerous, so too, skeptics today warn that investing retirement funds in one’s own business is far too risky. To be fair, flying does have its risks, although far fewer than those associated with riding in a car or eating double cheeseburgers every day. And any investment or business startup also has its risks. But Guidant’s census data demonstrates that a franchisee or small business owner who launches their business with an IRA/401(k) investment has a 63% greater likelihood of success than a small business owner using traditional funding.

We don’t claim to know all the reasons for this advantage. What we do know is that a majority of our clients buy their business in cash and do not tie their credit or other personal assets to the transaction. This means they don’t have to service debt payments and are significantly invested into the company. It means they don’t have to jeopardize their home or pay high interest costs. It means they start out with more capital to spend on advertising, equipment and hiring the best employees.

In today’s economy, ROBS transactions are helping to create businesses that in turn create jobs. ROBS are here to stay.

Before I continue, let me take a moment to acknowledge the elephant in the room: ROBS is a horrible acronym! Here at Guidant, we prefer to call our ROBS transaction iFinance. This product name expressly describes the individual’s participation in funding the transaction with their own money, and it speaks to the sense of empowerment that accompanies this funding strategy.

ROBS transactions generally involve five steps which, although complex, can be completed here at Guidant in less than three weeks:

There are many reasons why an entrepreneur would choose to invest in their own business. These reasons may include, but are not limited to:

In 2008, the IRS circulated an internal document called “Guidelines Regarding Rollovers as Business Startups.” In it, they were critical of how some companies promoted such funding vehicles and how some individual business owners operated them. We share their concern. There are many ways that an entrepreneur can put their plan at risk. The good news is that those risks can be significantly reduced by working with a financial firm knowledgeable about and experienced in ROBS structures.

More good news is, this document also acknowledged that this type of structure was not “per se” non-compliant. Let me explain: When properly structured, there is no question that it is legal to invest retirement funds into a business. It is not a loophole or a tax shelter. Guidant provides recordkeeping services to thousands of small business clients. Since 2008, ten of our clients have been audited (Ironically, this percentage is even lower than the average percentage of new businesses in the U.S. expected to be audited annually) and all ten have received “no-action” letters from the IRS. This means that the IRS examined the client’s investment structure yet chose not to take any action against the setup. Why? The Employee Retirement Income Security Act (ERISA) gives explicit permission to make such an investment when it is structured correctly, operated in accordance with the law, and utilizes stringent compliance measures.  Guidant’s commitment to these high standards is paramount.

In 2008, while the IRS informally released their position in the “Guidelines” document, we anticipate that the Department of Labor will also opine on ROBS in the future. Guidant continues to work with our legal representatives and congressional allies to ensure that Rollovers for Business Startups remain a viable and safe way to invest in one’s own small business or franchise. In 2010, Guidant invested nearly a half-million dollars into telling the stories of the tens of thousands of entrepreneurs who opened businesses with ROBS transactions and created hundreds of thousands of American jobs. 2011 will be no different.

You, too, can expect to hear more from Guidant. A big part of our work at Guidant is to educate the public about the benefits and drawbacks of nontraditional small-business financing. This includes keeping you, regulatory agencies, small business, the franchise industry and potential clients up-to-date with accurate, up-to-date and unbiased information about ROBS.

Remember the old carnival game of throwing darts at a board covered with balloons? I loved the exhilarating sound of that pop! when my dart burst the balloon, revealing my prize. Whether through innocent misconceptions or intentional misrepresentations, plenty of “balloons” are floating about these days filled with lots of hot air and inaccuracies about ROBS. I’ve always been a bold carnival game player, and like that kid standing in front of a wall of balloons, I’ve got the dart and I’m eager and ready to take aim.

You’ll be hearing from me again.

Read more about ROBS:

Paying Yourself a Salary

Is An Appraisal Necessary?