Financing a Business with Retirement Funds

Q: I’d like to buy a business but most of my funds are tied up in a rollover IRA. Is there any way to use those funds for a new business?


A: Yes, you can invest your retirement account funds in your own business. This can help get you off to a good start by building equity and reducing the need for debt and cash flow. These are important factors for the long-term success of your business.



Funding a small business through the use of retirement plans is ever more prevalent in today’s economic environment, as bank loans and other sources of capital have become more difficult to obtain. It can be attractive for individuals who have suffered from downsizing, closures and lay-offs or who have just retired early.



This type of self-reliant funding is available to just about anyone who has an existing retirement plan and who has terminated employment with the employer where the funds were accumulated or for someone who just has an IRA. The money invested through a properly designed retirement plan can be used to fund the start-up of a new business, purchase a franchise, purchase an existing business, and in some instances, raise capital for an existing business.



The process calls for the assets in your existing retirement plan to be rolled over – tax-deferred and penalty-free – into a newly established qualified retirement plan for you and your new company’s employees. Then the new IRA assets can be invested in the stock of the new company as well as mutual funds, individual stocks and other types of investments.



At the completion of the process, your new company can raise cash from the sale of stock to the retirement plan which in turn holds company stock as a plan asset. The cash can be used for legitimate investments in the business or to pay legitimate business expenses.



With this type of funding, it’s extremely important to consult with a firm that specializes in retirement plan design and administration. As with any qualified plan, compliance with rules and regulations is critical.



Business financing of any kind comes with risks – the risks inherently associated with opening a new business or purchasing an existing one. Before you decide to use your retirement funds, or any other type of financing for that matter, you should ensure that you have a viable business idea, a comprehensive business plan, adequate capital, and the consultation of small business professionals, like those at SCORE, who can provide advice and guidance for your new venture.

The Value of FREE

I had an interesting discussion last week with an exhibitor at the SOHO business conference and trade show in Vancouver. Specifically, about the lack of promotional pizzazz being shown by the exhibitors.

My friend’s company was giving away free product to anyone who visited the booth. It offers a service that people may use twice to 20 times a year, and it has extra inventory, so why not? Sampling is a time-honoured technique, good not only for getting prospects used to consuming your product, but also to attract people's attention in any competitive marketplace, such as a trade show.

Ever notice how trade show attendees usually avoid eye contact with any sales people in the booths? That’s because they see no value in initiating any sort of relationship with you. It’s a lack of interest, lack of trust, and unwillingness to explore the ROI they might gain by doing business with you. All because you have not caught their eye by offering any obvious, easy-to-grasp VALUE.

So how do you overcome that? Offer something free! Not just a cheap knickknack for stopping by the booth (“How many free pens do you need?” asked my friend), but a real, knock-their-socks-off FREE offer that presents real value – and an acknowledgement that in today’s ultra-competitive markets, prospects are doing you a big favor by even considering your wares.

They say people are exposed to 3,000 marketing messages a day (or about a million a year). We all feel like the quarry in a fox hunt, being chased through the woods and hounded to death. You have spent a lot of money to be at this trade show: show your prospects a piece of that. Give them an offer (something free, or a whopping introductory discount) that reflects their true value to you.

It’s not just a cost of doing business. It’s the price you pay to be noticed and trusted.

A Strategy for Beating Burnout

Q: I’ve worked hard for several years to build up my business, but the long hours, missed weekends and pressure-packed deadlines are wearing me down. What can I do?


A: There are a great many rewards in running your own business. But you must also be aware of the trade-offs and sacrifices that come with being in charge. Over time, the stress and strain may take their toll on your physical and emotional health, affecting relations with your employees, family and friends as well as impacting your business. Fortunately, there are many good ways to keep business burnout at bay.

First, identify those responsibilities or activities that are causing the stress. What aspects of running your business regularly cause discomfort or even anxiety? Perhaps you dread mundane tasks like bookkeeping and filing reports, or having to make sales calls. You may have customers who are difficult to work with, or do not pay invoices on time. And, because you are responsible for everything your business does, you may find yourself obsessing about things beyond your control.

