Fund Your Franchise by Investing in Yourself

In a recent post on this blog, we explained how our finance team can assist you with the process of finding traditional third-party financing to buy your franchise. There are also less traditional options available that we can recommend, including reinvesting funds from a qualified retirement account to help finance your franchise. In short, you’re investing in yourself.

Kevin Shaffer, our Vice President of Finance, said this is a possible alternative for franchise candidates who have significant savings in a 401k or other retirement plan, but may not otherwise have enough liquid assets such as stocks and bonds, cash savings or equity in their homes.

Kevin Shaffer, Kiddie Academy’s Vice President of Finance.

“There are a couple of options,” Shaffer said. “If you have a retirement plan through your current employer, you can borrow up to $50,000 of your plan assets. As with any loan, you’ll have to pay it back over time.” However, if you need a larger cash injection to finance your franchise and you have retirement plan funds from previous employers, Shaffer said another option may be using those assets to create a “Rollover as a Business Startup” plan. “It’s similar to investing in a mutual fund. But instead of public company stocks in a mutual fund, you’re investing directly in your own privately held company.”

The process can be summed up in four steps:

  1. Establish a corporation that has its own customized retirement plan.
  2. Rollover a retirement plan into your new company’s plan.
  3. Your new plan then buys stock in your new corporation.
  4. That gives the new company the capital to use for purchase and/or other startup expenses.

Shaffer advises that because of legal complexities and ongoing maintenance costs, franchisees use a third-party to properly implement this approach. “We typically refer people to one of our preferred vendors that we’ve found to be successful in helping franchisees with this option. They help set up a legal entity that has its own retirement plan. They’ll rollover existing retirement plans into the entity’s plan, which then invests in your franchise.”

He admits that some people initially balk at this option, thinking they’re dipping into their retirement savings. “It’s not diminishing your retirement account. It’s redirecting your retirement funds to work in a different manner.”

Keep in mind that this is just one of several financing options available to prospective franchisees. Our team can provide advice on what might be available to you, but the ultimate decision is yours to make.

Our finance professionals can provide information on using retirement funds for a franchise purchase and provide an introduction to our preferred vendor if this is an option you’d like to explore.

If you’re interested in learning more about owning a Kiddie Academy franchise, fill out our confidential Preliminary Questionnaire.

For more information:

Using Your Retirement Funds to Buy a Franchise,” International Franchise Association

Finance Your Franchise with Retirement Funds,” Entrepreneur.com

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