What is a true ROBS upside to you? In our last post, we looked at the downsides. Now, let’s look at what works well about creating a business with ROBS funding. A Valentine’s day sunset champagne toast at the Paresa resort in Thailand as a bonus for a successful year?
Most people see ROBS as a way to obtain financing – an upside in itself these days! – while avoiding the interest rates of commercial loans. True, without a loan, next month you have no interest payment to make. This is the most common upside to setting up a ROBS transaction. With a ROBS you can create so much more! Here are three other upsides for your consideration.
ROBS Upside #1 – Your Own Stock Market
What were your retirement funds invested in before you transferred them into your ROBS 401K plan? Typically some combination of stocks, bonds, and mutual funds. Your retirement funds are now invested into your own corporation. Your small cap corporate stock, which comes with all of the risk and reward potential of this category. Do you understand the potential of this investment? I have clients who realized more than a 5,000% increase on their investment. Rare, but it happens. Can you can create a 500% increase in the value of your retirement account’s investment? Yes. Guaranteed? Absolutely not.
An early client of mine invested $100,000 into a pool cleaning business in southern CA. He provided reliable service at a good price. In addition, he employed the right people to clean pools while he managed the growth of the business. Along the way, he created written operating procedures, a huge client list, and sold his business years later for about $1M. The Plan realized a 1,000% gain and, most noteworthy, paid no capital gains tax. The best publicly traded investment portfolio, with exact timing for buying and selling, is not likely to create this level of return in less than 10 years. He did not become a stock trader. Rather, he did what he knew best. He grew his retirement portfolio better than the best money managers could have.
I encourage all of my clients to look at their business selection from a plethora of positions, including their stock investment. What is your ROBS upside? Does it motivate you to get up in the morning to work on your business?
ROBS Upside #2 – Your own Paycheck
Business owners pay themselves last. That is the reality of owning your own business. However, by “last”, we mean what’s left over after all of the bills are paid (including wages of other employees, taxes, leases, etc). What if “what’s left over” is a big number? On the upside, how much are you allowed to pay yourself? Too much money at the end at the year is a great problem to have. I strongly recommend you find a CPA you can trust to talk you through the different choices available to a corporation flush with cash.
Consequently, you decide your own salary, bonus and benefit package. Some of my clients pay themselves $0 because that is what’s left over. Others make as much as multiple six figures. Have a chat between yourself as employee and employer. What do you want as employee? You can say yes to yourself.