September 2006

Headlines: Fizzling Stock Market Bolsters Non-traditional Retirement Investing | 10 Tips for investing in a Franchise | Non-recourse Lending Made Simple | Why Buy an Existing Business?

Fizzling Stock Market Bolsters Non-Traditional Retirement Investing

By Ryan Myers

Q2 of 2006 saw stocks slog their way through light volume as investors fought through geopolitical concerns, inflation fears and a dramatically slowing Chinese economy. While the stock market continues to thwart investors, the non-traditional investment market is gaining increased market share. Investing IRA and 401(k) funds in non-traditional investments such as real-estate, tax liens, property, or even funding a business or franchise was all but unheard of even five years ago. Today however, baby boomers have the opportunity to generate higher and more secure returns than the stock market can offer. Since 2000, investor participation in such investments has nearly doubled and is projected to account for 20 percent of the investment market by 2015.

Patty Servaes of Massachusetts recently used her 401(k) funds to start a new business. She states that "business has been doing great. I love it. Honestly, without [the company who established my self-directed 401(k) plan] I don't think I ever would have pulled the trigger because I would have been too nervous to take on that kind of debt [using SBA or other standard financing]. This option just really fit with my personality and risk-taking profile."

Patty is just one of many who have retired but want to continue working to further their retirement profile. David Nilssen, CEO and Co-founder of Guidant Financial Group states "non-traditional investments are not securities; however, unlike the stock market they do offer secured returns." Nilssen continued, "with self-directed IRAs you have complete freedom and control of your retirement funds, which can create endless possibilities. After all, no one cares more about your retirement than you do. "

10 tips for investing in a franchise

By Joel Libava

As corporate downsizing continues, investing in one's own business is an option that some area residents are seriously exploring.

With 3,000 different options in the world of franchising, the following tips are a good starting point for those starting the process.

1. Start your exploratory process by looking at what your business skills are. Are you great at sales and marketing, or operations? Are you a manager of people, or would you prefer having no employees?
2. Are you comfortable using someone else's systems and procedures? Remember that franchising is a license that you purchase to have the right to use the system. Don't invest in a franchise, if you won't use the system. Start an independent business instead.
3. Do you have family support? Starting any business is a family decision. Family members must understand that there will be demands on your time, and that they will need to be supportive of your decision.
4. Do a net worth statement. Subtract all your liabilities from your assets. The difference is your net worth. In addition to the down payment required by lenders, do not forget about your living expenses during the start up period. You should have funds set aside for 6-12 months, while your business ramps up.
5. When you find some franchises that interest you, visit and talk to as many franchise owners as possible in those systems. Are you like them? Are they happy with their decision? Would they do it again?
6. Don't rush the research process. Be thorough, and talk to both happy and UNHAPPY franchise owners. Be willing to discuss what you are hearing with the franchise company's representative. See how they react to your questions.
7. Read through the Uniform Franchise Offering Circular {UFOC}. This is the required legal document that will be sent to you by the franchise company. Write questions down as you go, and be prepared to ask them to the franchise company representative.
8. When you have narrowed your search down to one opportunity, visit the franchise company's headquarters. Meet the executive and support teams in person. These are your business partners. A good franchise company is also checking you out. They want the right people for their franchise.
9. When you get back from your visit, go back through your notes, and see if you have missed something. If not, now is the time to have an attorney familiar with franchise law look over the franchise documents. The attorney should point out things you may have missed, and explain both party's legal obligations. You should also have a CPA help you decide on a business structure for your company, if you decide to move forward, and go over financial information.
10. Gut-check time. You have done the data collecting. You have met franchise owners. You have visited company headquarters. Does the opportunity "feel" right? If so, move forward. If it does not feel right, don't do it. There will be other opportunities.

The Ohio Franchise Center (www.theohiofranchisecenter.com) is the first comprehensive Ohio owned and operated franchise website. Inexpensive sponsorship opportunities for franchisors, franchisees, business attorneys, CPAs, lenders, and suppliers to the industry. info@theohiofranchisecenter.com OR 1-800-460-8299

Non-recourse lending made simple

By Katherine Swanberg

My niche is working with real estate investors. I specialize in investment financing. A large part of my job is to accurately set the expectation of my borrowers. My clients are trained to think ‘outside the box' with their financing. Often, my clients participate in boot camps, buying tours or seminars that are taught by ‘investing gurus' over the weekend. On Monday, they call me to inquire about how to close loans in the name of some other entity so they don't have to be on the hook for the liability. This strategy is also called a non-recourse loan.