One cure for an overburdened mind is to shed some of your responsibilities. Members of your staff with specific skills or leadership potential may be good candidates to take on certain functions. Consider using a company that specializes in offloading the administrative work of businesses. If you’re a solo entrepreneur, it may be time to hire your first employee or outsource to a part-timer.

Schedule some “me” time and stick with it. You follow a regular maintenance schedule for your equipment, so why not treat yourself the same way? A monthly lunch get-together with colleagues and designated family nights are great ways to get your mind off business issues and reconnect with the people who matter most to you. Even a quick walk around the block will do wonders to refresh your mind and spirit.

Sometimes, problems or challenges aren’t the cause of burnout; it’s the lack of them. Look for new challenges to stimulate your interest and energy. Recapture the thrill you experienced when starting your business by considering expanding or enhancing your products or services. Make sure you plan staffing and resources to support any new venture, however, so you don’t unnecessarily add to your workload.

Seek advice from experts, mentors or experts. Many sources of burnout are common to entrepreneurs and you can learn much from their experience. SCORE offers many valuable resources to help you resolve your small business dilemmas.

Make sure customers always win

Q: I know that customer service is vitally important to my business. But how do I go about making good customer service the way we do business?


A: No matter what you’ve heard, the customer isn’t always right. But that doesn’t mean you should be the one to tell him. A better line to live by might be, “The customer always wins,” because if the customer doesn’t win, he doesn’t come back—and then you lose!


Linda Novey-White, international customer service consultant and former SCORE director, believes you should establish a customer service standard that depends on your particular business. Is your core value that the customer always walks out of the door happy, or is it that the customer always gets the best product even if he doesn’t want to pay for it? Those core values are your customer service standards. But whatever those standards are, they should be designed to engender loyalty with each customer who comes in contact with your business.


Novey-White says, “Once you know what the standard is, you have to manage to that standard. The business owner has to be the evangelist for the customer service standard and also its chief enforcer.”


If customer service is important, it’s not enough to say so. The business owner has to be prepared to hire—and fire—based on customer service performance. Customer service should be foremost in annual evaluations, and it should be attached to measurable goals.


If you want to improve your customer service, benchmark it against others in your industry. But if you really want to vastly improve customer service, compare it to others outside of your industry. You might learn a whole new creative process for implementing customer service if you go outside of your industry.


You should be evaluating your customer service on an ongoing basis. Don’t wait until evaluation time to set an employee straight—your customers won’t wait to find someone else if they’ve been disappointed.


It’s not enough to train your employees in customer service. The reinforcement has to be ongoing. Some of the best ways to do this are to let the customer help. One hotel distributes tokens to guests and encourages them to hand the tokens out to employees who have done an exemplary job. Those tokens can later be redeemed by the employees for merchandise. Another company used evaluation cards as the basis for days off for employees who consistently rank high in customer evaluations.

Corporate refugees can make good small business owners

Q: I’ve been working in a large corporation for a long time and now have the opportunity to terminate with a severance package. I’m considering starting or buying a small business but how do I know if I can or should?


A: Many people in similar situations these days are wondering the same thing. Not only are the newly unemployed looking for business opportunities, others currently employed are seeing “the writing on the wall” or “just don’t like” what they observe going on in their workplace. They all need income replacement and seek investment opportunity. Going into business for themselves might just be what they need.

First, people coming out of corporate environments are usually better suited for small business ownership than they may think.

Many skills do travel from one environment to the next and experience working with big companies has some advantages. Training is an important one. Sales courses, budgeting classes, management seminars and other learning experiences are standard offerings at most large corporations.

Big-company employees may have industry-specific or technical experience that they can build a business around, if they can handle all of the other responsibilities of running a small business.

Corporate refugees normally have learned how to execute, plan and budget. If you’ve had management or supervisory background, then you’ve had the chance to develop organizational and time-management skills.

But refugees from big businesses could have some weaknesses. One is a desire or expectation to earn more than is realistic especially at the beginning. The monetary benefits of owning a privately-held business often arrive after the business is well established.

