PROSPECTIVE FRANCHISEES BENEFIT FROM ENORMOUS GROWTH IN RETIREMENT SAVINGS

The Investment Company Institute’s latest research shows that over $16.4 trillion is held in retirement savings. This number is up 55% fom 2002. Over $8 trillion is held in IRAs and 401(k)s with the rest invested in annuities and private defined benefit or government pension plans.

During this same period, the Franchising industry has also experienced monumental growth. In 2006, many franchisors and consulting firms reached record targets as the economy and interest in entrepreneurship continued to rise. The rise in both retirement accounts and Franchise purchases may not be mere coincidence.

Forecasters speculate that the Baby Boomer generation is being drawn increasingly toward self-employment. Many realize they haven’t adequately prepared for a life tied to a fixed income, while some relish the freedom that business ownership brings, and others simply choose to be active during their “golden years.” In fact, since 1999, surveys conducted by the AARP have regularly shown that the as many as 80 percent of Baby Boomers wish to work during their retirement years.

Starting a new business alone can be intimidating. Consequently, many find comfort in using a franchise system that has already proven successful and that provides practical as well as moral support. An influx of Baby Boomers is swelling the ranks of franchise ownership.

At the crossroads of growing funds and Franchises are a handful of retirement account facilitators who are enabling individuals to purchase a franchise and/or business using their retirement funds without taking a taxable distribution or incurring penalties. These firms are helping people go into business for themselves before retirement age via equity from their retirement plans, instead of debt from high-interest loans. Today’s larger individual retirement accounts mean that more retirement monies are available to those who wish to take advantage of this financing option.

Once in place, the system is very simple to operate and provides incomparable benefits to the franchisee. Using a combination of a C Corporation and a 401(k), account holders can redirect up to 100% o their retirement savings into a new 401(k) plan that invests directly into the new business. It’s very similar to investing retirement funds in shares of a publicly traded company, except, in this case, it is a privately held entity – a corporation created specifically for the account holder. After making the investment into the new corporation, that corporation then can purchase a franchise. If the purchaser holds enough money in their retirement account, they may be able to purchase the franchise outright without taking on debt. Should they require additional capital, this structure allows for leverage or for multiparty purchases.

The purchase is considered a legitimate retirement account investment, not a loan or distribution. Consequently, there are no terms, no payments and no taxes. The money saved by avoiding debt and interest payments can be reinvested in growth initiatives for the new enterprise.

The upfront benefits are obvious, but those purchasing a franchise in this manner can expect additional benefits over time, including lower business overhead, less (or eliminated) personal liability, tax-deferred savings, and a retirement account that grows along with the success of the business.

Whether looking to buy a franchise, or advising someone who is, those exploring financing options owe it to themselves and the successful growth of the franchising industry to explore this unique option.

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