The first part of the answer to this question is to define what a non-recourse loan is. A non-recourse loan is a loan made to a business or an IRA where the business owner or account holder is not held personally liable for the loan repayment. As a result the liability does not show up on an individual's credit report. It also does not appear on the financial statement of the individual so it won't impact their ability to qualify for a mortgage in the future.

Non-recourse lending appears to be the ideal way to qualify for all of your loans because in the event of default or foreclosure the lender can only look to the property for repayment. The lender can not come after an individual's personal assets, or equity in other properties; however, it is not in the nature of banks to expose themselves to risk  and limit their ability to collect in the event of default. Ideally a lender would like to have a personal guarantee that if the entity or business does default on the loan the lender can then come after the individual for repayment. Because of this fact there are few lenders who have true non-recourse loan programs and those that do will expect a larger down payment.

In order to qualify for a non-recourse loan most lenders will want a minimum down payment of 30% – 40%. This will ensure that in the case of default the property can be sold and the loan can be paid in full. Non-recourse lenders will also expect your IRA or business entity to have enough reserves left to make the loan payments, maintenance, insurance dues and taxes. This is important to note when determining just how much house your IRA can afford. A general rule of thumb is 20% of the loan amount needs to remain in reserve.

In order to qualify for a non-recourse loan your best bet is to work with a mortgage broker. A broker can pre-qualify you one time and then shop on your behalf to find the best source of funding for your IRA's new purchase. This is the most efficient way to put your IRA to work for you.

Katherine Swanberg is a mortgage broker in Bellevue, WA. She can be reached at 425.289.1108 or at katherines@lakemontmortgage.com

Why Buy an Existing Business?

By: Richard Parker

With so many options available to you, the question will become, which vein of the business- ownership arena should you pursue? Between franchises, existing businesses, start-ups, home- based businesses and MLMs, it does become a bit overwhelming. When reviewing all of the possibilities, you have to decide what will work best for you; however, your chances of success are clearly best when you buy an existing business or franchise resale for many reasons. With any new business you have two challenges: developing the product or service and seeing what, if anything, people are willing to pay you for it.

Regardless of a company's past performance, an existing business or franchise will, at the very least, have a history based on which you will be able to make certain decisions. Even if the company was not profitable in the past, your strengths may lend themselves perfectly to turning it into a viable venture. Furthermore, you have the ability to verify what the company did in the past that resulted in the current status of the operation.

Ease of Investigation
In order to buy the right business or franchise, you will be required to do a thorough investigation of its past activities, operations, current status, competition, industry and future potential. Armed with this knowledge, you will then have to determine how the business or franchise measures up with you at the helm. It will be far easier to gather this information from an existing business or franchise than to create projections for new opportunities. For an existing business or franchise, you will have resources available from which to get the details.

Infrastructure
With existing opportunities, you will have the benefit of purchasing a company that has an infrastructure, including customers, suppliers, employees, equipment and systems. This will allow you to focus on building the business as opposed to starting at ground zero, as you would have to with a start-up or new franchise.

Purchase Price Differences
Buying an existing business or franchise does not necessarily mean that you will have to pay more. In fact, many times it's less expensive than building a new franchised location or launching a start-up. Even in those cases where it may require a premium, you have the advantage of knowing what you are getting, if you investigate it properly. With a new franchise, a good master franchisor will do demographic studies on population, drive-by traffic, potential customer base and a whole series of studies that will indicate that, theoretically, the business should do well; however, the only thing they cannot guarantee, either by law or in reality, is whether or not you will be successful. In addition, new locations can take a year or more to build. You can avoid all of this when buying a resale.

Flexibility in Negotiating
You will have far more flexibility when negotiating the purchase of an existing business or franchise versus any other options available. Everything from the purchase price to financing is open to negotiation when you buy a resale. Doesn't it make more sense to put yourself into an environment where you have the greatest number of options available?