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401(k) business financing (formally known as Rollovers for Business Start-ups or ROBS for short) is a viable but complex financing solution. Because of this, it is important to select a company with some significant ROBS experience. Here’s what you should keep in mind when choosing a provider.

Choosing the Right ROBS Provider for You

Choosing the right financing firm to help you complete the Rollovers for Business Start-up (ROBS) transaction can seem overwhelming, but there are some key questions to ask to help guide you in your hunt. By doing your homework early on, you can identify the provider that will support you and your business before, during and even after the ROBS process. Not to toot our own horn, but this is something Guidant Financial prides itself on providing as a key differentiator over our competitors.

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Questions You Should Ask Every Potential ROBS Provider Before Making Your Final Decision:

How experienced is your firm?

You want a ROBS provider you can count on to provide accurate and efficient results. Aside from the number of ROBS transactions the firm performs each year; you should also assess their business history to ensure they have a solid reputation. The firm should have a 10+ year track record of ROBS success and be recognized as a leader in the industry (look for awards and honors they’ve received to back them up). The best firms perform more than 1,000 rollovers per year and employ subject-matter experts who can provide advice based on their experience working with entrepreneurs.

Experienced firms will help to ensure you meet the five pillars associated with a ROBS arrangement and work closely with legal and tax professionals to minimize the risk of creating taxable events or any other IRS infractions that may result in a taxable distribution.

What are your costs?

You shouldn’t encounter any surprises when working with a ROBS provider, so look for transparency in pricing. Make sure the firm provides audit protection, as well as in-house legal, outside counsel, business valuation and plan administration services as part of their costs. Most providers charge an initial setup fee of around $5,000, which includes creation of your new C corp and 401(k) plan, as well as guidance on completing the rollover itself (they will not roll over the funds for you or have access to your retirement funds at any time during the process). Providers also charge a monthly fee between $100 – $140 for ongoing plan administration, which includes annual reporting and testing, as well as ensuring your 401(k) remains compliant with IRS standards.

Don’t forget — you get what you pay for. Do you want a provider to only complete the ROBS structure setup, or do you want more support for your business? If you decide to pay less upfront, the cost to your business could be steeper in the end.

What’s your ROBS process/timeline and can the process be expedited?

The firm you choose should detail their ROBS process upfront, provide a reasonable timeline and complete the transaction on time. They should also be able to review state filing timetables and be familiar with how your current 401(k) custodian could affect the schedule. Most rollovers take about three to four weeks, but an efficient firm can expedite the process if needed.

Firms that guarantee they can complete the ROBS process in 10 days may sound enticing, but they often aren’t able to follow through on that promise as every transaction is unique to the individual.

Have any of the firm’s ROBS transactions been audited by the DOL or IRS? If so, what was the outcome?

While the number of 401(k) plan audits is in no way representative of the firm’s reputation, a trustworthy firm will stand behind their clients in the case of an audit. They’ll pay for their client’s legal representation if an audit does occur and will have a spotless audit record (meaning no taxable event has ever occurred as a result of a ROBS arrangement).

A firm with no history of audits may sound preferable, but it could be a warning sign of inexperience as the IRS does naturally audit retirement plans from time to time. In fact, you’d be better of selecting a firm who has experienced audits, as it means they understand the process and their ROBS structure is sound in the eyes of the IRS and DOL.

Do You Have Access to External Legal Counsel During the Rollover Process?

Investing part or all of your nest egg into a small business is a big decision – and not one to take lightly. Look for a ROBS firm that encourages you to seek outside legal representation who can provide unbiased advice. Better yet, seek a firm that offers this outside counsel as part of their rollover package.

Most firms will offer internal legal counsel, but it is key to get an outsider’s opinion to be sure you have your bases double checked from internal and external representation.

Will They Help You with Ongoing Maintenance of the 401(k) plan?

The ROBS arrangement requires monthly maintenance to keep your new 401(k) plan compliant with the IRS. Most ROBS firms offer plan administration services, but look for one that employs an in-house plan administration team, in addition to an on-site compliance crew and attorneys. Having these teams in-house results in a better customer experience, faster response times and a higher likelihood of a catching any issues that will show up down the road with the IRS.

Quite a few ROBS providers have begun to completely outsource their plan administration services because of the complexity that comes with the administration of unique retirement plans. While it helps those providers eliminate the burden of supporting their client’s plans, it can result in more headaches for you, the plan administrator, because the outside firm they send you to won’t be familiar with your business. It’s important to find a ROBS provider you can trust all the way through the process and the challenges that come with keeping the plan in yearly compliance. You want a provider that’s doesn’t send you away, but rather stays by your side throughout the life of your business.

The 3 Unique Levels of Risk Protection at Guidant Financial

If you choose to work with Guidant Financial as your ROBS provider, you will have three levels of risk protection working for you. Our unmatched risk management principles allow us to have the lowest audit rate of any ROBS provider in the industry.

These are defined as:

  • Internal legal counsel from Guidant’s award-winning legal teamOur in-house team of attorneys will help make sure your business meets the five pillar requirements for the ROBS arrangement.
  • Outside Legal CounselUnbiased representation from a third party legal expert to verify we got it right. Time with Outside Counsel is included in our initial setup fee.
  • Audit ProtectionWe stand behind our clients 100 percent in the event of an audit of your 401(k) plan and cover the legal costs for representation. We boast a spotless audit record, which means no taxable distribution has ever occurred as a result of our ROBS structure. You can rest assured we’ve got you covered, so you to get back to what’s important – running your business.

The Importance of Trusting Your Gut

Above all, the company you pick to help you complete your ROBS transaction should leave you feeling confident. They should provide exceptional customer service and be available to answer your questions quickly and thoroughly. Your peace of mind is important and no one should have to be sold through pushy sales tactics or gimmicky videos. You should feel educated about the process and know you have a partner on your side.

Now that you know more about choosing the best ROBS provider for your business or franchise, you’ll be one step closer to realizing your dreams with a company you trust behind you.