Two of the largest groups of buyers who are purchasing businesses in the Truckee Meadows are investors and career changers.
Because of the recent volatility of the stock market and corporate corruption, many investors have realized that as a business owner, their return on their investment can be significantly greater when successfully operating their own companies.
Career changers are former middle managers and executives who have taken early-retirement packages and are eyeing the advantages of being in business for themselves.
RGJ.comToday, more and more of these types of buyers are using their IRA or 401(k) plan monies before retirement age to buy a business without incurring penalties.
As real estate equity has diminished and lending standards have tightened for more Americans, they have found it increasingly difficult to secure the funds to either purchase a business outright or finance its acquisition.
When buyers use these funds to buy their business, it is similar to buying a publicly traded stock except the privately held business becomes an investment held in the 401(k) plan.
The buyer’s first step is to have a customized C-Corporation established, which then sponsors a specially designed 401(k) plan designed to allow for investment into their new corporation.
The next step for the buyer is to move their existing retirement funds into this new 401(k) plan. The new 401(k) plan then purchases stock in the new corporation. At this point, the new corporation now will be able to buy a business.
Sound confusing? It’s really not, but restructuring a person’s retirement account to allow for a business purchase in this manner does require the services oaf professional skilled in this area.
The benefits of tapping into a retirement fund to purchase a business are numerous.
For starters, since this is structured as an investment into a business and not a loan, there is no debt service that can increase the buyer’s overhead. The savings can be reinvested into marketing, staff, equipment, etc., to help develop the business further.
It also can allow the buyer to offer a 401(k) plan to his or her employees, which could mean more loyal, dedicated and motivated employees to help ensure the business’ success. And finally, these funds can potentially be leveraged with either traditional bank or seller financing to allow for the purchase fan even larger business.