Some corporate employees are specialists--unable or unwilling to perform the kind of multitasking that is second nature to successful small business owners. Corporate executives sometimes are not ready to roll up their sleeves and do whatever is necessary to get the job done.

Most corporate employees don’t have experience managing cash. Someone else paid the bills and received the money. But in most cases small business cash management is much like managing your own personal bank account.

Risk taking is something some refugees can’t come to grips with. They’re used to a steady salary whatever the business conditions. Not having that guaranteed income can be uncomfortable.

So, if you’ve been “downsized for the last time” or are ready “to take control of your own destiny” speak to a SCORE counselor or attend a SCORE seminar for help in getting started.

First-rate customer service truly stands out

Aug. 22, 2009, 1:48AM

Q: I know that businesses that provide good customer service usually have more repeat business and therefore greater sales than those that don't, but how do you go about doing that?

A: It's the businesses that personalize their customer service that gain the most customers who come back.

Linda Novey-White, former SCORE board director and international hospitality consultant, says: “Never let your client forget who you are. You want to use every method possible to keep yourself in the front of their minds.”

One way is to send a news clip that you think might be of interest to the client, even if you don't have a current contract with that customer. The next time the client needs some work, you may get a call. Another way is to write thank-you notes once a job is done. Handwritten notes stand out from the crowd. It can pay off.

Make it your business to find out your customers' special occasions and send cards or flowers to let them know that you care. Your competition may have a product that is similar to yours, but with personalized customer service, you can distinguish your company.

You need to give your customers something of extra value if you want them to return, Novey-White says.

Try giving them more than they paid for. If you have a product to sell, customers should perceive that it has a greater value than the products offered by your nearest rival. Look at your business like a customer would. What could you be doing better and what is your competition doing better?

It's not enough to meet your customer's needs. You have to anticipate them. Think ahead to what the market is going to be demanding next year and determine what you can do better a year from now. Businesses usually proudly state that their core concept is to exceed expectations, but they neglect the founda-tion of meeting those expec-tations in the first place.

Novey-White says the two top mistakes people make in customer service are not delivering and not listening.

First, deliver what you promise. Delivering a product or service that disappoints is the fastest way to lose your customers.

Second, remember to listen. Too many businesses advertise the next big thing without considering whether their customers want a next big thing. Your customers will tell you what they really want — if you really listen.

Why buy a failing business?

Aug. 8, 2009, 1:41AM

Q: A friend has suggested that we consider buying a business that is failing. Why would we ever want to do that?

A: A failing business might present an attractive investment opportunity for any number of reasons. When businesses for sale are failing, i.e., they have low or negative cash flow to the owner, you need to look under the cover to see what's really going on in the business.

The reasons the business is struggling could be correctable by the right buyer. And, if that's the case, you need to make sure that what you are buying, with the necessary adjustments, will fit into a business plan that you believe will be successful.

Actually, the evaluation you should conduct is not much different than if you were considering buying a business that is profitable. You may find that the strong earnings of a successful business are based on factors that are temporary or depend on skills that you don't have or are difficult to acquire.

A business may be failing because of owner mismanagement. Perhaps the owner doesn't have the marketing skills needed to boost sales or maybe is not managing inventory in a cost-effective way.This could create an opportunity for a motivated buyer with the capability to properly manage the business.

The owner may just be burned out and may not have the energy to make the adjustments needed to improve the business.

For instance, an owner I visited recently has been running his business for a long time. His market has changed, but he doesn't want to make the investment in time and money to advertise and take orders over the Internet even though the rest of his business infrastructure will support this. Again, this could be a good opportunity for the right buyer.

Sometimes early-stage businesses fail because they run out of cash and can‘t raise more capital. This can happen even though their sales volume is growing nicely and can reasonably be expected to continue to grow. But a seller may have a long-term lease or a loan payment that he or she can't support any longer.

A buyer with the financial resources and the know-how can treat the business as a startup but with a head start, thereby avoiding many of the headaches entrepreneurs normally encounter when starting from scratch.

Of course, your evaluation may discover that a business is failing for reasons that can't be easily resolved. In this case, you just keep looking for that good investment opportunity. There are many of them out there.