Should you join a senior care franchise?
A recent report by the U.S. Census Bureau has revealed...
If you are giving consideration to your long-term career path and have decided to leave employment to pursue entrepreneurship, you may be wondering whether there are any innovative ways in which to fund your business venture.
One option worth considering is using your 401K.
.
What is a 401K?
A 401K is a plan offered by many employers that allows their employees to save for their retirement, investing a portion of their paycheck in mutual funds or stocks in the company before their taxes are deducted. By transferring these funds to a new retirement account, you benefit from greater flexibility in how you invest those savings, including using the rollover option that allows you to invest in your own business.
.
How do you invest in your own business?
You can use your retirement funds to start or join a business by creating a C Corporation as a separate legal entity from yourself. Once this is established, you need to set up a new 401K plan, into which you will transfer your funds from your existing 401K to use to purchase stock in this new C Corporation. This provides you with the capital you need to fund your new business venture. By using your funds in this manner, you are able to avoid incurring early withdrawal penalties.
.
Sounds scary?
If this sounds a bit scary, you are not alone. Although it is a reasonably simple solution to accessing your own funds to start your business, many people are deterred by the perceived risk. It is important to discuss your options with a professional accountant or financial advisor, particularly if they have expertise in the field of franchising, so they can explain in more detail how this strategy works and whether it is suitable for your specific circumstances.
.
Alternatives do exist
If you decide not to touch your retirement pot, you will need to fund your franchise dreams in another way. You could consider getting a loan, seeking financial support from your intended franchisor, or applying for a grant if one is available for the type of business you wish to establish or buy into.
Again, your accountant or financial advisor will be best placed to advise on your specific circumstances. Franchisors are used to supporting their franchisees in getting started, so do not be afraid to ask them what support they offer to incentivize franchisees to join them.
Be sure to keep records of your investment decisions, loans and agreed repayments, and factor these into your financial planning so you do not inadvertently end up in the red.
.
